This is my first thread, but give it a chance.

I want to know why everybody is obsessed with lowering prices.

The way I see it is that we complain about prices being too high, but clearly they are high for a reason, companies would like to recoup part of their investment into R&D. If we see an end to expensive early adopter pricing (a la Toshiba) will we see an end to innovation as companies won't bother spending R&D money they know they will never get back?

If Pioneer/Panasonic/Phillips/Sony don't make any money on BD because of ever lowering prices what is the incentive for them to make the cool new stuff of the future?

I personally am willing to take a hit as an early adopter, and pay high prices so that everybody sees continued innovation in the CE field, what about everybody else?

I've been talking a lot about this issue recently and for whatever reason, my arguments have fallen on deaf ears.

It's not that I feel that companies are going to be oh so generous with their profits; I fully expect them to be the greedy people they normally are, as expected. But when there are no profits to speak of (as is quite possibly the case with HD DVD's business model), there is less incentive to reinvest in the technology to improve it.

What you're describing is the classic early adoption price curve that has served free market economies since forever; only recently have we seen perversions of these rules, such as in the console market with its loss leader configurations.

Toshiba seems to be attempting to replicate the loss leader model in another realm; unfortunately for them, as far as anyone can tell, their royalties coming back to them per disc and per unit are not nearly high enough to justify the sort of subsidization that seems to be occurring.

It's really a fascinating economic study if you step back far enough.

On the one side, you have the tranditionalist CE manufacturers (Panasonic, Sony, Phillips, Samsung, etc.) who are promoting Blu-ray in the traditional form by mutual agreement with early adopters to find a bearable price point. Early adopters want the new tech, and want to pay for it while encouraging the manufacturers to continue producing that technology to reduce cost and pricing.

On the other, you have Toshiba, who I personally think has looked at the writing on the wall and realized they cannot compete using this traditional model, and have thus gambled on the loss leader model to try to salvage their investment (or some close variant thereof). Note: Toshiba doesn't have to be subsidizing the HD-A2 for this statement to be true; the fact that they very obviously subsidized the HD-A1 at $499 means that they realized very early on that pricing their units similar to Blu-ray units would result in immediate defeat for HD DVD, so their course was already set a year ago. Frankly speaking, if I were in their shoes I would probably make the exact same decision.

I personally am willing to take a hit as an early adopter, and pay high prices so that everybody sees continued innovation in the CE field, what about everybody else?

I agree with you although many I'm guessing will not. I like cool new things and the primary reason companies invest money in coming up with cool new things is the prospect of making money.

Normally the higher prices for a new format is not a huge problem for early adopters. But this whole format war issue has driven the prices lower due to competition. The slightly lower prices encourages others who normally are not early adopters to buy into new formats. This causes the more price sensentive buyers who are not normally early adopters to be more obsessed with the artificially lower price. These lower prices are seen and create a demand for even lower price by other potential buyers who ahve not adopted the formats. This hurts CE companies profits which could possbily be used to create much better more robust players.. but are more focused to simplify and cheapen the players instead.

Normally the higher prices for a new format is not a huge problem for early adopters. But this whole format war issue has driven the prices lower due to competition. The slightly lower prices encourages others who normally are not early adopters to buy into new formats. This causes the more price sensentive buyers who are not normally early adopters to be more obsessed with the artificially lower price. These lower prices are seen and create a demand for even lower price by other potential buyers who ahve not adopted the formats. This hurts CE companies profits which could possbily be used to create much better more robust players.. but are more focused to simplify and cheapen the players instead.

I still pay $300+ for my DVD players, but the catch is they have to be region-free and NTSC/PAL compatable, so current HD prices aren't that bad.

If I'm left holding the bag for my $700 XA2, I at least have IMO the best up-scaling player you can get. If it were solely and HD player, I would never have bought it at that price.

I think Toshiba needed a killer early launch but any potential of that was cut off by shortages, Sony needed PS3 to be a runaway hit, that's not happening either. Now it's starting to sound like cheapo Chinese HD DVD players (if not BD soon after) are going to devalue both formats before their creators see a profit.

With each passing day, I can't for the life of me make any sense out of how this is going to work out for any of them.

I share the exact opposite opinion about this.

I am not willing to pay high prices for new technology. Moderate prices are fine, staying just behind the curve seems to give the best value.

Buying an A1 first gen unit makes sense for $100 to $200 based on what it is capable.

Same thing goes for a Blu Ray player or PS3 9 to 12 months from now if it falls to the same price bracket.

Without the competition between the 2 formats, we would be paying $1000+ for players now, and $500+ for the next couple of years.

On the other, you have Toshiba, who I personally think has looked at the writing on the wall and realized they cannot compete using this traditional model, and have thus gambled on the loss leader model to try to salvage their investment (or some close variant thereof). Note: Toshiba doesn't have to be subsidizing the HD-A2 for this statement to be true; the fact that they very obviously subsidized the HD-A1 at $499 means that they realized very early on that pricing their units similar to Blu-ray units would result in immediate defeat for HD DVD, so their course was already set a year ago. Frankly speaking, if I were in their shoes I would probably make the exact same decision.

You are sure that you haven't mixed up Sony with Toshiba? And the A1 with the PS3?

The A1 was just a starter device but the PS3 is the "one and only real BD Player" (it is the only one with a substantial market share) and the PS3 is heavily subsidized. Not that there is anything wrong with that. But you are talking about economics and then you should know that enterprises are thinking in dynamic turns. Who cares about a static loss - nobody. What matters is the discounted cashflow over the next 10 years.

From a managerial point of view your analysis, I am sorry, has failed. But then, maybe it was much more of a marketing statement? Considering the carefully chosen words you use to deliver a message beyond the thoughts you discuss... well yes, as a marketing writing you would get a low C. The failed logic is a little bit too obvious for a better grade.

But keep on, only practice makes the master!

You are sure that you haven't mixed up Sony with Toshiba? And the A1 with the PS3?
Sorry, your point? The PS3 is an accepted loss leader. We know this, since it is a console.

That does not exclude the possibility that the Toshiba HD-A1 and HD-A2, due to the price pressure from the PS3, are also potentially loss leaders.

The A1 was just a starter device but the PS3 is the "one and only real BD Player" (it is the only one with a substantial market share) and the PS3 is heavily subsidized. Not that there is anything wrong with that. But you are talking about economics and then you should know that enterprises are thinking in dynamic turns. Who cares about a static loss - nobody. What matters is the discounted cashflow over the next 10 years.

I phrased my response within the marketing paradigm because it IS a marketing strategy. I didn't mention economics at all except in the broad sense of it being a curious topic of observation.

From a managerial point of view your analysis, I am sorry, has failed. But then, maybe it was much more of a marketing statement? Considering the carefully chosen words you use to deliver a message beyond the thoughts you discuss... well yes, as a marketing writing you would get a low C. The failed logic is a little bit too obvious for a better grade.
Would you care to elaborate on your pontification or did you actually have a substantive counter to my reasoning?

Sorry, your point? The PS3 is an accepted loss leader. We know this, since it is a console.

That does not exclude the possibility that the Toshiba HD-A1 and HD-A2, due to the price pressure from the PS3, are also potentially loss leaders.

I phrased my response within the marketing paradigm because it IS a marketing strategy. I didn't mention economics at all except in the broad sense of it being a curious topic of observation.

Thats what made me think your are talking about ecomonics:

It's really a fascinating economic study if you step back far enough.



And how can you determine what kind of strategy Toshiba or Sony are pursuing without even knowing the numerbs behind their business models. You say Toshiba is taking a loss on the A2? Were do you know this from. Intuition? Well my intuition tells me that they are not taking a loss. Reason: HD DVD players are cheaper to produce than BD players THAT is why they are getting sold for less not because of subsidizing. Another reasson: There is a high probability of new chinese HD DVD players coming that are much cheaper than the Toshiba players - do the chinese want to burn money? No you can aczually produce cheap HD DVD players and make money with it!

So Toshiba is right now not a LOSS leader they are a COST leader because they deliver the (pretty much) same product at lower costs.


Would you care to elaborate on your pontification or did you actually have a substantive counter to my reasoning?

In my eyes the only reason for your post is to link negative words to Toshiba and positive word to Bluray.

Like:

What you're describing is the classic early adoption price curve that has served free market economies since forever; only recently have we seen perversions of these rules, such as in the console market with its loss leader configurations.

Toshiba seems to be attempting to replicate the loss leader model in another realm; unfortunately for them, as far as anyone can tell, their royalties coming back to them per disc and per unit are not nearly high enough to justify the sort of subsidization that seems to be occurring.

Reading as: once there was a "free market" and then came a "perversion" which Toshiba is trying to "replicate". What you really want to tell us: Toshia are the bad guys and the BDA are the good guys. And you want to tell it on an unconcious level without explicitly saying it.

"Unfortunately" for Toshiba - there is a hint to this BD won BS again.


On the one side, you have the tranditionalist CE manufacturers (Panasonic, Sony, Phillips, Samsung, etc.) who are promoting Blu-ray in the traditional form by mutual agreement with early adopters to find a bearable price point. Early adopters want the new tech, and want to pay for it while encouraging the manufacturers to continue producing that technology to reduce cost and pricing.

