Streaming video cannibalizing DVD rentals

I can sum up my comments with one word: duh.

Netflix says that DVD rentals are down for subscribers who make use of the company’s online streaming service. Though it doesn’t hurt Netflix’s bottom line, the trend certainly spells bad news for physical media, including Blu-ray.

[From Streaming video cannibalizing DVD rentals, says Netflix - Ars Technica]

Blu-ray Format Struggles

Here’s the problem, I can keep my old DVD player (which upconverts and actually has a pretty nice presentation) while using iTunes or Netflix’s download service to bring HD movies to my laptop which can then play through to my display. I don’t need a Blu-ray player to get HD video for movies.

“The Blu-ray format is in jeopardy simply because the advent of downloadable HD movies is so close,” said Roger L. Kay, president of Endpoint Technologies Associates. a research and consulting company. “Streaming video from the Internet and other means of direct digital delivery are going to put optical formats out of business entirely over the next few years.”

[From Blu-ray Format Struggles With Uncertain Prospects - NYTimes.com]

I wrote a post in 2006 making the same point that downloadable movies would prevent Blu ray from ever achieving critical mass. Through pricing, say in the sub $150 range, it is entirely possible that Blu ray could shift DVD buyers to Blu ray as a substitution buy because you can still play DVD discs in a Blu ray player, but broadly speaking Blu ray will never have the market impact that VHS to DVD did.

Movie studios have been selling extended play capabilities with DVD and now with Blu ray but the fact of the matter is that consumers pop in a disc to watch a movie and only a small percentage of consumers actually ever take advantage of the extras. Nonetheless, as NewTeeVee pointed out, this could be great content to tie viewers in with a complimentary online experience… download Indiana Jones #43 from Hulu and get linked to the Paramount sponsored website with all of the extras.

Blu ray isn’t DOA, as I wrote back in 2006, when looked at from the standpoint of market adoption, but the aspirations of Sony and the other movie studios to have a breakout replacement for DVD that would accelerate movie purchases in the retail channel and at the same time provide them with a strong DRM enabled format (let’s not forget that is one of the strategic objectives that the movie industry had with Blu ray, frustrate global DVD piracy), well then Blu ray is certainly a disappointment.

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Blu-ray Fights the Last War

I wrote a couple of posts about Blu-ray that emphasized the last war aspect of the technology and ignored where consumers would ultimately be getting their entertainment from, the internet. It will do okay but for Sony and the content owners banking on it, Blu-ray will be a disappointment.

Analyst Roger Kay predicts a “dramatic” drop in Blu-ray sales for the fourth quarter and beyond, pushing back adoption of the technology long enough to allow other forms of video over cable, satellite and the Internet to shut the window of opportunity for Blu-ray.

[From Blu-ray has case of the economic blues]

Video on demand will overtake physical distribution at some point over the next couple of years, just like downloadable music eclipsed physical distribution (quick, do you know where the closest music store is to you?). HD content on iTunes, Amazon’s download service, Netflix’s Roku box, and more will all conspire to make Blu-ray hardware obsolete, and with Blu-ray we are indeed witness to the last DVD standard as it’s unlikely anyone would ever invest in a new format given technology trends and consumption dynamics.

85% of American households have broadband, a generation shift in content consumption is evident, and the proliferation of download services all add up to a death sentence for Blu-ray hardware makers. Sony is not in a race with competitors but rather with itself in order to reduce the costs of manufacturing Blu-ray players to enable the proliferation of Blu-ray playback wherever a disc could be inserted. Apple’s rejection of Blu-ray is certainly motivated as much by the fact that it’s Sony behind the licensing as anything else, but clearly Apple sees the exclusion of Blu-ray as a tactical exercise that will not dampen demand.

Now It’s Just Blu-Ray

Toshiba Corporation today announced that it has undertaken a thorough review of its overall strategy for HD DVD and has decided it will no longer develop, manufacture and market HD DVD players and recorders.

[From Toshiba : Press Releases 19 February, 2008]

In December of last year I wrote that high def DVD “is the new laserdisc,” as in a technology innovation that fails to capture market share despite significant technical advantages.

While the jury is still out on this, I think I will ultimately be proven wrong for two reasons.

First and foremost, Toshiba has capitulated as it became increasingly clear that the HD-DVD vs. Blu-Ray format war was not at a stalemate. With major studios backing Blu-Ray and Wal-Mart throwing their weight behind the standard, it became less of a war and more of a skirmish with one side have vastly superior forces. In the end, I believe it will be recorded that Netflix was the tipping point, as they have an ability to accelerate Blu-Ray distribution by countless orders of magnitude and provide the critical incentive for consumers to upgrade their hardware.

However, while it’s clear that studios want Blu-Ray because of the strong DRM and retailers want it because of the profit margins, it’s not yet clear that consumers want it.

There is no denying that the picture quality is outstanding and with plasmas and LCD displays flying off shelves, one would think that there would be a perfect storm developing. But take a visit to any Best Buy and a different story is being told, one with ample supplies of players and few people browsing the extensive rack of Blu-Ray titles. The price points are still too early adopter and the average consumer doesn’t appreciate the advantages because their high-def capable display is so under-utilized.

It’s not that consumers don’t want high definition, but rather that they aren’t demanding it and if they were we would be seeing a rapidly expanding lineup of channels and content over cable and satellite first, which we aren’t. I’m not big on forecasting timelines, but I do suspect we’ll be well into next Christmas before afterburner on this upgrade cycle is fully lit.

Smoke Filled Back Rooms

The thing that I find mildly offensive about the HD-DVD vs. Blu-Ray deathmatch is that consumer had very little say in the matter. Ultimately this format war has been decided not by what consumers find most appealing from a quality and cost standpoint, but by Wal-Mart, Netflix and big Hollywood studios.

I really don’t know if there are any advantages to one format over the other, but I would much prefer a marketplace driven approach to arbitrating the issue. While I am tempted to suggest that big box retailers are in effect a market, it would be disingenuous to make that argument given the undisputed fact that retailers care not what is best for customers but what they can make the most money from. If Wal-Mart and Netflix are capable of driving the market to one format over another, why would they care what is best from a consumer standpoint?

First, the movie studios moved decisively into the Blu-Ray camp, then giant American retailers like Wal-Mart followed suit.

[From BBC NEWS | dot.life | A blog about technology from BBC News | HD-DVD - They think it's all over]