Sorry, David

David Pogue,Blu-Ray,DVD,online movies,downloads,streaming,CNBC,The New York Times,HD,1080P

I turned on CNBC this morning, and what did I see but a rant (and rant is the only word I can use to describe it) by David Pogue assailing online movies and defending Blu-Ray. (I can't find it on the New York Times site, and Windows Media Player is crashing both IE7 and Firefox before I can get the URL for the video from the CNBC website, so click here to read his article.) (UPDATE: The video is now availabe on the New York Times website; click here to view it.) I've already dealt with most of his arguments in previous posts, but there was one that I missed: Since only 50% of the U.S. population has high-speed Internet connections, the other 50% can't get access to online movies.

That's entirely true, but think for a minute: If you can't afford or live in some place too rural to get a high-speed connection, how likely is it that you'll have a big-screen HD display? Not very. It's even less likely when you consider that a 1080P display is needed to get the full value from Blu-Ray. As I wrote in an earlier post, less than 30% of all households now have HD monitors or receivers of any resolution, let alone 1080P. An upscaling DVD player will work fine for most people, at a cost of 50% less than a Blu-Ray player.

In fact, Pogue inadvertently made my argument for me. By the time there are enough HD monitors and receivers in households to make Blu-Ray a viable business for either consumer electronics manufacturers or movie studios, the problems of online movies will largely be resolved. For the vast majority of people in North America, there's no reason for them to buy a Blu-Ray player, unless they're already buying a Playstation 3 or PC with a Blu-Ray drive.

Thus, I believe the transition will go from DVDs to downloads and streaming. Just as DVD-Audio and SACD were touted as the next generation of CD but were bypassed by downloads, DVD will live on, and Blu-Ray will be bypassed by downloads and streaming.

Does VOD Suck? I Think Not

Blu-Ray,DVD,VOD

A number of writers have suggested that Blu-Ray won't be made obsolete by VOD and downloads, for several reasons:

• Only a few thousand movies are available electronically, while Netflix is said to have some 90,000 titles on DVD
• It's too hard for most consumers to view VOD movies or downloads
• Consumers want the commentaries and special features found on discs

While all of these arguments are true today, none of them will stand up for very long. Let's take them in order:

• It's true that there are only a few thousand titles available on VOD today, but almost all of the major studios' releases are made available electronically. In addidion, only a small fraction of the total output of DVD titles will ever be released in Blu-Ray. The post-production, mastering and manufacturing costs are simply too high when compared with the available audience.
• The user interfaces for some VOD and download systems are awful, but user interfaces can be fixed.
• How many viewers really want commentaries and special features? Yesterday, I was at Target, looking at the DVD of "Michael Clayton." It had a commentary by the director/writer and two documentaries. Price: $16.99. I ended up watching "Michael Clayton" on Comcast VOD, in HD, for $5.99. It simply wasn't worth $11 more for special features that I most likely would never watch.

I have shelves full of DVDs that I've watched once, and will likely never watch again. Rather than make the same mistake with Blu-Ray, I'm perfectly happy to watch on VOD, and to perhaps buy the few films that I know that I'll want to watch over and over. Parents will undoubtedly want to buy movies for their kids to watch again and again, but why buy them in Blu-Ray when the kids will be perfectly happy with DVD?

In short. Blu-Ray is simply too late for the marketplace, and in my opinion, it will never be more than a niche product for the top end of the audience.

HD DVD is Dead...Now What?

Two days ago, Toshiba announced that it has abandoned HD DVD, with player production and all marketing activities to end in March. Yesterday, Universal Home Video announced that it would discontinue HD DVD production and shift to Blu-Ray. Paramount and DreamWorks, the remaining HD DVD-only studios, haven't yet made an announcement, but one is expected soon. (UPDATE 02/21/08: Paramount and DreamWorks have officially announced that they've dropped HD DVD in favor of Blu-Ray.) Thus, we finally have a single high-definition blue laser optical disc standard. The question is, does it really matter?

Video Business and Adams Media Research recently reported that the adoption curve for the first two years of HD disc sales ran significantly below that of DVD sales; 8.3 million HD discs vs. 16.3 milion DVDs. Now, there are a number of reasons why the growth of DVD sales was much faster than that of HD discs:

• DVDs were clearly superior to VHS cassettes, while HD discs are far less of an improvement over DVDs.
• HD discs are of value only to those consumers who already have a HD television set, of which only 26.5 million households in the US (out of 111 million total, according to Nielsen) have at least one.
• Many consumers can't tell the difference between movies on HD discs and DVDs.
• The format wars caused many consumers to delay purchasing either format until a winner arose.

Now that Blu-Ray is the winner, consumers don't have to choose between formats, but there's still the issue of the evolving Blu-Ray standard. In order to get the interactive features of BD Live (Internet connectivity, games, forums, etc.), Blu-Ray players have to conform to Profile 2.0 or greater. Unfortunately, the only player on the market right now that can meet Profile 2.0 is the Playstation 3, and even it will require a firmware update later this year in order to get BD Live functionality. So, smart consumers won't rush right out and buy a Blu-Ray player, unless they're already buying a Playstation 3.

The biggest issue, however, is whether electronic distribution will make Blu-Ray obsolete before it has a chance to take hold. As a Comcast subscriber, I can already see some VOD movies in HD; I can also rent HD movies on my Apple TV. As I write this, a partnership between Microsoft and Netflix is being rumored; this will get Netflix's streaming catalog, including some HD titles, onto Xbox 360s. If I can rent a movie electronically for a few dollars (and even see it at the same time that it's in theaters, as I did with "4 Months, 3 Weeks and 2 Days" last weekend on Comcast,) why do I need to buy or rent it on physical media?

If the Blu-Ray and HD DVD contingents had settled their quarrel two years ago, before either of them came out, the unified standard would have had two years to establish itself in the market. Today, I honestly can't recommend that anyone buy a Blu-Ray player unless they're buying it for some other reason (such as playing games on the PS3,) and thus will get the Blu-Ray capability "for free."

HD DVD and Blu-Ray Continue to Struggle

According to this article from Reuters, Toshiba has cut its calendar year 2007 forecast for HD DVD player sales in the U.S. by 44 percent, from 1.8 million players to one million,even though some Toshiba players are selling for as little as $249. (They had forecast worldwide sales of three million players by March 2008; clearly they won't make that number.) The Blu-Ray team hasn't announced comparable sales numbers, but we do know that Sony is well behind in sales of the Playstation 3; to date, they've sold 1.3 million in the U.S., one million in Europe and Australia combined and 911,000 in Japan. They claim to have shipped 5.5 million units, which means that approximately 1.8 million units are sitting around in stores and warehouses.

As for disc sales, the biggest seller (depending on which figures you believe) is either Sony's "Casino Royale" or Warner Brothers' "The Departed," both with around 100,000 units. Now, sales of 100,000 units aren't bad, but in DVD terms it's comparable to a relatively successful independent film release--nothing like what a major studio release should expect to sell.