Ah, here we got the others coming straigt from the light, the "traditionalists" (very good) who work in "mutual agreement" with early adopters for "bearable" price points. What nice people, thats the kind of people you like to invite for dinner.

The only reason for your post is to paint a fake black and white picture!

And more to come:

On the other, you have Toshiba, who I personally think has looked at the writing on the wall and realized they cannot compete using this traditional model, and have thus gambled on the loss leader model to try to salvage their investment (or some close variant thereof). Note: Toshiba doesn't have to be subsidizing the HD-A2 for this statement to be true; the fact that they very obviously subsidized the HD-A1 at $499 means that they realized very early on that pricing their units similar to Blu-ray units would result in immediate defeat for HD DVD, so their course was already set a year ago. Frankly speaking, if I were in their shoes I would probably make the exact same decision.

Toshiba "gambles", they "salvage" - all negative terms - what a nice piece of marketing. Spread FUD. Great job.

But then - why am I so pissed about this? I don't know. Maybe because it is rather obvious that most things are in reality the exact opposite from what you want us to believe.

HD DVD is the liberal format! (no region code, no trojan horses, no BD+...)

Sony gambles! (BD in PS3)

The price advantange is the only thing that HD DVD has left outside of some theoretical concepts for triple-layer HD DVDs and the Chinese Communist Invasion or something to that effect.

Blu-Ray holds all the cards now outside of the fact that HD DVD players are a lot cheaper.

The price advantange is the only thing that HD DVD has left outside of some theoretical concepts for triple-layer HD DVDs and the Chinese Communist Invasion or something to that effect.

Blu-Ray holds all the cards now outside of the fact that HD DVD players are a lot cheaper.

According to one dealer here, bluray has one more disadvantage. To many bad releases.

Add varying specs for players to that list..

I want to know why everybody is obsessed with lowering prices.

Because low prices are rquired for mass adoption. If mass adoption doesn't happen BD/HDVD will go the way of DVD-A/SACD.

And how can you determine what kind of strategy Toshiba or Sony are pursuing without even knowing the numerbs behind their business models. You say Toshiba is taking a loss on the A2? Were do you know this from. Intuition? Well my intuition tells me that they are not taking a loss. Reason: HD DVD players are cheaper to produce than BD players THAT is why they are getting sold for less not because of subsidizing. Another reasson: There is a high probability of new chinese HD DVD players coming that are much cheaper than the Toshiba players - do the chinese want to burn money? No you can aczually produce cheap HD DVD players and make money with it!
Fact: Toshiba HD-A1, when introduced at its $499 price point, was indeed a loss leader. Even if you say iSuppli's $674 wholesale teardown of it is somewhat off, that sort of pricing means Toshiba was taking a loss on every G1 unit. They in fact have never denied this was the case.

Now, why would they do that? The only unit on the market they could have been worried about was the Sony PlayStation 3. All of the Blu-ray players were priced in the $1000+ range. Ergo, the only reason for the HD-A1's pricing was so low was a motive to compete.

Now, if we accept that the HD-A1 was subsidized, what makes us believe that the HD-A2 is not also subsidized? The design is obviously more efficient, but how much more? No one knows for sure outside of Toshiba, but less than half as much? Truly? Especially as we have people on this forum reporting that they are seeing wholesale pricing on the HD-A2 below $300?

I reject the idea that HD DVD costs "significantly less" than Blu-ray to manufacture as far as players go. The technologies are very similar - in fact, the only major difference seems to be the laser diode, so unless you'd care to assert that the diode is hundreds of dollars for Blu-ray I don't see where your logic accounts for the $500+ current disparity in MSRP. In fact, we know this is not the case; the iSuppli teardown of the PlayStation 3 in November estimates the cost of the Blu-ray drive at $125 US.

As for cheap Chinese players, the burden of proof remains on HD DVD supporters to prove that such units are in fact going to arrive at all, much less at a profitable price point below Toshiba's current pricing structure. I could perhaps see a unit that would be marginally profitable at this time in the $400 range, but if that's their price they're not going anywhere since Toshiba's street pricing is floating in the mid to high 300s already.

So Toshiba is right now not a LOSS leader they are a COST leader because they deliver the (pretty much) same product at lower costs.
If their technology is equal, why is it so necessary for them to have such a large price gap between themselves and the competition?

Reading as: once there was a "free market" and then came a "perversion" which Toshiba is trying to "replicate". What you really want to tell us: Toshia are the bad guys and the BDA are the good guys. And you want to tell it on an unconcious level without explicitly saying it.
Uh, no.

Perversion of the status quo in the context of my discussion was referencing the loss leader strategy used by the console manufacturers in recent years, the most flagrant example of which would be Sony with their PlayStation brand.

I use the term to reference its bizarre effect in allowing companies to make pricing reductions that would otherwise be against their own best interests (profits per unit sold).

"Unfortunately" for Toshiba - there is a hint to this BD won BS again.
How else would you prefer that it be stated? My premise is that Toshiba is borrowing a loss leader concept from the console market and attempting to apply it to another CE industry with HD DVD, but without the much stronger royalty backing that the console market enjoys.

If that is not an "unfortunate" scenario, what would you call it? Risky? Uncertain? Less profitable? All of these terms apply.

Ah, here we got the others coming straigt from the light, the "traditionalists" (very good) who work in "mutual agreement" with early adopters for "bearable" price points. What nice people, thats the kind of people you like to invite for dinner.

The only reason for your post is to paint a fake black and white picture!
And again you pontificate over wording (and might I suggest that your intention to do so is motivated by a desire to paint a picture of your own.)

Toshiba "gambles", they "salvage" - all negative terms - what a nice piece of marketing. Spread FUD. Great job.
I call things like I see them. If you'd like to actually refute points instead of (again) babble about my usage of the complexity of the English language to drive a point home, then I suggest you get started.

But then - why am I so pissed about this? I don't know. Maybe because it is rather obvious that most things are in reality the exact opposite from what you want us to believe.

HD DVD is the liberal format! (no region code, no trojan horses, no BD+...)

Sony gambles! (BD in PS3)
And how is this any less of an egregious violation of neutral wording than what I've used?

Do I think Sony has gambled putting a Blu-ray drive into the PS3? Of course. Do I think that discussion is vastly off-topic? Absolutely.

Would you have been an early adopter for a single hidef disc format (let's call it Blu-HD) if it had launched with $1000 first-gen players?

This is my first thread, but give it a chance.

I want to know why everybody is obsessed with lowering prices.

The way I see it is that we complain about prices being too high, but clearly they are high for a reason, companies would like to recoup part of their investment into R&D. If we see an end to expensive early adopter pricing (a la Toshiba) will we see an end to innovation as companies won't bother spending R&D money they know they will never get back?

If Pioneer/Panasonic/Phillips/Sony don't make any money on BD because of ever lowering prices what is the incentive for them to make the cool new stuff of the future?

I personally am willing to take a hit as an early adopter, and pay high prices so that everybody sees continued innovation in the CE field, what about everybody else?
Give us a break and use your head!
If prices dont go lower the masses will not buy into hidef at all and will stick with dvd.
Dvd is the main competitor here and if the prices for the discs and players are not comparative to dvd, people will not buy the stuff for a small percieved increase in quality they see on there old tv sets.
until then go ahead and take the hit!

Would you have been an early adopter for a single hidef disc format (let's call it Blu-HD) if it had launched with $1000 first-gen players?

I would not.

In your scenario, would the PS3 have a Blu-HD drive? Then I would! :)

FACTS:

Toshiba - subsidized the A1
Sony is subsidizing the PS3

SPECULATION:

Toshiba is subsidizing the A2

OK . . . I can make my own speculation . .. Sony will subsidize the up and coming BDP-S300 cause if Toshiba is doing it then Sony also muist be doin it. You can't have one without the other.

And I love the fact that prices that lowered so quickly in less than a year. I would NEVER have bought an A2 if I had to pay close to $1000 . . . and I AM an early adopter (LD, DVD).

In the past these media players always had an edge over other movie delivery systems with their superior PQ and AQ. Well that just doesn't exist with HD. HDTV is a fantastic looking PQ and offers DD5.1.

Someone said HD Disc's competiton is DVD. That is true to a certain extent but HD still has 6X the resolution of SD. So now compare HD Disc to HDTV - apples to apples. The res is equal. And please wait for me to put on my boots before you start shoveling the 1080P versus the 1080i BS my way. At 10' on 60" screens and less - most perople can't see the difference. For those few with high end audio systems - great you have advanced sound formats - but you are a minority.

Don't be surprised if when players hit $200 that HD Disc continues right where it is . . . a slow growth format that will take years to catch on.

Give us a break and use your head!
If prices dont go lower the masses will not buy into hidef at all and will stick with dvd.
Dvd is the main competitor here and if the prices for the discs and players are not comparative to dvd, people will not buy the stuff for a small percieved increase in quality they see on there old tv sets.
until then go ahead and take the hit!

I understand that, but have you never been through a product launch before, prices don't have to go down instantly, it usually takes a while for the new product to become competitive with existing products.

The point, which you have obviously missed, is are we willing to give up cool new stuff and general innovation for lower prices? As this is the way it seems to be going.

