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A white paper for Toshiba.

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Increase High-Definition Software Sales with Format Neutrality

White Paper by Daniel Ward

December 2, 2007

Increase High-Definition Software Sales with Format Neutrality

Movie studios seeking to gain a wider audience in the growing High-Def optical disc market face severe obstacles from competing formats and the lack of cross-platform consistency. In choosing sides, studios run the risk of being on the losing end of prevailing market conditions and consumer sentiment, not to mention positioning themselves at a technological disadvantage. The net result is a loss of profits, crucial market share, and corporate credibility. The answer lies in providing format neutrality, resulting in greater audience exposure, acceptance, and profits. The Challenge: Competing High-Def Disc Formats The home video market is a 20 billion dollar annual industry thanks in large part to the overwhelming success of DVD. As of August 2007, approximately 132 million DVD players have been sold in the U.S. alone. Yet through the first three quarters of 2007, High-Def disc sales only accounted for 120 million in revenues—a mere .17% of the market.1 Clearly, consumers are hesitant about embracing rival high-def formats with the same enthusiasm as DVD. Reliance on Costly Hardware Sales
Expensive standalone players prevent average consumers from more quickly adopting a new format.

Movie studios vying for format supremacy face a difficult prospect when relying on hardware sales to drive the market. Stand-alone players are expensive and game consoles—equally expensive and targeted at youth, first and foremost—have little appeal to an older movie connoisseur audience. Strict corporate dictates and sales strategies can ultimately stranglehold aggressive pricing, making it difficult to move merchandise and establish a prosperous base. Ignoring Early Adopters Releasing content exclusively on one format results in studios failing to take advantage of half of the existing market. Early adopters tend to be a younger demographic—comfortable with technology and willing to take risks on new offerings—ultimately serving as vocal advocates for burgeoning platforms and
1 Source: Variety, 2007

Toshiba • HD-DVD

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Increase High-Definition Software Sales with Format Neutrality

winning over support. Forcing them to decide between costly hardware with limited software choices divides loyalties, hinders growth and creates consumer apathy and/or bad will. Confusing Potential Customers Bringing in a less technologically-inclined audience to the fold can be a challenge with potentially confusing new technology. Consumers comfortable with the DVD format may not see the advantages nor understand the jargon associated with upgrading to a superior format, let alone two rivals. Witness the costly debacle of next generation audio as both SACD and DVD-A failed to capture an audience and replace the traditional CD. Competition from Foreign Distribution Titles released exclusively on one format are apt for release on a competing format overseas, resulting in lost profits. As more and more studios arrange foreign distribution rights with competitors, title exclusivity becomes irrelevant. Savvy domestic shoppers can simply use the internet to import exclusives such as Terminator 2, The Fantastic Four, Apocalypto, and more while dealing an embarrassing and costly blow to the original studio. Lacking in Key Technological Implementation
Studios face market penetration difficulties when their select titles can’t be featureconsistent across both platforms.

The ability for studios to push technology forward and distinguish themselves from the competition is next to impossible without cross-platform consistency. Witness high profile releases such as 300, Mission: Impossible III, and the Harry Potter series—all format neutral titles—yet one format contains key next generation web-enabled features while the competition does not. Failing to implement these new hardware standards from the onset not only limits content, but results in a lack of credibility.
Toshiba • HD-DVD Page 3

Increase High-Definition Software Sales with Format Neutrality

The Solution: Format Neutrality Format neutrality immediately delivers a wide array of studio software titles to an established and growing base seeking competitive prices, full feature capabilities, and dedicated studio support. Making use of the latest video encodes, audio codecs, and increased disc storage space, consumers are afforded the opportunity to distinguish the merits of each format's content. Additionally, format neutrality has the added benefit of allowing studios to associate themselves with not one, but two of the leading game console and software developers. The Benefits of Format Neutrality Studios embracing format neutrality eliminate consumer division over format adoption and increase overall disc sales by expanding market coverage. Eliminates Reliance on Costly Hardware Sales
Despite an initial lack of broad studio support, DVD succeeded in large part due to low-cost hardware players.

Format neutrality alleviates studio pressure on expensive stand-alone and game console players to drive software sales. With a more competitively priced alternative already at a mass adoption price point, studios need only focus on delivering a diverse selection of titles and features to expand their overall market presence.

.....44% .....53% .......3%

Dedicated Hardware Market Sales through October 20071

1 Source: NDP Marketing, October 2007

Toshiba • HD-DVD

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Increase High-Definition Software Sales with Format Neutrality

Addresses Early Adopters Providing content to an established consumer base immediately doubles market coverage and increases profits. Early adopters, either unwilling or unable to support both formats, are given access to select titles they desire. In addition, studio support reaffirms the consumer that their choice of format will be treated with equal attention to quality and commitment as rival formats. Alleviates Confusion Among Potential Customers
Format neutrality reassures consumers that their choice of format will be continually supported by major studios.

Neutrality allows the average consumer to base their format purchase on something other than title availability and support. Providing the same quality and presentation across both platforms, studios remove a potential source of confusion among prospective buyers worried about making a mistaken investment. As costs play a significant part of the buying decision, consumers need not worry about selecting an inferior product based on price alone. Nullifies Foreign Distribution Studio support of both formats eliminates lost profits on titles distributed on rival formats overseas. No longer shut out of considerable foreign or domestic importing markets, studios are able to more expeditiously recoup costs on feature films and control proprietary content for various markets. Enables Key Technological Implementation Studios can take advantage of implementing new, distinguishing technological innovations for their software by embracing format neutrality. Web-enabled downloads, such as the ability to purchase movie tie-in merchandise, interactive games, and user-friendly media features are but a few of the breakthrough extras currently available.

