And the winner is Sony’s Blu-Ray: the high definition DVD format war

ITP800: Technology Commercialization

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Course Offered by:Prof. Munkee Choi

Assisted by:Stephen Bitris

1. What does this case tell us about whether or not it is the best technology and or not being the first in the market that determines the winner of these product format battles?

● Even though technology and first mover advantage has a great role to play in winning the format, one cannot say

categorically that being the first market entrant or having the best technology determined the overall winner of the

product format battles. However, there are several analytical factors that gave the winner the competitive edge

over others in the battle for supremacy. For example, the HD DVD supported by Toshiba, even though had the

same dimension and standard with Sony’s Blu-ray, conceded defeat in 2008 in a competition with Blu-ray. Also,

despite Sony’s technically superior Betamax video format, it lost out to VHG of JVC when they went head to head

in the 1980s.

● The invention of VCR in 1956 is another interesting case. Even though Ampex Corporation was fast and first to

launch magnetic tape video recorded, it couldn’t commercialize the product due to its expensive price tag. As a

panacea to this situation, Sony took the first mover advantage by releasing its home version use Betamax. Sony

was so confident about its technology and superiority of this product. However, it later realized that technology

and its first mover effect may not be the only considerable factors but also marketing, licensing and most

importantly consumer presence such as the $60bn porn industry in the San Fernando Valley.

2. Illustrate some other business sectors where different formats co-exist and some where a single format is preferred

● Despite Sony’s decision to incorporate Blu-ray playback format into PS3 seems

victorious and culminated into the next generation of HD-player, it would have recorded

a colossal success if Sony had coexisted by incorporating Blu-ray into Apple’s computer

drive, thereby shifting Apple’s attention from concentrating on movies delivered across

the internet.

● On the other hand, when google released its high-quality webM video format royalty-

free to the web, this left the digital video publisher with the dilemma of having to choose

between joining Google’s royalty-free format or the more expensive H.264 industry

standard. The eventual coexistence of google format and H.264 standard led to the loss

of $133m buyout on the two technologies on the part of google.

3. Use CIM (figure 1.9) to illustrate the innovation process in this case

The Sony Blu-Ray case can be explained using CIM

innovation Model.

- Due to rapid technological changes and fierce

competition in the market Sony had to continuously

introduce new products into the market based on

technological market research

- Development of a high definition Blu-Ray DVD different

from other competition

- The product was differentiated from other competitors

because it had a higher storage capability

- Continuous market transitions in the media industry and

need to keep up to date

- Sony entered into strategic alliances with influential

partners in the industry and licensing to secure a

market for Blu Ray

4. Why was the PlayStation the first bluray player and subsequently when Blu-Ray players were launched, why did PlayStation remain cheaper. Consider possible reasons for this

● The PlayStation was the first Blu-Ray player in the market which featured the ability to play Blu-ray disks to help it retain a higher market share. This gave Sony an upper hand in the market since its PlayStation 3 games console had an inbuilt Blu Ray Player increasing its sales with 10 million Blu ray units sold compared to HD DVD’s 1 million players. The PlayStation remained cheaper when other Blu-Ray products were introduced because Sony wanted to:

● To build their market share● Build Blu Ray brand to cater for the games market● Potential entry strategy to the gaming industry● Sell and build their brand around the feature in the 1st PlayStation which is

the ability to play games

5. What additional factors helped Blu-Ray win the battle? What role did licensing and networks play in the relative success of each format?

● In order to ensure eventual success of Blu-Ray prior and after the launch of this format Sony acquired a number of film studios such as 20th Century Fox, Buena Vista Home Entertainment, Electronics Arts, and MGM studios amongst others. Blu-Ray has more acquisitions compared to HD DVD.

● It was also rumoured that Sony was paying some studios large sums of money to stick with its Blu-Ray format.

● An extensive network both formal and informal by Sony helped it to win the battle including listing of associate members of each board. Blu-ray had a longer list of members and interested parties.

● Ownership and partnership of film studios helped Blu-Ray to take advantage of the market of adult entertainment.

● Extensive licensing and strategic networking in this case helped Blu-Ray to develop a market presence for its product and ultimately a higher market share

6. What related industries contributed to the format war and how did they influence the outcome

● Related industries that contributed to the format war include the electronics industry, standards making bodies and ponography industry. VHS emerged as the winner in this war.

● Lack of a defined standard led to the development and co-existence of different formats in the market. For survival market players such as Sony, Phillips and JVC depended on the superiority of their technologies over the other

● JVC’s broader licensing policy in comparison to Sony’s insufficient licensing helped to increase its market share. JVC licensed its technology to big consumer electronics companies like Zenith and RCA that had a significant market presence in the United States. This led to the availability of more VHS machines in the market and they became affordable hence a higher market share for JVC. This had a massive impact on the outcome of the format war.

● The adult entertainment industry also have a major impact on the format war due to its enormous market size. Porn studios’s decision to use VHS heavily influenced the outcome coupled with greater availability of VHS machines and increased availability of content.

7. With the increasing popularity and use of downloading films what influence will the DVD format winner play in this related battle ?

● It will be difficult to compete with the increasing popularity of downloaded media.

● DVD Format winner will have to be the one setting the standard of media quality. According to the case study, downloaded films have limitation on the quality.

● At the same time, the speed to publish movies is also important. As DVD format winner already settled agreement with most movie industry, it supposed to become the first one to publish movies.