Would you have been an early adopter for a single hidef disc format (let's call it Blu-HD) if it had launched with $1000 first-gen players?

Yes, I bought Blu-ray for £600, which is more than $1000.

I share the exact opposite opinion about this.

I am not willing to pay high prices for new technology. Moderate prices are fine, staying just behind the curve seems to give the best value.

Buying an A1 first gen unit makes sense for $100 to $200 based on what it is capable.

Same thing goes for a Blu Ray player or PS3 9 to 12 months from now if it falls to the same price bracket.

Without the competition between the 2 formats, we would be paying $1000+ for players now, and $500+ for the next couple of years.

Well you are obviously not an early adopter, which is kind of who I aimed this question at. However, it is nice have non-early adopter opinions as well.

It would be cool to get a few opinions off Kosty and the other HD DVD early adopters if you can spare a minute.

Thats what made me think your are talking about ecomonics:



And how can you determine what kind of strategy Toshiba or Sony are pursuing without even knowing the numerbs behind their business models. You say Toshiba is taking a loss on the A2? Were do you know this from. Intuition? Well my intuition tells me that they are not taking a loss. Reason: HD DVD players are cheaper to produce than BD players THAT is why they are getting sold for less not because of subsidizing. Another reasson: There is a high probability of new chinese HD DVD players coming that are much cheaper than the Toshiba players - do the chinese want to burn money? No you can aczually produce cheap HD DVD players and make money with it!

So Toshiba is right now not a LOSS leader they are a COST leader because they deliver the (pretty much) same product at lower costs.



In my eyes the only reason for your post is to link negative words to Toshiba and positive word to Bluray.

Like:


Reading as: once there was a "free market" and then came a "perversion" which Toshiba is trying to "replicate". What you really want to tell us: Toshia are the bad guys and the BDA are the good guys. And you want to tell it on an unconcious level without explicitly saying it.

"Unfortunately" for Toshiba - there is a hint to this BD won BS again.



Ah, here we got the others coming straigt from the light, the "traditionalists" (very good) who work in "mutual agreement" with early adopters for "bearable" price points. What nice people, thats the kind of people you like to invite for dinner.

The only reason for your post is to paint a fake black and white picture!

And more to come:


Toshiba "gambles", they "salvage" - all negative terms - what a nice piece of marketing. Spread FUD. Great job.

But then - why am I so pissed about this? I don't know. Maybe because it is rather obvious that most things are in reality the exact opposite from what you want us to believe.

HD DVD is the liberal format! (no region code, no trojan horses, no BD+...)

Sony gambles! (BD in PS3)

Disclaimer: I don't own HD-DVD or BRD . . . but thank you for saving me a lot of typing . . .

Fact: Toshiba HD-A1, when introduced at its $499 price point, was indeed a loss leader. Even if you say iSuppli's $674 wholesale teardown of it is somewhat off, that sort of pricing means Toshiba was taking a loss on every G1 unit. They in fact have never denied this was the case.

Now, why would they do that? The only unit on the market they could have been worried about was the Sony PlayStation 3. All of the Blu-ray players were priced in the $1000+ range. Ergo, the only reason for the HD-A1's pricing was so low was a motive to compete.

Now, if we accept that the HD-A1 was subsidized, what makes us believe that the HD-A2 is not also subsidized? The design is obviously more efficient, but how much more? No one knows for sure outside of Toshiba, but less than half as much? Truly? Especially as we have people on this forum reporting that they are seeing wholesale pricing on the HD-A2 below $300?

I reject the idea that HD DVD costs "significantly less" than Blu-ray to manufacture as far as players go. The technologies are very similar - in fact, the only major difference seems to be the laser diode, so unless you'd care to assert that the diode is hundreds of dollars for Blu-ray I don't see where your logic accounts for the $500+ current disparity in MSRP. In fact, we know this is not the case; the iSuppli teardown of the PlayStation 3 in November estimates the cost of the Blu-ray drive at $125 US.

As for cheap Chinese players, the burden of proof remains on HD DVD supporters to prove that such units are in fact going to arrive at all, much less at a profitable price point below Toshiba's current pricing structure. I could perhaps see a unit that would be marginally profitable at this time in the $400 range, but if that's their price they're not going anywhere since Toshiba's street pricing is floating in the mid to high 300s already.


If their technology is equal, why is it so necessary for them to have such a large price gap between themselves and the competition?


Uh, no.

Perversion of the status quo in the context of my discussion was referencing the loss leader strategy used by the console manufacturers in recent years, the most flagrant example of which would be Sony with their PlayStation brand.

I use the term to reference its bizarre effect in allowing companies to make pricing reductions that would otherwise be against their own best interests (profits per unit sold).


How else would you prefer that it be stated? My premise is that Toshiba is borrowing a loss leader concept from the console market and attempting to apply it to another CE industry with HD DVD, but without the much stronger royalty backing that the console market enjoys.

If that is not an "unfortunate" scenario, what would you call it? Risky? Uncertain? Less profitable? All of these terms apply.


And again you pontificate over wording (and might I suggest that your intention to do so is motivated by a desire to paint a picture of your own.)


I call things like I see them. If you'd like to actually refute points instead of (again) babble about my usage of the complexity of the English language to drive a point home, then I suggest you get started.


And how is this any less of an egregious violation of neutral wording than what I've used?

Do I think Sony has gambled putting a Blu-ray drive into the PS3? Of course. Do I think that discussion is vastly off-topic? Absolutely.

Firms like iSuppli provide good relative measures of cost, not absolute measures of cost. That is, if you compare iSuppli's teardown of a PS3 with a teardown of a HD-DVD player . . . you'll probably get a decent (not great) relative measure of cost. Tons of stuff gets lost in this process however, to name a few:

Incomplete list of things not included that would drive actual costs up:
->R&D amortization
->PP&E amortization
->overhead costs
->licensing (IP) costs, if applicable
->location of manufacture currency risk
->currency risk hedging costs

Incomplete list of things not included that would drive actual costs down:
->volume purchases/discounts
->manufacturing 'experience curve' (i.e., for every doubling in volume, 20% cost reduction)
->outsourcing of critical/expensive processes (i.e., make 'em in China)
->re-design of hardware (i.e., reduced component counts, lower reliability components where appropriate, thinner gauge metal and plastic -- although some of these are already encapsulated by experience curve)
->adjustment to target margins

Certainly when both Sony and Toshiba started down the path of approving their respective new product development programs, they undoubtedly had target IRR, NPV, and ROI goals. But in most cases, in a battle this big with this much at stake, the rules/guidelines probably get thrown out the window once the melee (sp?) starts -- either that or both likely had done some gaming analysis to evaluate several probable course of events, what their competitive responses would be, and what the financials for responding in such a way would be.

Looking at the larger picture, Sony does not typically sell at the lower end of any market they participate in unless they are forced to do so by competition. That could imply many things, but the two most likely implications are: 1) Sony does not fancy itself a "low cost producer" in terms of manufacturing process, or 2) Sony cannot be a low cost producer based upon their corporate governance structure and overhead costs. Again, there can be other explanations, but time and time again, businesses that don't compete on price don't compete on price because they're not set up to do so operationally/structurally. Sony C/E model seems to be built upon extracting higher (than average) margins for the Sony brand as well as proprietary technologies.

All Toshiba is doing is attempt to increase the slope of the technology diffusion/adoption curve (and the product life-cycle curve) by decreasing price more rapidly than its competition. I don't know much about Toshiba operationally speaking, but I suspect that they may have lower acceptable corporate margins and lower corporate hurdle rates, which would "allow" them the wiggle room to beat Sony on price consistently.

One thing I learned from competing with and partnerin with the Japanese in the manufacturing environment is that their outlook is dramatically different from American companies. If the Japanese believe that they can dominate a lucrative market for 10-15 years, but it will take them 3, 5, 7 years selling at zero or negative margins . . . they'll do it. They have a much longer time horizon and aren't strictly driven by U.S. corporate notions around NPV models and ROI.

FACTS:

Toshiba - subsidized the A1
Sony is subsidizing the PS3

SPECULATION:

Toshiba is subsidizing the A2



And I love the fact that prices that lowered so quickly in less than a year. I would NEVER have bought an A2 if I had to pay close to $1000 . . . and I AM an early adopter (LD, DVD).

In the past these media players always had an edge over other movie delivery systems with their superior PQ and AQ. Well that just doesn't exist with HD. HDTV is a fantastic looking PQ and offers DD5.1.

Someone said HD Disc's competiton is DVD. That is true to a certain extent but HD still has 6X the resolution of SD. So now compare HD Disc to HDTV - apples to apples. The res is equal. And please wait for me to put on my boots before you start shoveling the 1080P versus the 1080i BS my way. At 10' on 60" screens and less - most perople can't see the difference. For those few with high end audio systems - great you have advanced sound formats - but you are a minority.

Don't be surprised if when players hit $200 that HD Disc continues right where it is . . . a slow growth format that will take years to catch on.

I agree.

Because in today's marketing obsessed culture, people often want what they really cannot afford or simply do not need.

Would you have been an early adopter for a single hidef disc format (let's call it Blu-HD) if it had launched with $1000 first-gen players?

I would, which is about what I paid for my 1st gen DVD player in 1997 dollars.

