OPINION: Need this?

Does the world need another physical format for music and video?

That’s what analysts and commentators are wondering in the wake of announcements last week from SanDisk and Toshiba regarding the use of NAND flash-based memory cards for storing recorded music and downloaded video.

SanDisk, in conjunction with the four major music distributors, announced a new configuration it calls slotMusic—essentially complete albums preloaded onto 1GB microSD cards that can be played in MP3 players, mobile phones and other devices equipped with microSD card slots.

SlotMusic cards will initially be sold through Best Buy and Walgreens outlets alongside their CD offerings.

Toshiba, meanwhile, unveiled a new partnership with NCR and MOD Systems to develop a new system that will allow consumers to quickly load movies onto devices equipped with SD cards from ATM-like kiosks in retail locations.

The partnership has not secured content from the major studios yet, but the companies said they expect to have roughly 4,000 movie and TV titles available by the time the service launches sometime next year.

Toshiba said it will roll out a new line of SD-enabled set-top boxes for playback.

But at a time when the distribution of music and video is increasingly moving online, why do we need a new physical format, even one small and portable enough to be sucked up by a vacuum cleaner or swallowed by a 2-year-old?

We do if you happen to be in the flash memory business.

The world’s largest maker of NAND technology-based flash chips is Samsung, with about 42% of the market, according to Gartner. The second largest is Toshiba, with about 27.5%.

SanDisk doesn’t make NAND chips, but it buys them from Toshiba and packages them into SD cards, USB drives and other configurations.

According to iSupply, Samsung and Toshiba/SanDisk together account for about 57% of the world’s SD production.

Yet despite enormous demand for flash chips, driven by their use in iPods, cameras and countless other digital devices, the business is in turmoil.

Prices have fallen more than 50% this year alone, capping two years of more or less steadily eroded prices. Toshiba was recently forced to cut its full-year profit projection by 46% due to losses from its chip business.

In an effort to arrest the price decline, Samsung has made a $5.85 billion hostile bid for SanDisk, which, if successful, would presumably wrench that business away from Toshiba.

What all three companies need, more than anything else, are new markets for flash memory. And if users don’t come up with them, then suppliers have to create new uses themselves.

Just because the impetus for the new formats may be coming from flash-memory suppliers rather than consumers or content owners, however, doesn’t mean it’s a terrible idea.

In fact, the SD and microSD formats offer some significant benefits.

For consumers, the cards are highly portable and they provide device-level interoperability. Tens of millions of devices are equipped with SD slots.

Unlike many other digital platforms (I’m looking at you, Apple), SD is an open standard, like DVD. There is no risk to content owners of getting trapped in someone else’s walled garden and losing pricing power.

Keeping bricks-and-mortar retailers in the loop also has advantages (even if they’re not always appreciated by suppliers). They bring additional investment into the business, suppliers get to piggyback on their market share and they know how to merchandise.

Whether those benefits will be enough to make the new distribution formats successful is impossible to say at this point. But I wouldn’t write them off just yet. 

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