XavierMike

IGN Gear had a new article up critisizing Toshiba's commitment to HD DVD. I think they are being too critical, but I wanted to get everone's thoughts.

http://gear.ign.com/articles/715/715613p1.html

sao

What do you expect from IGN they are a unit of Fox Interactive Media

Supermallet

Even if they weren't a unit of Fox, I don't know anyone who takes them seriously.

mbs

Even if they are biased (as others say), they make some good points.

The most interesting part to me was the idea that Toshiba was taking a $200 loss on each HD-DVD player sold. If true, that is certainly a first.

But indeed, Toshiba could be leveraging their "foothold" in the market more. They beat Blu-Ray by months and Blu-Ray currently looks like crap. It's either do or die time for Toshiba and (IMO) time to start making some noise.

Spiky

Bizarre article that didn't really say anything. Plenty of chatter for nada. I guess they think that the below-cost pricing can't work outside of video game consoles, that's fine for a premise. But they could've said it in 2 sentences and skipped the rest. It also pointed out that Tosh is still willing to talk about unification, but that is where the underdog has to be and Tosh is still in that position. And, frankly, Nishida could just be blowing smoke to win favor with manufacturers and studios.

Guess there's just nothing to write about in the war.

wewantflair

What I find humorous about the cost analyses from these places is that they take the retail price of 499 and subtract it from the supposed cost of 700, leaving a loss of 200 per unit.

There are certain vendors who are buying their Toshie's for under 400 bucks. Adding in freight costs, and Tosh will supposedly be losing more than 300 per unit, for a total of about a 9 million dollar loss just in hardware sales alone for their first 30,000 units (a number Tosh claims right now).

Let's say, for the sake of argument, that Toshiba really does lose 300 bucks per unit, and really did ship 30,000 units. What they did was essentially pay 9 million dollars in advertising that their technology currently stomps the shit out of Blu-Ray, which, all in all, isn't a terribly large number. Considering that most analysts agree that costs for round 2 of Toshiba's player will be significantly reduced, and we can see that this is actually a rather paltry sum on a grand scale (and I rounded high intentionally - the loss could actually be under $5 million).

So I ask: what's the big deal, really?

AndyCleveland

good point.

Grubert

And it would have been a really good strategy, if everything had gone according to plan.

Indeed, Toshiba planned to do the real, hard launch in the Autumn with a 'proper' player, based on a SoC (system-on-chip) processor, and less costly. However, there have been delays with the delivery of said chip, and it might not be ready until late 2006/early 2007. Which means that they'll probably have to go all out with the current, money-losing design. And here's another problem: Intel built a limited run of the Pentium 4 processors, because they wouldn't be needing more than 70,000. But now they haven't any more left, so Toshiba has to reengineer the player only to use a newer Intel processor.

If we add to that the sales objective of 600,000-700,000 players Toshiba set for the end of March 2007, it follows that they'll incur losses of more than $120 million. And they stand to gain a lot less than Sony with its own pricing policy.

wewantflair

I think we both know that Toshiba can't, or won't, manufacture 6-700,000 players at a loss of 2-300 per player. With costs dropping literally by the month on these parts, I would imagine that Tosh is hitting break even or even slightly below break even yields at this point, and this will only get more favorable in time.

It will be very interesting to see what comes from the Toshiba camp in the next few months.

bboisvert

In what way would that be a 'first'?

mbs

I'm not aware of any other consumer electronics products sold at such a loss (excluding video game systems, of course). $200 loss per unit (on a $500 unit) is a pretty steep loss when they don't have a model like the video game consoles (where they'll easily make up the losses with software).

Note: I'm not saying it isn't a bad idea, just that I've never heard of anything similiar with similiar products (such as a DVD player sold at a big loss).

jiggawhat

I can't believe this $200 dollar a unit loss that they are taking. For all the things inside, it doesn't make sense.

PerryD

I think all this talk about taking a loss is getting over-reported. The website was approximately guessing on what Toshiba pays for the internals of the unit, but the prices that manufactures pay for components may be a fraction of what we pay at retail. Look at how Apple can negiotiate with Samsung for SRAM for their iPod Nanos. No one suggested that Apple was taking a $100 loss with the 4GB Nano due to the retail pricing of SRAM back a year ago.

And even if each unit is taking a loss for Toshiba, again this isn't a new idea to gain marketshare against a competitor. $500 is a very competitive initial price, and perhaps they knew that within a couple months, they don't take a loss anymore due to the massive price drops that components like the CPU make.

bboisvert

Cell phones follow a similar model -- lock you into a longterm contract and give away the phone.


This seems the same to me... subsidize the cost of the machines and increase the need for software to run on it.

mbs

Except there is no contract here. If (a big if, IMO) a $200 loss per unit is true, how likely is Toshiba going to make that up on their portion of the HD-DVD royalties. It isn't like royalties would reach close to $1 per disc... and how many people (J6Ps) are going to buy >500 HD-DVDs...