Because in today's marketing obsessed culture, people often want what they really cannot afford or simply do not need.

I think you mean the Wal-mart effect. :)

BY ALL MEANS - be obsessed be pricing. Its the CEs choice, they can make something from hidef all they can continue to do standard dvd for the next 20y. Sony and other IP holders not only get profit from selling hardwares. Think about the IP checks :) .... dont be to worry for them. Especially Sony, the company will almost introduce new products .. so again .. stop worrying !!

It would be cool to get a few opinions off Kosty and the other HD DVD early adopters if you can spare a minute.

Well Max....I guess you can call me an early adopter but....not really. LOL. I remember the early early days of DVD and I was totally against the format for a while. My arguement was that it was nothing more than a playback format and that VHS was still much more useful. Obviously time passed...my wife showed me the power of DVD....and when the DVD-R was introduced...that was the end of that. Now here we are in the early stages of the new format war and I already have a player. Problem is the player cost me only 199.99. The add-on has been a wonderful piece of hardware for me but truth be known if there was no add-on I would have probably waited form the Toshiba to lower its price a little bit. Nothing against blu-ray but since every single player was 600 and up....the format gave me no chance in hell to even try it. Once again....I would have to thank Microsoft for hookin it up big time!

FACTS:

Toshiba - subsidized the A1
Sony is subsidizing the PS3

SPECULATION:

Toshiba is subsidizing the A2

Agreed, it's speculation, but it is not wild speculation. It is an educated guess based on what is known about the average rate of price deterioration in CE products.

OK . . . I can make my own speculation . .. Sony will subsidize the up and coming BDP-S300 cause if Toshiba is doing it then Sony also muist be doin it. You can't have one without the other.
To take this position would require that the cost of producing both HD DVD and Blu-ray players is higher than $599 (and that would put Toshiba at close to 50% subsidy if we agree that the production costs are nearly equal).

It all depends on where you believe the true cost of production is. I feel the real cost is somewhere between $300 to $500. That's a pretty broad range, but works well enough for this discussion.

And I love the fact that prices that lowered so quickly in less than a year. I would NEVER have bought an A2 if I had to pay close to $1000 . . . and I AM an early adopter (LD, DVD).
I don't think any of us is complaining about actually paying less for the things we want. What the OP is asking is what, if anything, is the hidden cost of all these price drops?

In the past these media players always had an edge over other movie delivery systems with their superior PQ and AQ. Well that just doesn't exist with HD. HDTV is a fantastic looking PQ and offers DD5.1.

Someone said HD Disc's competiton is DVD. That is true to a certain extent but HD still has 6X the resolution of SD. So now compare HD Disc to HDTV - apples to apples. The res is equal. And please wait for me to put on my boots before you start shoveling the 1080P versus the 1080i BS my way. At 10' on 60" screens and less - most perople can't see the difference. For those few with high end audio systems - great you have advanced sound formats - but you are a minority.
Agreed. High definition discs are going to have to be more than just another pretty picture and somewhat better sound, since it's evident that the general public doesn't care about as much as enthusiasts do about incremental advances of these.

Don't be surprised if when players hit $200 that HD Disc continues right where it is . . . a slow growth format that will take years to catch on.
Now THAT is a scary thought, but you may very well be right.

In my eyes the only reason for your post is to link negative words to Toshiba and positive word to Bluray.

(BD in PS3)


I'm sorta finding this threads purpose to down-play Toshiba's price advantage, if not to call it "wrong" for technology"

If they were gone tomorrow HD DVD has built an economically more sustainable model, which is capable of delivering a profit sooner than BD in the long-run. BDs economic "pie in the sky" was a massive PS3 "Trojan-horse" adoption rate and a blitzkrieg ad campaign. Both high-risk, both fiscally extravagant tactics.

I'm expecting to see a thread called "Bandwidth: why we need it. Interactivity; why we don't" anytime now:rolleyes:

FACTS:

Toshiba - subsidized the A1
Sony is subsidizing the PS3

SPECULATION:

Toshiba is subsidizing the A2


Don't be surprised if when players hit $200 that HD Disc continues right where it is . . . a slow growth format that will take years to catch on.

It would surprise me if Toshiba isn't at least breaking even on the 2 series players.
Since a $200 HD player would still require people to buy new players, I too doubt that a ton of people will buy, but $200 may make their next player (replacement or additional) be that HD player. I believe that is the only way that the masses are going to get in to HD disc.

Firms like iSuppli provide good relative measures of cost, not absolute measures of cost.

Incomplete list of things not included that would drive actual costs up:
->R&D amortization
->PP&E amortization
->overhead costs
->licensing (IP) costs, if applicable
->location of manufacture currency risk
->currency risk hedging costs

Incomplete list of things not included that would drive actual costs down:
->volume purchases/discounts
->manufacturing 'experience curve' (i.e., for every doubling in volume, 20% cost reduction)
->outsourcing of critical/expensive processes (i.e., make 'em in China)
->re-design of hardware (i.e., reduced component counts, lower reliability components where appropriate, thinner gauge metal and plastic -- although some of these are already encapsulated by experience curve)
->adjustment to target margins

Certainly when both Sony and Toshiba started down the path of approving their respective new product development programs, they undoubtedly had target IRR, NPV, and ROI goals. But in most cases, in a battle this big with this much at stake, the rules/guidelines probably get thrown out the window once the melee (sp?) starts -- either that or both likely had done some gaming analysis to evaluate several probable course of events, what their competitive responses would be, and what the financials for responding in such a way would be.
Agreed on all counts.

However, what is interesting is that all of the additional factors you mention have a tendency to drive costs up after the estimate. The only factors that would drive the cost down below the estimate would be an inaccurate estimate of component pricing.

Would you accept conditionally that such teardown analyses, while not a good absolute measurement of true cost, are a reasonable starting point for the minimum possible cost? That's all I'm using them for; I'm not holding them up as the gold standard of what these units are really costing to produce, just using them as the starting point of the discussion about what the real minimum of what any given unit might cost.

Looking at the larger picture, Sony does not typically sell at the lower end of any market they participate in unless they are forced to do so by competition. That could imply many things, but the two most likely implications are: 1) Sony does not fancy itself a "low cost producer" in terms of manufacturing process, or 2) Sony cannot be a low cost producer based upon their corporate governance structure and overhead costs. Again, there can be other explanations, but time and time again, businesses that don't compete on price don't compete on price because they're not set up to do so operationally/structurally. Sony C/E model seems to be built upon extracting higher (than average) margins for the Sony brand as well as proprietary technologies.
Agreed as well, which is why I think my above cost estimate of $300-$500 for a non-console product is a pretty good guess for the BDP-S300. With the exception of their game consoles, where Sony knows they can expect reasonable returns, Sony has typically exhibited exactly the behavior you describe with respect to pricing. It's not conclusive, but it's at least corroboration.

All Toshiba is doing is attempt to increase the slope of the technology diffusion/adoption curve (and the product life-cycle curve) by decreasing price more rapidly than its competition. I don't know much about Toshiba operationally speaking, but I suspect that they may have lower acceptable corporate margins and lower corporate hurdle rates, which would "allow" them the wiggle room to beat Sony on price consistently.
This would make sense, except we're talking about 50% difference in absolute revenue per unit, if not more. That's not "wiggle room". Toshiba isn't generally a producer of low-end market units either, so they ought to be more alike than different in pricing if they followed their normal modus operandi, yet that's not what we're seeing, which is why I point it out so forcefully. It's an anomaly in pricing, and a pretty severe one.

One thing I learned from competing with and partnerin with the Japanese in the manufacturing environment is that their outlook is dramatically different from American companies. If the Japanese believe that they can dominate a lucrative market for 10-15 years, but it will take them 3, 5, 7 years selling at zero or negative margins . . . they'll do it. They have a much longer time horizon and aren't strictly driven by U.S. corporate notions around NPV models and ROI.
I agree, but this begs the question of why Toshiba and Sony may be selling at zero or negative margin to begin with (I use this phrase cautiously, as I am willing to admit that I might be wrong about the pricing, though I don't feel I've made any unreasonable jumps of logic anywhere).

I'm sorta finding this threads purpose to down-play Toshiba's price advantage, if not to call it "wrong" for technology"

If they were gone tomorrow HD DVD has built an economically more sustainable model, which is capable of delivering a profit sooner than BD in the long-run. BDs economic "pie in the sky" was a massive PS3 "Trojan-horse" adoption rate and a blitzkrieg ad campaign. Both high-risk, both fiscally extravagant tactics.

I'm expecting to see a thread called "Bandwidth: why we need it. Interactivity; why we don't" anytime now:rolleyes:

Hey don't blame the thread, I just wanted to know the opinions of real early adopters, I was hoping that we could have a grown up conversation about the future of innovation in the CE field, but clearly that is too much for some people on here :(.

Icemage -- well to answer your question, based on some limited experience in a manufacturing environment (7+ years, not a huge stint, but significant), my answer to your question would be "No, I wouldn't see iSuppli's numbers as a minimum value."

