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Sony's Big Blu-ray Win (And The Next Challenge)

Tuesday, 19 Feb 2008 | 5:48 PM ET

Wall Street was thrilled that Sony's Blu-ray has officially won the high def format battle.

Sony's stock made gains Tuesday on the news that Toshiba will stop making HD-DVD players. This is the final piece in a long battle that dragged on for years, losing movie studios hundreds of millions as consumers, confused by which format to buy, didn't upgrade their DVD players, leaving the industry with a flat to declining DVD market.

Now that there's a clear winner, and it's obvious which player to buy if you have a high-def TV, the whole industry can get moving.

Everything came to a head when Sony CEO Howard Stringer got the majority of the movie studios in his camp -- most recently Time Warner's Warner Brothers deciding to go exclusive Blu-ray. This prompted Wal-Mart and other major retailers to stop selling HD DVD players. And without the big boxes selling, why should Toshiba produce HD DVD players?

This is definitely a good thing for Sony -- it allows the company to stop worrying about the battle, and start focusing on selling their next generation players.

And as the company nears the end of a three-year restructuring, now it can focus on creating new technologies. Not only is this good news for selling Blu-ray players, it also gives a boost to the Play Station 3, which has a Blu-ray player embedded in it -- one more reason Sony won this war.

And then there's the benefit to Sony's movie studio, along with the rest of the Hollywood studios -- now that the battle is over, sales of high definition DVDs and players is expected to increase.

Now, this doesn't come without a cost: Sony's downside is dealing with the effects of the price war.

In an effort to compete, Toshiba slashed prices on its HD DVD players, forcing Sony and other Blu-ray makers to slash prices and profit margins.

Now that the war is over, Sony can't exactly raise prices, so this business may be less profitable than it had originally thought. And then it's on to the next battle -- the competition between high definition Blu-rRay and digital downloads. But for now, Sony still has reason to celebrate.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.