8. What are the implications for innovation strategy, R&D expenditure and marketing for firms engaged in or likely to be engaged in a format war?

● A combination of Innovation strategy, R&D Expenditure and marketing will have big implications to firms that decide to participate in a format war.

● Innovation strategy will take roles in which a firm can decide to do incremental or even radical innovation of media format. This kind of strategy will eventually lead to whether a firm can be successful or failed in winning the competition.

● R&D Expenditures’ role is to set the pace of development of the new product. The more expenditure is allocated does not lead to winning the competition because there another factor that has to be considered.

● Marketing is very crucial in format war. As we can see in this case study, both Sony and Toshiba are racing to get business agreement from TV Industry players. Not only aiming at big companies, Both Sony and Toshiba also trying to win customer segments.

9. List the key factors that seem to determine the eventual winner in industry format wars. Divide these into primary and secondary factors.

Primary Factors :

Business Agreement with Bigger Industry players

Effective Licensing of technology

Marketing

List of networks

Buy in and support from the industry

Secondary Factor:

Technology advancement

Chapter 7 Discussion Questions

1. Explain why the car industry seems to have so many strategic alliances

● A strategic alliance is a business arrangement in which two or more firms cooperate for

their mutual benefit. It can also be said to be an agreement between two or more partners

to share knowledge or resources, which could be beneficial to all parties involved.

● Automobile industries today engage in so many strategic alliances which affect all level of

business processes within their supply chain as a response to economic pressures, fast

technological changes, powerful customer demand and other issues which influence

drastically on corporate strategy of the industry.

● For example, the strategic alliance among the three consortium – Renault, Nissan and

Daimler, resulted in a combined benefit of about $5.3bn. Thus, the increasing market

competition, reduced product life cycle, high capital investment cost, the increasing

demand for innovation and high technologies, among other external factors.

1. Explain why the car industry seems to have so many strategic alliances

● Also the car industry have realized that alliances allow not only for exchange of

technology but also for the exchange of skills and know-how often referred to as

competencies, reduced R&D costs shared risks and liabilities, marketing strength etc.

For example, General Motors used its joint venture with Toyota to learn about lean’

manufacturing practices.

● Similarly Thompson. The French consumer electronics group, relied on its alliance with

JVC, from Japan, to learn to mass produce the micromechanics subsystem key to

successful videocassette recorder production.

2. What is meant by ‘leveling out of knowledge’? How can firms prevent this happening when engaging in strategic alliances

● In the globalized business, companies require strategic thinking and only by evolving

good corporate strategies can they become strategically competitive. A sustained or

sustainable competitive advantage occurs when firm implements a value – creating

strategy of which other companies are unable to duplicate the benefits or find it too

costly to initiate. This is known as levelling out of knowledge and experience.

● Firms can prevent others from taking this undue advantage of their innovation under a

strategic alliance by clearly stating out the area of collaboration and cooperation. For

example, Daimler, the German carmaker had an unhappy history with the America’s

Chrysler which cause them great financial loss over a nine year period due to an

unclear area of cooperation.

3. Considering the case study, discuss some of the wider strategic reasons why firms may wish to enter strategic alliances

● Firms enter into strategic alliances in order to:○ Expand their market share by strategic partnerships with the film industry○ Get buy in for partners to push their product to the market such as

partnership with electronic companies like Zenith and RCA by JVC○ Better relationships with strategic partners ○ Standardisation for example Sony licensed their Blu Ray product to other

manufacturers to help secure industry standard over Toshiba’s HD DVD○ Use of distribution channels

4. Apple seems to have many strategic alliances and supplier relations. Discuss the extent to which these contribute to its success

● Strategic alliances by Apple contribute to its success as they have helped Apple to develop new technologies and stay ahead of their competitors such as Samsung and others.

● Strategic alliances have also led to Apple’s product differentiation helping it stay ahead of the competition and retain a higher market share. Supplier relations led to cheaper production and high quality and to strategically share development costs.

● Apple’s strategic alliances has helped it to maintain technological competence up to date. Apple was able to identify top-tier alliance partners with the strength, stability, and experience to help their product grow and success globally.

● Apple’s strategic alliances is based on mutual trust to avoid their product recipe including research and development from being leaked to competitors

5. Explain some of the risks involved with all strategic alliances

● From Cooperation to Competition○ No agreement that can limit that alliance will not lead to competition.

Since both sides will have access to the same resources and knowledge, it is very possible that the relationship shifts to competition. Please keep in mind that each sides will always seek for ways to survive in the market stay the same or even bigger.

● Partners Lack of Performance○ Before deciding with whom a company will create strategic alliances, it is

important to thoroughly analyze and learn the quality of future partners. Risk such as low quality performance, financial difficulties, failure in delivering product or services can be major threat in the business late ron. Another risk similar is the incompatibility of working cultures and objectives. Therefore, it is important to carefully go through each characteristic of future partners.

6. Explain why the repeated game of the prisoner’s dilemma is considered to be more useful in predicting behavior?

● According to research implementing game theory, the prisoner’s dilemma can catch the issue of trust in strategic alliance.

● In the prisoner’s dilemma,no matter what other party does, both are better off if they confess.

● If trying to relate this with strategic alliance, a knowledge that each parties has when repeating the game will resulted in different outcomes.Options will be more likely to be different therefore the outcomes will be different significantly.