Why? Well, several reasons. First, the factors that would tend to drive the costs up are mostly fungible. That is, they are either considered "costs of doing business" (in the case of overhead, currency risk, and hedge costs) or are conveniently swept aside by the business decision makers when the competition gets tough (thinkgs like R&D, PP&E amortizations). In the case of licensing or IP, I'd bet that both the HD-DVD and BRD camps are either waving or largely discounting licensing right now, due to the intense competition. Also, if one or both manufacturers had "re-established a volume estimate" for amortization purposes (i.e., jacked up their lifetime volume estimates in order to reduce R&D or PP&E amortized costs per unit) to keep the accountants happy, it wouldn't be the first time (are you getting the sense that "cost" is a very fungible topic inside of a manufacturing organization . . .). Second, the items listed in my post that would decrease the cost of the units are more "hard costs". IIRC, and I could be wrong here -- if so, someone please correct me, I think iSuppli used published component pricing to create their Bills of Materials. If this is accurate, then straight out of the box, the hardware costs are going to be off (high) by 10%-20%. If the manufacturer in question has negotiated long term, volume based procurement contracts, or if the manufacturer is in the same keiretsu as their supply base (not at all atypical), it's likely they're receiving prices that are even lower (think several % points above the supplier's cost to manufacture). Also, in many electronics environments, production changes are made "in flow" which is to say that cost savings are realized and implemented without (necessarily) moving from a generation 1 product to a generation 2 or 3 product . . . somewhat an "experience curve" effect, but not completely.

Sorry for the long reply, but wanted to somewhat quantify my opinion based on my personal experiences. If there's someone else here who has or does work(ed) in a electronics manufacturing environment (at the operations, procurement or business management level), please chime in with your thoughts. Very much could be that my experiences have been atypical.

Hey don't blame the thread, I just wanted to know the opinions of real early adopters, I was hoping that we could have a grown up conversation about the future of innovation in the CE field, but clearly that is too much for some people on here :(.

and earlier I did give my stance on early adoption (If second generation is early then I'm early)

I'm not a gamer, but it I bit the bullet and paid a premium price for Sony's stand-alone BD player, part of the reason I'm paying that higher price is so that Sony can slip BD into a game console and charge proportionally lower prices to gamers. Also, though every product requires promotion, how much is too much in proportion to research and development?

This isn't as simple as supporting a better product, so I can't get all choked-up if Sony is unwillingly pushed to prematurely lower it's player-price because it's smaller, more economical competition is able to offer a better value.

If BD had been the only HD format introduced, but their prices were still over a $1000 and the BD disks were still not all stellar, I would not have entered the ring until I knew they had all the kinks out.

I don't think any technology support should be blind. I have to agree with how they do business as well.

I agree with your read of the various estimates, dhodory.

However, given the extremely high starting point estimate of $674, even if we allow for 20% fungible manufacturer volume cost and a 30% optimization of efficiency through engineering improvements and process flow (which I feel are high estimates for all of the above given the timespan since the analysis), we're still over a $300 price tag, before licensing (potentially waived), packaging, delivery, Q&A, breakage, returns, plus the other overhead costs you mentioned previously.

Yet we know Toshiba is selling the HD-A2 at around $300 to retailers. I'm just not seeing anywhere else that the cost savings can come from, which is why I'm skeptical of the idea that Toshiba is playing a cost leader role, and not a loss leader role.

and earlier I did give my stance on early adoption (If second generation is early then I'm early)

I'm not a gamer, but it I bit the bullet and paid a premium price for Sony's stand-alone BD player, part of the reason I'm paying that higher price is so that Sony can slip BD into a game console and charge proportionally lower prices to gamers. Also, though every product requires promotion, how much is too much in proportion to research and development?

This isn't as simple as supporting a better product, so I can't get all choked-up if Sony is unwillingly pushed to prematurely lower it's player-price because it's smaller, more economical competition is able to offer a better value.

If BD had been the only HD format introduced, but their prices were still over a $1000 and the BD disks were still not all stellar, I would not have entered the ring until I knew they had all the kinks out.

I don't think any technology support should be blind. I have to agree with how they do business as well.

That comment wasn't aimed at you, sorry if you thought it was.

R&D costs are very high these days, promotional costs while high, are not even in the same league as developing a whole new technology out of nothing. Which is basically what BD is.

Support of technology should most definitely not be blind, I personally never saw HoFD or TFE so I never made a judgement on the titles, and I firmwared the Samsung as soon as I got it so the NR chip was set to off by default. Tbh I never experienced much of what people complain about so I may not be the best person to make a judgement on how each respective format started out.

Also I see that you complained that I am trying to downplay Toshiba's price advantage (I am not btw), I see threads such as "how would we test AVC defficiencies" etc... as soon as BD starts to use AVC more commonly. AVC use is a major advantage to BD and it has been well implemented over the last bunch of SPE and Disney titles, but we still see these threads to downplay a BD advantage. Getting to the point though, this phenomenon is not exclusive to either side.

Because low prices are rquired for mass adoption. If mass adoption doesn't happen BD/HDVD will go the way of DVD-A/SACD.OTOH, the player software should to be very stable (regardless of the format) before you should want J6P mass adoption. Otherwise, I would think much bigger headaches would occur. J6P expects CE products to be pretty bullet-proof in operation and reliability.

We have a tradition, and that is that the profit from research and development comes from the royalties one gets through intellectual property. In most fields of endeavor, the royalties is what drives research, and the same is true here. This has very little to do with manufacturing.

There is evolving a natural division of labor in the world. First world countries do the R and D, and get paid through royalties. Second and Third world countries do the manufacturing and get paid through retail sales. This is not true in every field, but in many, including CE, it is.

Manufacturing is best left to those places where it's most efficient. For most products, that isn't first world countries. That's only a problem if you are a first world manufacturer, but that's globalization for you. We can't expect other countries to buy what we are the best at producing if we don't buy what they are the best at producing.

In this case, a group of Japanese CE companies wants to make sure they get to make the products for a long time, before the Chinese CE companies come in and take the field. The Chinese can make the products more cheaply because they have lower salaries, less safe working conditions, no unions, etc. So first world countries can't really compete with that.

Of course, the Chinese are already making, to one extent or another, most of the products on both formats. The PS3, by far the leading BD player, is made in China. Most of the Toshiba units are made in China. I would bet that the add-on is mostly Chinese (I include Taiwan as part of China here, though I understand some would disagree.)

So it's not about quality of the products. Second and Third world countries are going to make out products, it's just a question of who's name gets slapped on the label, and how much profit margin is involved.

OTOH, the player software should to be very stable (regardless of the format) before you should want J6P mass adoption. Otherwise, I would think much bigger headaches would occur. J6P expects CE products to be pretty bullet-proof in operation and reliability.


Good point.

I agree with your read of the various estimates, dhodory.

However, given the extremely high starting point estimate of $674, even if we allow for 20% fungible manufacturer volume cost and a 30% optimization of efficiency through engineering improvements and process flow (which I feel are high estimates for all of the above given the timespan since the analysis), we're still over a $300 price tag, before licensing (potentially waived), packaging, delivery, Q&A, breakage, returns, plus the other overhead costs you mentioned previously.

Yet we know Toshiba is selling the HD-A2 at around $300 to retailers. I'm just not seeing anywhere else that the cost savings can come from, which is why I'm skeptical of the idea that Toshiba is playing a cost leader role, and not a loss leader role.

Not really in a position to agree or disagree, as much of that hard cost data would probably be hard to pin down even within Toshiba or Sony (believe it or not). In general, however, when I look at both competitors, they both appear to be playing to their strengths/options: Sony - differentiated, branded product at if not a premium price, at least not a low price; and Toshiba - less marketing savy, lower cost (and lower priced) player.

In general, I believe that Sony is going for the "first or second round TKO" with their approach, and Toshiba is pretty much approaching this from the "if I can make it to round six, I'll win or at least get a draw" perspective.

I don't necessarily like/dislike either vendor, although as a consumer, I do favor Toshiba's approach (on more than just the cost/price issue). I haven't jumped into the HD disc market (yet). I see this fight nearing the end of round two. If Toshiba can make it through the end of December 2007 without being totally beaten up, I think both formats will persist for some time.

Why is everyone obsessed with lowering prices?

Lowering prices brings the technology to the masses and the masses bring content demand.

Short answer? Because most posters are from America, and we worship discounted prices, often to the exclusion of quality and futureproofing. Seems to stem from our mythological perversion of how "The Free Market" works.

Because I'm not rich. Nough said.

Shouldn't the low cost of the content be important too?

Especially with Warner's $35 flippers.

The high cost of the media is even slowing me down, and I spent $600 dollars on a console due mostly to its future potential, and $650 (+300 on a 750gb drive) on an HD DVR (tivo S3) when I could have gotten an HD DVR from the cable company for $10 a month.

In other words, I am someone who is not afraid to spend money for new stuff, but when it comes down to dropping $30 (or more) on a movie, I hesitate.

The point, which you have obviously missed, is are we willing to give up cool new stuff and general innovation for lower prices? As this is the way it seems to be going.

Why do you believe this? If the lower cost format is the one with "more cool stuff" doesn't that tell you something.

I think many people are blind to how much markup there can be in CE products. Do you realy believe HD optical drives cost $200 to manufacture when they're making hundred of thousands of units? Ofcourse not - just look back at the DVD writer price wars, as soon as mass production started (hundred of thousands of units) prices plumeted around 80% over a 12 month period, and did anyone questions if they were still making a profit? I sure as hell didn't.