I doubt the loss per unit is really $200, but if it was, I don't see how they would plan on making it back. Unless they don't care and just want to win the damn war (which could be the case).

bboisvert

Valid points. But (and you touched on some of this):

1. the math on that $200 loss is wobbily, with a lot of assumptions. It may be less. And it will most definitely continue to decrease as production increases.

2. While $200 per individual may seem like too much to win back (and it probably is if penetration doesn't increase dramatically), that becomes almost trivial if they do crush blu-ray and win the war. Then, all of the fence sitters (and, speaking as one, there are LOTS of us) will buy HD-DVDs. And, in a few years, you get all of the J6Ps.

If HD-DVD ultimately wins and HD-DVDs start selling at even a fraction of standard DVD levels... well, that'll make a $200 (or whatever) loss on a few hundred thousand machines seem pretty darn insignificant.


It's definitely a gamble, but I think it's one that makes a lot of sense. Certainly more sense than what the competition is doing -- releasing hardware at twice the price.

Spiky

Keep in mind Sony has spent quite a bit on BD, too. While we don't seem to have any reports that the current players are actually going to take a loss, the massive amounts of R&D and manufacturing startup costs must be spread pretty thin to make that true.

Accounting is semi-fictional. Toshiba's supposed $700 cost is a number somebody made up one day. If HDDVD were to fail tomorrow, suddenly cost would be much different. And if they were able to sell 5 times as many as projected in 2006, $700 would suddenly be high.

Dead

I'm under the impression that some of the printer manufacturers use a similar strategy.

Ghery

http://www.itwire.com.au/content/view/4817/53/

HD DVD losses false, unification makes sense says Toshiba exec
By Stan Beer
Friday, 30 June 2006
Reports that Toshiba is selling its HD-A1 high definition video player below cost are false, according to a senior executive from the company. What’s more, the executive claims Toshiba is still firmly committed to the view that HD DVD technology will prevail over Sony backed Blu-ray, despite suggestions that the company is wavering.

Earlier this week, technology analysts estimated that the HD-1, Toshiba’s first HD DVD player, costs about US$700 to produce, suggesting the retail price of $499 is $200 below cost and thus unsustainable. In addition, a speech by Toshiba’s president Atsutoshi Nichida called for the unification of the two competing formats were seen by some as indications that the company is wavering in its commitment to the HD DVD format.

Mark Whittard, general manager of Toshiba Information Systems Division in Australia, says that Toshiba is making a profit on sales of the HD-A1 and is still firmly committed to the HD DVD platform.

“My understanding is that the price is set to make a profit. We’re not in business to lose money,” says Whittard. “The audiovisual market is tough enough without reducing your prices to an unprofitable position when there’s no competition at the moment. The direction from Tokyo is that we have to make a profit.

“The only time when Toshiba ever sells technology at a loss is in a competitive environment where we have to and it’s a necessity. Then we work aggressively to find a way to reduce the cost and be more competitive. I could not understand a business position where they would be pricing HD DVD players in the market and selling them at a loss when there’s no competition. I know Toshiba and that’s not how we do business.”

So how will Toshiba compete with PS3 players equipped with Blu-ray players which sell below cost but are able to recoup losses on games sales?

“I imagine that we would stitch up relationships with most of the motion picture movie companies and package it up that way,” says Whittard. “Also there will be a lot of third party companies that will rebadge HD DVD and bring it to market. That’s how we made money on DVD which we invented. We still make a royalty on every DVD player in the market today.”

According to Whittard, recent statements by president Nichida calling for unification of the two competing high definition technologies are not signs that company has weakened its commitment to HD DVD.

“Internally that’s not how it is viewed,” Whittard says. “It’s just good common sense. Whenever there are two competing technologies in the marketplace, in the end it just confuses the market so you can’t maximise on the opportunity from the business. There is a lot of debate as to whether there is room for two formats in the market or whether it really does have to consolidate to one.”

But what does consolidation actually mean?

“Toshiba believes that HD DVD format is the strongest overall package for everyone in the marketplace but there are some good technology strengths on the Blu-ray side as well,” says Whittard. “If you look at it from Sony’s perspective, Blu-ray is a very important piece of technology. However, Sony may not have any choice if HD DVD gets traction and momentum in the marketplace and there’re a number of reasons why we think it will.

“I think some of the things that are really driving HD DVD in a lot of these format war discussions are the fact that Intel has said that it supports HD DVD, believes that it’s going to be the format of choice and supports it in the Viiv platform going forward. Microsoft has also committed to supporting it natively in Vista and Xbox. Even HP has done a back flip back in December and supported HD DVD because it expects the cost of Blu-ray to be unreasonable. They’re three very big IT players. Also, most of the motion picture companies who initially supported Blu-ray now have a foot in both camps.”

digitalfreaknyc

oooh...what does THAT mean?

Ghery

Lot's more good releases I'm hoping.