Blu-ray “Circling the Drain”

Bill Gates once asserted that HD-DVD vs. Blu-ray would be the last format war. At the time my opinion (which I did not immortalize in this blog) was that it was already irrelevant. DVD was the last format. The reason I didn’t blog about this was everyone I spoke with on the topic agreed with me. My opinion was neither unusual nor controversial.

But apparently it’s news to ZDNet’s Robin Harris:

16 months ago I called the HD war for Blu-ray. My bad. Who dreamed they could both lose?

Well, pretty much anyone with a clue, evidently. There’s a reason Apple has assiduously ignored Blu-ray in both its hardware and software offerings — no-one cares.

DVDs and CDs before them were successful in large part because they were relatively cheap and robust compared with laser disks, video tapes, audio cassettes, and records. (If you’re old enough to have owned a significant number of LPs, you probably remember making tapes of your records to save wear and tear on the records, and replacing favorite tapes at fairly regular intervals as they stretched or got mangled by car tape decks.)

Well, guess what? Digital downloads are cheaper and more robust than DVDs or CDs, and don’t lock you into hardware standards that will be obsolete before a given technology reaches critical mass.

So Blu-ray is simply not penetrating the market, no-one cares if there are cheap players. People are buying PS3s in droves but not playing Blu-ray disks on them (recall that for a long time the PS2 was a very good deal for playing DVDs). Meanwhile, the end of television as we know it, which I’ve been predicting was five years away for about ten years, looks like it’s happening right now. Finally, it seems to me that our state of economic turmoil will favor technologies with good cost characteristics, and that’s very bad news for all physical formats.

The Future of DVDs

There’s an interesting article on Seeking Alpha today about Apple and the future of the DVD player. Unfortunately, it is based on some extremely poor assumptions; in particular, they wrongly assert that it’s cheaper to distribute physical DVDs, or HD-DVDs, than bits.

Um… no. Not even close.

It may be slower (downloading a 5GB DVD will take you a little over five and a half hours at 2Mbps) but that’s not comparing apples to apples. Apple is selling near-DVD quality video that takes about 20% of the space of a DVD. They could probably sell you DVD-or-better quality video in about 30% of the space.

Yes, an iTunes movie doesn’t include the director’s commentary and other crap*, but it doesn’t force you to watch ads, redundant anti-piracy messages, and you can actually jump to any spot in a movie effortlessly. And a director’s commentary is just an audio track anyway.

How much does 1.5GB cost Apple? A darn sight less than the cost of a physical DVD, packaging, inventory, distribution, anti-theft devices, etc. etc. etc. Heck it costs the consumer almost nothing (one 480th of the month’s broadband bill) and that’s retail. If Apple is paying $0.10 to serve 1.5GB I’d be shocked, and that’s way cheaper than the wholesale cost of DVD replication. And the marginal cost (if you already have broadband) is zero. To put it another way, that’s a lot less than you’re paying for shipping (even if it’s “free”). And Apple doesn’t end up with random quantities of unsold inventory that need to be discounted or turned into landfill.

I think that the writer confusing cost with bandwidth (a semi-trailer load of DVDs represents a ridiculous amount of bandwidth).

Hulu

NBC and a number of partners are giving their content away free online. (More evidence that the idea that physical distribution is cheaper than network is ridiculous.) You can watch very high quality video of new TV shows with fewer ads on hulu.com than on NBC itself. Admittedly, this is part of NBC’s bizarre** “anything but Apple” distribution strategy… It’s simply implausible that NBC will make more money off a TV show by giving it away free with 2.5 minutes of unoptimized ads than by taking a cut of the $2 Apple would sell it for, but it must be a cheap enough strategy that NBC isn’t bleeding money out its eyes testing it.

DVD Player Sales Down. Widescreen TV Sales Up.

Also today I read an article about the impending demise of Circuit City. The article discussed consumer electronics sales trends, and the most interesting one to me was that TV sales overall are down (flat panels up, projection and CRTs down) as are sales of DVD players. Computer sales (in dollars) are going down with prices (not volume).

Make no mistake, the US TV market is supersaturated. Most homes have more TVs than they know what to do with, so most TV sales are pure replacement/upgrades. It seems to me that people want bigger, better displays, but they aren’t buying devices to push content through them (or perhaps they are — in the shape of XBox 360s and PCs).

* I used to love directors’ commentaries, but they seem to have stopped being about “how we ended up telling the story this way” and instead become a bunch of pointless trivia about who did the work behind this obscure aspect of the scene padded out with the usual attaboy backslapping everyone in Hollywood is a genius marketing BS. In essence, I think that because movie-making has become so demystified (in large part because of directors’ commentaries) the proportion of interesting information in directors’ commentaries has started to approach zero. You still need to listen to Big Trouble In Little China‘s commentary.

** OK it’s not that bizarre. NBC has been in Microsoft’s pocket for a long time now, and the original venture with the iTunes Music Store was probably an aberration driven by fear of being left out. Since iTMS isn’t making bajillions of dollars, NBC can now safely spurn it… Who knows, maybe giving away content paid for by untargeted and repetitive ads really will pay dividends. I know I’m buying a ton of Cisco routers having seen the same damn Cisco ad 50x on Hulu.