Toshiba is in a good position in that they are selling about as many standalone units as the entire BDA - surely one can see in such a scenario toshiba can be far more competitive on price.

OTOH, the player software should to be very stable (regardless of the format) before you should want J6P mass adoption. Otherwise, I would think much bigger headaches would occur. J6P expects CE products to be pretty bullet-proof in operation and reliability.

Exactly - and i'm prety sure HDDVD will hit those goals at the same time they reach the price goals $199-$249 for mass adoption.

R&D costs are very high these days, promotional costs while high, are not even in the same league as developing a whole new technology out of nothing. Which is basically what BD is.

I disagree. Yes BD is new but it's hardly built from scratch. There's about as much new stuff in BD as there is in HDDVD. From my expereince promotional (marketing) costs for a successful product launch, and continued consumer adoption are approx 150% of the R&D costs.

Why do you believe this? If the lower cost format is the one with "more cool stuff" doesn't that tell you something.

I think many people are blind to how much markup there can be in CE products. Do you realy believe HD optical drives cost $200 to manufacture when they're making hundred of thousands of units? Ofcourse not - just look back at the DVD writer price wars, as soon as mass production started (hundred of thousands of units) prices plumeted around 80% over a 12 month period, and did anyone questions if they were still making a profit? I sure as hell didn't.
These are all good points, but there's some differences to observe:

(1) Only one manufacturer is making HD DVD units. There is little internal price pressure for cut costs. Part of the reason those DVD units went down so quickly was that manufacturers had multiple suppliers to choose from, and suppliers had multiple manufacturers to shop their goods to. Neither of these is true at this time for many of these parts, I'd wager.

There aren't a ton of people out there producing blue-violet diodes in any quantity, so Toshiba is probably feeling the pinch there, and a lot of the other components are either already standard issue and devaluated as much as they're likely to be in the near future (i.e. memory, casing materials, general components, drive housings, etc.) or haven't been on the market long enough to have depreciated much due to lack of competition.

(2) We don't really know what the real production quantities are on HD DVD. My best guess is somewhere in the 200-300K range now, but that's somewhat misleading because the quantities are scattered between several different models, and the drive itself only constitutes a portion of the component cost. Unless Toshiba has made some major engineering cost efficiency breakthroughs (of which there are no indications on the surface), what we should be seeing is incremental efficiency over time.

If we're going to talk efficiency of cost due to production volume, we need only look at the PS3 for contrasting example. Sony even produces their own blue-violet diodes for the PS3, so they cut that part of the cost away already, yet I've not seen a single person anywhere suggest that Sony is now making a profit per unit despite producing close to 4 million units of the PS3, noting that the original iSuppli estimate of the bill of materials was $840 with a current MSRP of $599 (and with the foreknowledge that consoles are sold at minimal profit to the retailers, with the expectation of profits on the back end from software sales, which means that the PS3 sells at wholesale much closer to its actual MSRP than a standard CE unit).

Toshiba is in a good position in that they are selling about as many standalone units as the entire BDA - surely one can see in such a scenario toshiba can be far more competitive on price.
How does having similar volume equate to a better ability to compete on price? I don't understand this statement.

The problem with Toshiba is they're not a movie studio. For all their cash reserves, neither is Microsoft.

Sony can bring out a Casino Royale or a Spider-Man to cause Blu-Ray sales to boom. Toshiba can't. Toshiba's fighting the good fight, I'll give them that, but they're fighting with limited ammo.

OTOH, the player software should to be very stable (regardless of the format) before you should want J6P mass adoption. Otherwise, I would think much bigger headaches would occur. J6P expects CE products to be pretty bullet-proof in operation and reliability.Excellent point! I know I have been embarrased by my HD-DVD player on occasion when I was showing it off. Mainstream electronics consumers aren't going to have the same patience and understanding that early adopters do.

The problem with Toshiba is they're not a movie studio. For all their cash reserves, neither is Microsoft.

Sony can bring out a Casino Royale or a Spider-Man to cause Blu-Ray sales to boom. Toshiba can't. Toshiba's fighting the good fight, I'll give them that, but they're fighting with limited ammo.Spiderman???? Why does Spiderman always get referenced? How is Spiderman any better than Superman or Batman? BD fans always mention Spiderman like it's Star Wars or something. I just don't get it. :confused:

The problem with Toshiba is they're not a movie studio. For all their cash reserves, neither is Microsoft.

Sony can bring out a Casino Royale or a Spider-Man to cause Blu-Ray sales to boom. Toshiba can't. Toshiba's fighting the good fight, I'll give them that, but they're fighting with limited ammo.

I hope when you say "sales boom" your point of reference isn't just the number of BDs sold in comparison to HD DVDs.

To me a sales boom isn't even possible if people aren't actually running out and adopting the format/players as a result of these releases. Casino Royale is fun movie, but $600 is pretty steep ticket when the 2-disk SD will be in you face for $20 at stores that don't even carry HD anything.

There is this perception being bandied about that there is a world of fence-sitters out there that one or two stones are going to dislodge. I could be wrong, but I don't see it, at least not until player and movie prices go way down.

Excellent point! I know I have been embarrased by my HD-DVD player on occasion when I was showing it off. Mainstream electronics consumers aren't going to have the same patience and understanding that early adopters do.

They won't know what firmware is let alone how to update it!

Spiderman???? Why does Spiderman always get referenced? How is Spiderman any better than Superman or Batman? BD fans always mention Spiderman like it's Star Wars or something. I just don't get it. :confused:

Because it is an exclusive franchise which is incredibly popular (granted they have made a few mistakes and disregarded a lot of the comic book stories, but overall they are still pretty entertaining) and the third one is coming out in May, so there is a bit of anticipation.

BB was never a tier 1 comic book film, well, the first half was, but the second half could have been a lot better and Spiderman is regarded by many as the best comic book film franchise of recent times.

Because it is an exclusive franchise which is incredibly popular (granted they have made a few mistakes and disregarded a lot of the comic book stories, but overall they are still pretty entertaining) and the third one is coming out in May, so there is a bit of anticipation.Well, I did like Spiderman, I wasn't too impressed with Spiderman II, I guess I just have a problem with it being labeled as a title that can change the tide of the war or even make a big impact. I consider the Star Wars, LOTR , Matrix, etc to be big hitters and I constantly see Spiderman thrown around from the BD side. Then again I guess I also see Jurassic Park being thrown around on the HD-DVD side and I'm not all that impressed with that franchise either.

Well, I did like Spiderman, I wasn't too impressed with Spiderman II, I guess I just have a problem with it being labeled as a title that can change the tide of the war or even make a big impact. I consider the Star Wars, LOTR , Matrix, etc to be big hitters and I constantly see Spiderman thrown around from the BD side. Then again I guess I also see Jurassic Park being thrown around on the HD-DVD side and I'm not all that impressed with that franchise either.I think it is "Spiderman 3" that could really have the impact. It is much tougher for things that people already own on DVD to have a big impact beyond the enthusiast crowd IMO. Those others should be big, but not like day-and-date of a title in their class or really close to it. In 2004 "Spiderman 2" and "Shrek 2" went against each other and it was $441 million to $374 million in the US with "Shrek 2" leading. I expect that the 3rd versions of each could be big. "Shrek 3" is especially interesting in that it could be used to try to sway the war by releasing it exclusively on one format, or it could be another neutral title that does well. I haven't seen an announcement for the Dreamworks Animation group, although it would seem that neutrality would be the most likely at this point.

--Darin

I want to know why everybody is obsessed with lowering prices.

At current volumes, studios are not making any money. They have sold an average of just 4,000 copies per title.

So, if HiDef DVD is to not go the way of SACD/DVD-A or UMD (sony's failed movie format of recent vintage), volumes need to go up rather sharply. The only way that will happen is if the entry price is lowered.

Let me repeat. No mass adoption means death of HiDef.

I think it is "Spiderman 3" that could really have the impact.

I wonder. I'd be surprised if any single movie can really have such a deep impact. Afterall how many will buy BD instead of HD DVD because of a single movie ?

Let us do a thought experiment. Let us assume BD player costs about $200 more than a HD DVD player. So, someone buying BD instead of HD DVD because of a movie is equivalent to the person paying all of $225 for the movie.

I'm willing to bet that very few (as a %) people would buy a spiderman III thusly priced.

Gooki: Toshiba is in a good position in that they are selling about as many standalone units as the entire BDA - surely one can see in such a scenario toshiba can be far more competitive on price.

Icemage: How does having similar volume equate to a better ability to compete on price? I don't understand this statement.

Economies of scale: 1 company producing 300,000 units vs 5 companies producing 60,000 units each... hmmm i wonder which one is able to be more comepetive on price.

Per original post, you seem to be worried "cool new things" will go away, because of price competetion. One of the most price comepetive CE markets (video game consoles) produces the most advanced technology. Yes they receive money through licencing and royaltes, but so do BD and HDDVD, hell even DVD does. We need prices to go down to get mass adoption, once mass adoption is achieved you will get the high end, lower volume CEs pushing the limits of the technology with "cool new features".

If you try and do it the other way round you end up with a smaller market, and content providers get turned off. This is one of the issues the BDA has to face if they want to succeed.

