Check this story out, risky for Toshiba but it may pay off if the cost of HD-DVD is half that of BR ? : Toshiba Takes a Risk to Push Its DVD Technology By MARTIN FACKLER and KEN BELSON Published: November 2, 2005 TOKYO - In the high-stakes battle with Sony over whose format will power the next generation of DVD players, Toshiba has adopted a potentially perilous strategy: encouraging low-cost Chinese competitors to crank out machines using its standard, known as HD-DVD. Courting Chinese makers has been largely taboo in Japan, where manufacturers like Sony and Panasonic have long tried to delay the transition of their technologies into cheap commodities. Toshiba's decision could have major ramifications in the race for the billions of dollars that are likely to flow from the next generation of DVD technology, which promises enhanced pictures and audio and more disc space. Toshiba and Sony have been fighting over which technology will become the industry standard. It is a fight that carries significance for Sony, which championed the higher-quality Betamax but lost the battle over the standard for videocassettes. In the latest brawl, negotiations to merge their formats failed, so the two sides have been lobbying Hollywood studios, disc manufacturers, computer giants like Dell and software moguls like Microsoft, as well as retailers like Best Buy. Sony and others using a technology known as Blu-ray have recently won victories by persuading more studios to agree to put movies into their format. Sony also plans to include Blu-ray technology in its PlayStation 3 game consoles when they are released next spring, effectively turning them into Blu-ray DVD players. To thwart Sony, Toshiba has reached a bargain with Chinese manufacturers. By making its technology available, Toshiba hopes to get cheaper HD-DVD players in the stores months ahead of Sony, Panasonic and other Blu-ray companies. This would help Toshiba outmaneuver Sony much as Panasonic outfoxed Sony over the Betamax machines. Toshiba, industry analysts say, also knows that DVD's became a mass market item in the United States after low-priced models arrived from China and filled big-box retailers like Wal-Mart. Inviting the Chinese to drive down prices is risky. Toshiba makes DVD players, so the Chinese machines could undersell Toshiba players. Sony and the Blu-ray group are licensing their technology more selectively. Analysts call this an effort to prevent low-cost manufacturers - including those from China - from driving down the price of Blu-ray machines when they go on sale next year. "Toshiba can't back out of this format war for face-saving reasons," said Richard Doherty, research director at the Envisioneering Group, a market research group. "But pushing ahead means dealing with the Chinese sooner rather than later." The contrasting strategies underscore the increasingly uncomfortable choices Japanese electronics makers must make as China's manufacturing might grows. Japanese companies either keep their technology away from the Chinese, or they license technology to the Chinese and make money off the royalties. "Japanese companies basically follow one of two models: They're open or they're closed," said Koya Tabata, an analyst for Credit Suisse First Boston. Though most big Japanese companies have factories in China, their attempts to shield products from low-cost rivals prompt frequent charges by Chinese companies and government officials of technological miserliness. Japan's wariness toward China is not unwarranted. Many Japanese companies have waged battles against Asian rivals to recoup unpaid royalties and settle patent-infringement accusations. Toshiba, though, bucked Japanese convention when, in the mid-1990's, it licensed technology for making its powerful new flash memory chips to Samsung. As a result, the fledgling chips became cheap and plentiful. Toshiba-made chips now sit at the heart of digital music players like the iPod, too, even though Samsung has won a big portion of the market. Toshiba says it is following a similar strategy with HD-DVD. "When a technology is established, it's wise to keep technology that will help you stand out" from competitors, said Keisuke Ohmori, a Toshiba spokesman. "When you want to establish a new market, you need a different approach to gain sales volume." In September, two of China's largest made-to-order DVD makers, Amoi and JiangKui, said they would start using Toshiba's HD-DVD format to make high-definition disc players for other companies as early as next year. The companies cited Toshiba's greater willingness to share its technology. "Compared to the Blu-ray standard, the DVD Forum has been more friendly and open to the Chinese consumer electronics manufacturers," JiangKui said in a statement, referring to the industry body that has backed Toshiba's HD-DVD format. By contrast, Sony has been more tight-lipped. While Sony says Blu-ray technology is available to those willing to pay, it admits to heavily screening newcomers. Warren Lieberfarb, a Toshiba adviser in Hollywood, says the HD-DVD standard is just as secure as the Blu-ray format. He added that if the Blu-ray group tried to keep its technology out of Chinese hands, consumers would end up paying more for Blu-ray players. Taro Takamine, a Sony spokesman, said Sony could make cheap machines without China's help. Sony, he said, plans to sell Blu-ray disc players for less than $1,000 next year. Toshiba made the same claim earlier this year. JiangKui, which will start selling HD-DVD players in the United States and Europe next year, has not yet said what it will charge, though most analysts say it will be far less than Toshiba's brand-name machines. Whatever the price, China's entry into the next-generation DVD market is likely to pressure the Blu-ray companies to cut prices.