Sony: Blu-ray Redeems Betamax
Filed Under (Company Research) by admin on 15-02-2008
Sony Corporation ( SNE) appears to have learned its lesson from the Betamax/ VHS format war. As some already know,
Sony was the primary backer of the Betamax format introduced in 1975 that competed with–and eventually–lost market share to VHS. The VHS format was introduced in 1976 by JVC and it proceeded to wear down Sony to the point where Sony began producing a VHS player in 1988, effectively ending that format battle. There is a similar battle for high definition (HD) movie disc technological supremacy today between Sony’s Blu-ray and Toshiba’s HD DVD formats. This format battle has been going on for almost two years but it is all but determined that Sony’s Blu-ray will win this one.
Sony was the primary backer of the Betamax format introduced in 1975 that competed with–and eventually–lost market share to VHS. The VHS format was introduced in 1976 by JVC and it proceeded to wear down Sony to the point where Sony began producing a VHS player in 1988, effectively ending that format battle. There is a similar battle for high definition (HD) movie disc technological supremacy today between Sony’s Blu-ray and Toshiba’s HD DVD formats. This format battle has been going on for almost two years but it is all but determined that Sony’s Blu-ray will win this one.Wal-Mart ( WMT) announced today that they will exclusively carry Blu-ray discs, as they join a chorus of retailers who have made their final decision, including Netflix and Blockbuster rentals. Even more telling, almost all of the major movie studios have made the switch to Blu-ray. HD DVD is losing both content and retail allies in quick succession. The game console market could also make a difference in the format war. Sony’s PlayStation3, which includes a Blu-ray player, has begun to see sales increase dramatically after a recent price cut. Conversely, Microsoft’s Xbox 360–equipped with an HD DVD–fights for those same consumers and has experienced a slip in sales recently. There is realistically no way for the HD DVD format to compete with the exclusive network that Sony has built around Blu-ray. Surely, this defeat will hurt the bottom line at Toshiba, an unpleasant feeling that Sony remembers well from the 1980’s.
Sony did not want to make a huge investment in developing a new technology just to lose again, and it appears this time it will have the last laugh. This victory will surely give the stock a shot in the arm. Speaking strictly from a numbers perspective, we have a positive outlook on Sony as it is selling slightly below its rational expected range that we calculate as $46-$80. This range is based on looking at what valuations the market has been willing to buy Sony in the past. So, with the future of HD movies at its fingertips and having many other successful and diversified electronics business lines, Sony’s stock should command a higher valuation in the months ahead.