To sum up. Price comeptetion doesn't drive away innovation or investment in R&D. The opposite happens because with price competetion, products have a shorter time span that they will be proffitable for, hence one has to differenciate their products to regain market share, and keep profits high. One of the easiest way to differenciate ones product is with "cool new features".

Because my consumer objective is to spend the least money for the most quality. I suspect that the vast majority of the market would share my calculus.

I wonder. I'd be surprised if any single movie can really have such a deep impact. Afterall how many will buy BD instead of HD DVD because of a single movie ?

Let us do a thought experiment. Let us assume BD player costs about $200 more than a HD DVD player. So, someone buying BD instead of HD DVD because of a movie is equivalent to the person paying all of $225 for the movie.

I'm willing to bet that very few (as a %) people would buy a spiderman III thusly priced.


Spiderman3 won't push BD over the threshold unless BD CE manufacturers' start lowering player prices significantly. The same holds true for HDDVD as well. In this context, formats cannot thrive on content alone.

Firms like iSuppli provide good relative measures of cost, not absolute measures of cost. That is, if you compare iSuppli's teardown of a PS3 with a teardown of a HD-DVD player . . . you'll probably get a decent (not great) relative measure of cost. Tons of stuff gets lost in this process however, to name a few:

Incomplete list of things not included that would drive actual costs up:
->R&D amortization
->PP&E amortization
->overhead costs
->licensing (IP) costs, if applicable
->location of manufacture currency risk
->currency risk hedging costs

Incomplete list of things not included that would drive actual costs down:
->volume purchases/discounts
->manufacturing 'experience curve' (i.e., for every doubling in volume, 20% cost reduction)
->outsourcing of critical/expensive processes (i.e., make 'em in China)
->re-design of hardware (i.e., reduced component counts, lower reliability components where appropriate, thinner gauge metal and plastic -- although some of these are already encapsulated by experience curve)
->adjustment to target margins

Certainly when both Sony and Toshiba started down the path of approving their respective new product development programs, they undoubtedly had target IRR, NPV, and ROI goals. But in most cases, in a battle this big with this much at stake, the rules/guidelines probably get thrown out the window once the melee (sp?) starts -- either that or both likely had done some gaming analysis to evaluate several probable course of events, what their competitive responses would be, and what the financials for responding in such a way would be.

Looking at the larger picture, Sony does not typically sell at the lower end of any market they participate in unless they are forced to do so by competition. That could imply many things, but the two most likely implications are: 1) Sony does not fancy itself a "low cost producer" in terms of manufacturing process, or 2) Sony cannot be a low cost producer based upon their corporate governance structure and overhead costs. Again, there can be other explanations, but time and time again, businesses that don't compete on price don't compete on price because they're not set up to do so operationally/structurally. Sony C/E model seems to be built upon extracting higher (than average) margins for the Sony brand as well as proprietary technologies.

All Toshiba is doing is attempt to increase the slope of the technology diffusion/adoption curve (and the product life-cycle curve) by decreasing price more rapidly than its competition. I don't know much about Toshiba operationally speaking, but I suspect that they may have lower acceptable corporate margins and lower corporate hurdle rates, which would "allow" them the wiggle room to beat Sony on price consistently.

One thing I learned from competing with and partnerin with the Japanese in the manufacturing environment is that their outlook is dramatically different from American companies. If the Japanese believe that they can dominate a lucrative market for 10-15 years, but it will take them 3, 5, 7 years selling at zero or negative margins . . . they'll do it. They have a much longer time horizon and aren't strictly driven by U.S. corporate notions around NPV models and ROI. Exactly right. iSuppli is valuable because they provide a consistent methodology to compare relative costs. Everyone one knows the actual costs aer probably less do too factors like volumes and pricing negotiations but they in the long run should be equal or they can be factored into further analysis that teh client company can provide. To say iSuppli numbers are absolute is a misuse of their analysis. Their numbers are most valuable in relation to other cost numbers supplied by them in a relatice sense.

Why is everyone obsessed with lowering prices?

Lowering prices brings the technology to the masses and the masses bring content demand.

Lower prices mean more player sales and more player sales means more discs sales.

HD DVD companies are aggressively trying to lower player prices down to mass adoption levels.

It's arrogant to assume that Toshiba is not making a profit on its second generation players as that would be very out of character for Toshiba as a fairly conservative corporation.

However, a relatively small profit on millions of units during the next few years and a dominant market position thereafter tying in with more profitable Toshiba HDTV sales and royalties would be very much in character.

HD DVD adoption of a Chinese only codec version of HD DVD players that could be quickly converted to cheaper OEM SoC HD DVD players is also consistent with the vision that player prices are currently to high for mass adoption for consumers.

But a $199 price point goes well with $999 HDTV's which is now the acceptable consumer HDTV purchase point.

HD DVD's pricing structures with low mid and high range products with advancing feature sets will make sense to consumers.

The only way it doesn't is if you fanatically assume that multiple manufacturers will be producing products that are losing money to produce. you also have to assume that Toshiba will produce 100,000's to millions of CE units without a gaming console royalty stream. That would be insane. The only alternative is that Toshiba and the other producers expect costs to be low enough for them to make a profit.

HD DVD companies obviously expect to make less profit on a larger number of players than the Blu-ray only companies do this year on their lower volume higher cost Blu-ray players. Both models can be profitable. But the one HD DVD is following that includes the lower cost will lead to faster consumer mass adoption.

Thats (as the OP asked) is " why is everybody obsessed with prices?" Because lower prices lead to a greater installed base of players and greater adoption of the HD optical formats.

I've had this conversation with my friend Icemage before. :)

Either other companies will arrive this year selling HD DVD players will arrive or they won't. If they do, and at a lower price than the Toshiba players, it may make Icemage's assumptions look foolish in retrospect because they cannot exist under his assumptions.

As another point, if Toshiba officially lowers its HD A2 pricing from the $499 to $399 then that would also be unlikely under his assumptions. or it would a sign or Toshiba desperation, or something or another. Or it may indicate that Toshiba is indeed making some level of profit and that Icemage has some faulty assumptions or errors in his logic.

But another plausible scenario is that the design similarities between HD DVD and DVD besides the CPU and memory to run HDi and the blue laser diode might make HD DVD players cheaper to build in mass quantities in the short term than Blu-ray players. Memory and low end CPU's are already mass market commodity items and SoC solutions with optimized software can be made cheaply so that the only cost driver and production bottleneck is the blue diodes and optical pickup assemblies.

Mass market Chinese production and ramped up blue diode production could lead to lower cost HD DVD players by this fall or certainly by next year.


There is another possibility that Icemage may be refusing to recognize. That is Toshiba is already making a reasonable profit on its HD A2's and a significant profit on its HD XA2s. Enough that it has actually kept its MSRP at $499 because sales are relatively strong at Circuit City at that MSRP $499 price point and that it doesn't make sense to have a lower price until the HD A20 is ready for shipment.

Icemage does not believe Toshiba is making a profit at a $499 retail price, so a $399 MSRP would tend to refute his argument. And other HD DVD players priced lower than that by the end of the year from other companies without Toshiba's royalty streams would also tend to show that his assumptions would be in error.

It would be cool to get a few opinions off Kosty and the other HD DVD early adopters if you can spare a minute. Been offline for a few days dealing with real world client issues. :eek:

Hope the above posts help a bit.

I want to know why everybody is obsessed with lowering prices.

as an movie collector, a difference of a mere $2 makes a lot of difference at the end of the day (more than 5,000 CDs, DVDs, LDs in my collection, total).

People are obsessed with prices because of the free market. the people bring out their price level for different types of product, basically their max spending limit. In order to sell product a company must try to bring it's product price in line with consumer limits. If they don't get to that limit then product doesn't sell. If a company creates this awesome product which is intended for everyone (e.g. blu Ray or HD DVD) then they need to price match what the consumers are willing to pay. If they don't very few product is sold. Even if you create a machine that is worth $1000 but the consumer limit is $400 it makes no difference how great a value it is. If they don't make a machine in the $400 range then that great value is wasted. I'm not saying that every company needs to adopt a loss leader strategy on hardware, but that they must create a product that falls in line with the consumer price range to achieve adoption and get out of niche status. High prices do not equal niche status. Higher prices than what people are willing to pay causes niche status.

Exactly right. iSuppli is valuable because they provide a consistent methodology to compare relative costs. Everyone one knows the actual costs aer probably less do too factors like volumes and pricing negotiations but they in the long run should be equal or they can be factored into further analysis that teh client company can provide. To say iSuppli numbers are absolute is a misuse of their analysis. Their numbers are most valuable in relation to other cost numbers supplied by them in a relatice sense.

Very nice in theory, except isupply estimates for the HDD is higher than what I pay to buy the same HDD in retail, not to mention that pricewatch.com has an even lower price. If they can get that wrong, I suspect their reserach consists of calling up random suppliers and asking for a quick quote, which is useless.

Try building and assembling a prototype pcbs of 100 and ask for quotes vs face to face meetings for a 100K order, and you get very different prices. iSuppli should know this, yet can't seem to get their estimates anywhere close.

