MattMaroon.com

So it’s official; Blu-ray has won the format war over HD DVD. No surprise.

About a year and a half ago, I gave a friend a stock tip, telling him to short Sony, then pick it up later. My logic was that the PS3 would be a flop, but even so, it would sell far more units than all HD DVD players combined, giving them the critical edge in the format war and earning Sony their first big win in media formats. They’ve had a long history of flops in that field (Betamax, MiniDisc, Memory Stick, etc.) and were finally looking like they were going to win one. And having a winning media format used to be worth a fortune.

I figured the market would react first to the PS3 debacle, and then later their shares would jump when they took a clear lead with Blu-ray. My friend didn’t take my advice, and I had too much money tied up in other things to do so myself.

I turned out to be right about the first half. In fact, I was more correct than I thought. Not only did the PS3 suck far more than I expected (I never guessed that I’d see units on the shelf in Best Buy right after New Year’s) but Sony also got hammered by a massive laptop battery recall. The stock dropped about 25%.

But I think I got the second part wrong. They won the format war, but I’m pretty sure that the days of media formats are limited, and maybe over. Their stock price has gone up about 10% since credible rumors of Toshiba dropping the HD DVD format surfaced, which makes me think that a lot of people feel the same.

Now that I think about it, it seems Blu-ray won for a combination of two reasons. One was the PS3, and the other was consumer apathy. People really don’t care about a high def media format, so the one that made its way into only a tiny percentage of American homes beat the one that got into virtually zero. That’s not really a win for Sony, it’s a loss for media formats in general.

It makes sense when you think about it. More than half of American homes don’t even have a single HDTV yet, and that number isn’t skyrocketing. And most HDTVs in homes now don’t have the HDMI ports necessary for full-on 1080p viewing. Right now only home theater nuts will find Blu-ray to be significantly better than what they’re used to, while everyone will find it to be significantly more expensive.

And by the time that changes, in a few years, it’s questionable how much media people will buy. Video On Demand and iTunes style services are making inroads, and I have to think that will continue indefinitely. True, a high definition movie from iTunes isn’t as good as a Blu-ray film in full 1080p, but most people won’t care. An overly-compressed 720p movie will be good enough for 95% of the population.

People buy movies now because they want to watch them multiple times, on demand. I personally own one DVD, because there’s only one movie that I sometimes suddenly feel like re-watching without having to drive to Blockbuster or wait a few days to get from Netflix. The number of DVD sales (largely but not entirely driven by the rental industry) tells me that a lot of people own more than one, but how often do they watch each of those movies?

When you can rent one for $5 without leaving your living room, and a Blu-ray disc costs $25, it doesn’t take a mathematician to realize that it’s far less economical to buy than to rent. I can’t imagine very many people watch a movie more than five times in their life, except for maybe the few that are perennially replayed on TV (Shawshank Redemption, A Christmas Story, etc.).

The exception would seem to be children’s movies. Parents use them as digital pacifiers, and kids can watch the same movie every day for years. I don’t really understand why, but it’s most certainly true. Kids also don’t know or care about the difference between standard definition and 720p, because marketing departments haven’t figured out how to explain lines of resolution and frames per second to a four year old yet.

So I don’t really see any high definition format taking off the way DVDs did. I agree with Mark Cuban that last-mile bandwidth won’t be sufficient in the near future to replace the current television distribution system. People won’t be streaming football games in high def for decades. But Americans spend a lot less time watching movies than they do television, and given that you only need to give a high def iTunes rental 5 minutes to buffer before you can start watching, the end bandwidth is already there.

I can’t even guess what mass movie downloading would do to the internet’s overall structure, but I’m sure it will adapt. One way or another, total bandwidth will keep up, since it’s a service people are paying for. To put it in Ted Stevens speak, they’ll add more tubes to the series. The money will be there to do so.

So congratulations to Sony on a pyrrhic victory.

This entry was posted on February 20, 2008 at 2:05 pm and is filed under Opinions You Would Agree With If You Weren\'t An Idiot . You can follow any responses to this entry through the RSS 2.0 feed Both comments and pings are currently closed.