Looming end to DVD war cheers consumers

TOKYO (Reuters) - An impending end to a format war over next-generation DVDs boosted shares in both victorious Sony, in the Blu-ray corner, and Toshiba, in the losing HD DVD camp, on Monday as consumers cheered an end to confusion over which discs will carry high-definition movies.

Shares in Toshiba Corp, which a company source said was planning to axe its HD DVD format, jumped nearly 6 percent as analysts praised a move to cut its losses, while Sony Corp shares rose 1 percent.

The Blu-ray win means consumers seeking sharper movies on high-definition DVDs no longer have to choose between rival incompatible formats and run the risk of being stuck with a 21st century equivalent of Betamax -- Sony's videotape technology that lost out to VHS in the 1980s.

Having one format should also help accelerate the shift to the new technology in the $24 billion home DVD market.

"It doesn't make sense for Toshiba to continue putting effort into this," said Koichi Ogawa, a chief portfolio manager at Daiwa SB Investments. "It needs to cut its losses and focus its resources on promising businesses."

Both DVDs can carry high-definition movies, but growing support from Hollywood and big U.S. retailers such as Wal-Mart Stores has given Blu-ray a crushing lead in the war.

Overall sales have so far been small as shoppers, faced with rival machines that played only one type of disc or the other, have held back.

"I was expecting Blu-ray to win but I was kind of waiting it out," said Masahiro Taniwaki, a 26-year-old systems engineer shopping for a Blu-ray recorder at electronics retailer Bic Camera in Tokyo.

Toshiba said on Monday that no decisions had been made on HD DVD, but widespread media reports said the company that has led the HD DVD fight was about to surrender.

"The two formats, though both were good, have confused consumers and prevented them from moving into the high-def future," said Stephanie Prange, editor in chief of Home Media Magazine.

HOLLYWOOD FAVOURS BLU-RAY

The defection from HD DVD in January of Warner Brothers and its huge film library brought the tally of Hollywood movies in the Blu-ray camp to a commanding 70 percent.

Recent sales figures show many consumers had already written off HD DVD, which was also backed by Microsoft Corp.

Blu-ray accounted for 93 percent of next-generation DVD hardware sales in North America in the week after Warner's announcement in January, data from the NPD Group showed.

Blu-ray recorders from Sony, Matsushita and Sharp made up about 96 percent of the Japanese market in the last quarter of last year, said BCN, another research house.

At the core of both formats are blue lasers, which have a shorter wavelength than red lasers used in current DVD equipment, enabling discs to hold up to five times as much data.

Toshiba had billed its format as less costly for the industry as it allowed some existing DVD-making equipment to be reused, but Blu-ray discs had space for more content to be packed in.

Hopes that ending the battle would boost disc sales sent shares in CMC Magnetics, a Taiwan firm that makes about a third of the world's DVDs, up nearly 7 percent on Monday. Other Taiwanese DVD makers also surged.

LOSSES NOW, PROFITS LATER

Toshiba will likely suffer losses of hundreds of millions of dollars to scrap production of its equipment and other steps to withdraw from the business, Japanese public broadcaster NHK reported.

But analysts gave high marks to Toshiba's move to pull the plug on HD DVD just two years after launching its first players. It took Sony more than a decade to quit Betamax.

Nikko Citigroup raised its rating on Toshiba to "buy/high risk" from "hold/high risk". JP Morgan maintained an "overweight" rating while predicting the elimination of sales promotion costs would add 30 billion yen ($280 million) to Toshiba's operating profit in the next business year from April.

Shares of Toshiba hit 829 yen, their highest close since before Warner Brothers defected but still down more than a quarter since the subprime crisis hit last year.

Sony shares have also fallen heavily over the same period, amid growing fears of a U.S. slowdown that would slow consumer spending.

While Toshiba was still officially silent on the fate of its technology, pundits and consumers were clear the war was over.

"Blu-ray won. It's fantastic and I trust Sony," said one customer, William, as he browsed DVD player aisles at the Best Buy Co Inc store on New York's Fifth Avenue.

($1=107.83 Yen)

(Additional reporting by Yoko Kubota and Elaine Lies in Tokyo; Steve James in New York and Lisa Baertlein in Los Angeles; Editing by Rodney Joyce)