From a quick glance at some of iSuppli's estimates, and bearing in mind the time frame they were done in their estimates seem at least plausible for fair market warehouse pricing. I don't know if their methodology extends to estimating for volume pricing, but they probably don't (since they have no way to determine how low the pricing will go in volume).

At any rate, arguing about it isn't accomplishing much one way or another. :) Either the cheaper units on either/both sides will arrive, or they won't. It's not that I believe such units aren't possible; of course they are - the question is time. We saw something similar with DVD when it launched - it just took a whole lot longer, and there's not much reason to think otherwise here either. Less so, actually, since high definition content is much more niche than DVD ever was given the number of people that can actually take advantage of the differences.

At any rate, arguing about it isn't accomplishing much one way or another. Either the cheaper units on either/both sides will arrive, or they won't. It's not that I believe such units aren't possible; of course they are - the question is time. The first indicator will be the HD A2 MSRP. When that drops to $399, then that's a clue.

Tell you what, when the first HD DVD player from a company other than Toshiba arrives at a lower MSRP than a Toshiba model, I'll buy you a HD DVD movie of your choice that you can play in the inevitable HD DVD player that you will eventually buy. :cool:

Seriously.

Remind me of this Icemage, and I'll get it for you to sooth over your agony when they arrive. ;)

I understand your reasoning, my friend, its just that I think you are wrong about the HD DVD player costs when they are being produced in volume.

Been offline for a few days dealing with real world client issues. :eek:

Hope the above posts help a bit.

No worries, good to know your opinion on the matter.

Do you think we will see continued innovation in the CE field if the companies lose out on hardware profits?

The first indicator will be the HD A2 MSRP. When that drops to $399, then that's a clue.
Not sure I agree with this, since I think we can both agree that the price to retailers on the unit is already circa $300. Unless we can confirm that the price Toshiba is selling their units to retailers is down below $250 or so as well, then we can make some suppositions along those lines. Otherwise the only thing they're doing is taking margin away from retailers.

Tell you what, when the first HD DVD player from a company other than Toshiba arrives at a lower MSRP than a Toshiba model, I'll buy you a HD DVD movie of your choice that you can play in the inevitable HD DVD player that you will eventually buy. :cool:

Seriously.

Remind me of this Icemage, and I'll get it for you to sooth over your agony when they arrive. ;)

I understand your reasoning, my friend, its just that I think you are wrong about the HD DVD player costs when they are being produced in volume.
And you may well be right. :) That day isn't today, though. As you've seen from my past posts, I can perhaps believe a $400 MSRP if companies aren't much interested in profit and Toshiba is superhuman at engineering.

Tell you what though, I'll reciprocate the offer. If a standalone Blu-ray player closes to within $100 MSRP of the lowest MSRP HD DVD player the next 6 months, I'll buy you a Blu-ray disc of your choice. This should be good odds for you, since the Sony BDP-S300 should meet this condition in June if the HD-A2 pricing doesn't change and no lower units are released.

Economies of scale: 1 company producing 300,000 units vs 5 companies producing 60,000 units each... hmmm i wonder which one is able to be more competitive on price.Probably not much difference at those low volumes. :)

One of the most price competitive CE markets (video game consoles) produces the most advanced technology. Yes they receive money through licencing and royaltes, but so do BD and HDDVD, hell even DVD does.What about all the companies that don't, like the SoC decoder suppliers or smaller player manufacturers?

Price competition doesn't drive away innovation or investment in R&D. Well, it did happen on DVD and is happening now on HDTV. As a company that pushes "cool new features", I run into this all the time. Had it pointed out to me personally 3-4 times a day for two weeks while in Asia last month. Higher-end products with "cool new features" sell very little compared to the mainstream.

...snip...

I want to know why everybody is obsessed with lowering prices.

...snip...



Lack of funds?

At an HD conference at CEBIT in Germany this week, a pundit said that HD DVD player prices will commonly be below $400 later this year and below $100 in 3-4 years.

That's when the players will be in every household and CE manufacturers will likely "slipstream" HD DVD in place of DVD players.

...snip...
I want to know why everybody is obsessed with lowering prices.



Lack of funds?

If you don't have the money don't buy. I have always seen it that way, I don't have the money for a Pioneer PROFHD1 so I won't buy one.

If you don't have the money don't buy. I have always seen it that way, I don't have the money for a Pioneer PROFHD1 so I won't buy one.

However this is a format (or 2 really) that is aimed at taking over movie viewing for everyone, that includes the masses. You don't create a "budget" player for the masses you lose your target audience.

However this is a format (or 2 really) that is aimed at taking over movie viewing for everyone, that includes the masses. You don't create a "budget" player for the masses you lose your target audience.

I am not arguing that there shouldn't be budget players, all I have said is that the speed at which the prices have come down is slightly alarming. DVD took a while to reach $199, but HD DVD might do it by August/September (basically in time for Xmas/Thanksgiving).

The question at hand is, will hardware manufacturers and the like stop investing in R&D for cool stuff if they are unable to cream a lot of profit off the top. That is what I am trying to get at, not mass adoption at high prices, that never happens.

I am not arguing that there shouldn't be budget players, all I have said is that the speed at which the prices have come down is slightly alarming. DVD took a while to reach $199, but HD DVD might do it by August/September (basically in time for Xmas/Thanksgiving).

The question at hand is, will hardware manufacturers and the like stop investing in R&D for cool stuff if they are unable to cream a lot of profit off the top. That is what I am trying to get at, not mass adoption at high prices, that never happens.

I see where you're coming from. However I think that it's less from this desire to have low prices (everyone everywhere is always looking for a deal, thats human nature) but rather we've got a vicious war going on between 2 different formats. Both Toshiba and Sony saw what happened with DVD and they both want the lion's share of the royalties from Billions of discs. They are striving with all their might to appeal to as many people as possible in the hopes of killing off the competition. with DVD there wasn't as strong an opponent. It was pretty much agreed that DVD would be the successor to LD and VHS by everyone (except the stalwart LD people) and the only competitors were pretty lame in comparison (DIVX etc...) Blu Ray and HD DVD are two competing formats that started out of the gate at nearly the same time with really very very similar stats. As much as people like to spout specs here the specs of Blu and HD DVD are remarkably similar in comparison to other format wars. This is remarkably similar to how DVD-A and SACD was. I believe that both sides are desperate for this to not turn into a dead format or both killing off they other, they want a knockout and are willing to do anything to get it. Even subsidize players.

Probably not much difference at those low volumes. :)

What about all the companies that don't, like the SoC decoder suppliers or smaller player manufacturers?

Well, it did happen on DVD and is happening now on HDTV. As a company that pushes "cool new features", I run into this all the time. Had it pointed out to me personally 3-4 times a day for two weeks while in Asia last month. Higher-end products with "cool new features" sell very little compared to the mainstream.


I don't doubt what you're saying kjack, but higher end products bring higher end prices. As you know, luxury items generally have better margins associated and thus the manufacturer may gain from their risk taking endeavor. Of course that's a very general presumption and I'm sure there are many examples of failure, but also, success.

Is that an unreasonable position?

Price competition doesn't drive away innovation or investment in R&D.
Well, it did happen on DVD and is happening now on HDTV.

How/why? Please be more specific. As far as i can tell DVD got pushed to it's limits, and HDTVs still have many new technological steps to make.

As a company that pushes "cool new features", I run into this all the time. Had it pointed out to me personally 3-4 times a day for two weeks while in Asia last month. Higher-end products with "cool new features" sell very little compared to the mainstream.

Which is why high end products get made by high end brands that can attract a customer base who can afford their high margins.

What about all the companies that don't, like the SoC decoder suppliers

What about them, they sell hundreds of thousands to millions of units to a variety of manufacturers. You work in a high volume industry, you have to expect tighter margins, but at the same time as a company that has the potential to create cutting edge required technologies you should be able to secure a fair price for your products (because the amount competetion in the new revenue areas is small).

As far as i can tell DVD got pushed to it's limits, and HDTVs still have many new technological steps to make.Pop the back of a typical LCD HDTV and take a look. :) Cost of non-panel parts is under pressure to reduce by 20% over the next 6 months. If J6P decides to spend $100 more on a HDTV, they opt for a bigger one, not one with more features.

...but at the same time as a company that has the potential to create cutting edge required technologies you should be able to secure a fair price for your products (because the amount competetion in the new revenue areas is small).Oh, how I wish it was that simple...but it sure is fun... :)

I want to know why everybody is obsessed with lowering prices.

The way I see it is that we complain about prices being too high, but clearly they are high for a reason, companies would like to recoup part of their investment into R&D. If we see an end to expensive early adopter pricing (a la Toshiba) will we see an end to innovation as companies won't bother spending R&D money they know they will never get back?

...



Everybody? Are early adaptors complaining?

Until there're some concrete figures for costs and profits or losses it remains all speculation. And I suppose even when one product makes a loss for a company other products can make up for it for the time being. As I see it, having two competing formats must be an important factor in pricing decisions. So making a temporary loss should be seen in the light of a long term strategy.

I wonder what the decision makers of the respective manufacturers think after reading this whole thread.
:D

I wonder what the decision makers of the respective manufacturers think after reading this whole thread.
:D

That Dip-$hits who write in these forums have already bit the hook, now how can we get the real world to buy our stuff :eek: :D