Toshiba • HD-DVD

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Increase High-Definition Software Sales with Format Neutrality

The Toshiba Solution: HD-DVD
Toshiba’s HD-DVD format allows studios to more broadly cover the high-def software market and increase profits.

Toshiba's HD-DVD format provides a stable and dedicated means for movie studios to deliver next generation optical discs and improve overall market penetration. HD-DVD leverages considerable technological advancements which allows studios to immediately integrate cutting edge features and expand the envelope of profit-increasing possibilities. Toshiba, the architect of HD-DVD and one of the originating founders of the DVD consortium, has developed a pioneering technology for the high-definition age. Enabling studios to introduce their products to consumers on a new stage, HD-DVD delivers startling picture and sound quality, robust interactive capabilities, and dramatically increased storage space that every bit rivals or exceeds the competition. HD-DVD System Overview The DVD Forum, responsible for creating DVD standards for the world's most popular home video format, has approved HD-DVD. Because HD-DVD has been developed as the direct successor to DVD, there are numerous similarities. Chief among them, HD-DVD can be produced on existing equipment which cuts down on manufacturing costs. And like DVD, HD-DVD can be read by a red laser, utilizing it for unique options such as hybrid discs—Twin Format (two layers, one standard definition DVD, the other high-definition) or Combination Format (twosided, one standard definition DVD, the other high-definition). HD-DVD also distinguishes itself by using a blue-violet laser to read more efficiently arranged information pits along highdefinition discs, resulting in drastically larger storage capacity. Coupled with more advanced compression methods, HD-DVD benefits from using superior AVC, VC-1, and Dolby TrueHD codecs that maximize space. For studios concerned over sufficient content space, HD-DVD now offers TL51, a 51GB capacity disc that greatly exceeds the standard 30GB disc. HD-DVD offers flexibility for studios and options for consumers.

Toshiba • HD-DVD

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Increase High-Definition Software Sales with Format Neutrality

HD-DVD Benefits Toshiba's HD-DVD option allows a more cost-effective and far-reaching solution for studios in need of greater market presence and technological implementation. Additional benefits of adopting HD-DVD include: Broad Studio and Manufacturing Support
Microsoft’s XBox 360 HD-DVD add-on enables gamers to transform their game system into an HDDVD platform at their own discretion.

Toshiba may be the driving force behind HD-DVD, but many other respected manufacturers and studios of the 220 member strong consortium continue to support and contribute hardware & software content: • • • • • • • • Microsoft Intel Universal Studios Warner Bros. Paramount Pictures Dreamworks Studio Canal Weinstein Company

Comprehensive and Exclusive Retail Support
Toshiba’s HD-DVD format, with its low cost hardware, has mass appeal to the average consumer looking for a bargain.

With most retail electronics and big box stores supporting hardware & software of each rival format, it’s essential to have leading retailers lend exclusive support where possible. Due to the low cost of hardware, Walmart and K-Mart are recent exclusive supporters of HD-DVD stand-alone players, serving as a staging ground for general consumer mass adoption. The potential sales of HD-DVD titles at these locations cannot be underestimated by studios. Leading Technological Profile The HD-DVD profile mandates certain specifications and options for adopters. Picture-in-picture functionality, internetenabled features, and continued firmware upgrade support are but a few of the advantages inherent to HD-DVD:

Toshiba • HD-DVD

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Increase High-Definition Software Sales with Format Neutrality

• • • • • • •

Secondary video and audio decoders 128MB of local storage Ethernet capability 1080p resolution Lossless audio capability (Dolby TrueHD, DTS-HD, DTS-MA) 24fps video support High Bitrate (HBR) bitstream support

While the competition must implement various profiles to meet these established criteria, HD-DVD supporting studios and consumers can make use of the expanded capabilities at present. Strong Hardware & Software Sales
“We have a more expensive version, as Sony tends to, and Toshiba has a cheaper version, which seems to keep getting cheaper. It’s a difficult fight.” Sony CEO Sir Howard Stringer, November 2007

As of November 2007, HD-DVD stand alone players have sold through 750,000 units to consumers since the format launch in April 2006, comparable to the performance of DVD during the initial 1997-1998 span.1 Of those 750,000 HD-DVD units, 90,000 were sold during a special 3 day promotional period in early November, the same amount the competition required 6 months to match. Paramount’s HD-DVD exclusive Transformers has sold 190,000 units to date, becoming the fastest and best selling high-definition title for either format.2 Conclusion For studios looking to broaden their reach over a rapidly expanding and innovative high-definition landscape, Toshiba’s HD-DVD solution offers a more viable and profitable option to a divided market. By delivering a quality product at an aggressive price, compelling exclusive features, and the promise of future technological innovations, Toshiba has taken the next logical step in the evolution of home media. To find out more about Toshiba’s HD-DVD innovation, visit http://www.thelookandsoundofperfect.com.

1 Source: Consumer Electronics Association (CEA) 2 Source: Business Wire, 2007

Toshiba • HD-DVD

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