Unless you?ve been asleep lately, you know that there is yet another media battle going on. This time it’s between two camps, Blu-ray and HD-DVD, backing the next generation of incompatible optical storage technology. As an industry, it seems we’ll never learn that the market does not like such disagreements and won?t adopt doubtful technologies in volume. There was some hope that this would be resolved a few months ago when Toshiba and Sony started talking about a common specification, but once Sony announced that Blu-ray was going to be in their PlayStation 3 (which has a 5 year market life) there was little chance that these talks would be successful.
Blu-ray and HD-DVD have split the media companies down the middle with Disney, arguably the strongest in this fight, on the Blu-ray side, and Time Warner, the second strongest, on HD-DVD’s side. What makes Disney the strongest is that they are the only content company people buy on name; for all others, people typically just chase titles. Most of this Disney content, however, will not be played on high definition systems, significantly lowering Disney?s impact in this fight.
Over the last two weeks, I met with both camps and looked at their studies supporting their positions. I?ve concluded that Blu-ray, for now, is the most likely to win, but that the more likely outcome is that the market will bypass both products and move to something else.
Why Blu-ray Wins
We could talk about technology forever, but the BetaMax test (which taught us that the best technology doesn?t win?the most widely used technology does) has been vastly more accurate. In looking at the partners, one stood out; given BetaMax, this is somewhat ironic. Sony?s Playstation 3 will ship with Blu-ray and it should ship 10M or more units in its first year of existence, even if it doesn?t outsell the Xbox 360. HD-DVD can?t get close to this number, nor can any other Blu-ray vendor. Once Sony hits 10M, HD-DVD should be only at a few hundred thousand, and given that we report installed base by shipments (not use), it should be clear that Blu-ray is the winner by the end of next year unless something changes.
Why HD-DVD Loses
The Blu-ray folks circulated a survey last month, concluding that Blu-ray would win because consumers would prefer it. It was flawed, as most surveys are, by not taking into account the world as it likely will exist at that time. Surveys, in general, are a poor predictor of future behavior (if surveys were accurate predictors, the Ford Edsel, according to the most massive research of its time, should have been a resounding success).
To offset the impact of the Blu-ray survey, Time Warner, which supports HD-DVD, released a survey of its own. It was more deeply flawed; it appears they intentionally corrupted the sample so that it would conclude in favor of HD-DVD. This kind of thing angers me a great deal, because it is generally done to support decisions (usually bad ones) that have been made in error by executives who wish to be seen as correct. I?ve seen entire companies fail because of this kind of behavior.
Specifically, they had their marketing folks prepare the language that defined HD-DVD, then compare it to the language they pulled off the Blu-ray web site.
One example:
HD-DVD: “How much better than DVD can HD-DVD really be? More capacity for fun?with 3½ hours of high definition content, or 7 hours of standard TV or DVD content. More than enough capacity to deliver high quality, high definition home entertainment.”
Blu-ray: “Blu-ray is the next generation, state-of-the-art optical disc.”
By using language heavily biased towards HD-DVD, all this survey proves is that marketing actually works and that people will prefer things that sound better (regardless of whether they really are). When I?ve run into this in the past, it generally was the result of some executive fearing that someone would find out they screwed up before they retired or found a new job. The people who generally get hurt are those who believed and trusted that executive. While this by itself won?t cause HD-DVD to fail, it should cause every one of us to look at any numbers coming out of Time Warner more closely; this kind of behavior often is not isolated to one event.
Bill Gates was recently quoted as saying they might include an HD-DVD in a future Xbox offering, but that seems unlikely, given they also plan to make the Xbox 360 a break-even product. Sony is expected to lose between $200 and $400 on each Playstation they sell, thanks largely to Blu-ray; while Microsoft could easily afford the same losses, they didn?t get to be where they are by doing so capriciously. Bill typically leaves these calls to the product teams, who are assessed by profitability.
Unless Xbox 360 eventually rolls with HD-DVD (and the folks at Microsoft should be smart enough to see through the Time Warner survey, making that outcome even more unlikely), Blu-ray has the inside track and should win this fight.
Both Products Lose: Dual Layer and Holographic Storage Wins
Based on my experience as a competitive analyst, I say that the best way to test future behavior is to war game the event. In this case, the most aggressive price we are likely to see early on (with the exception of the PlayStation 3) is $500, and HD content will be sparse. Competing against these players will be dual layer players in the $100 to $200 range with HD content and no standards issues. Most of these new players will have built-in scalars that take older DVDs and make them look much better on high definition sets. I?ve recently seen Samsung?s line, and for the money it is a vastly better (and safer) bet than anything being offered in a stand-alone player from Blu-ray and HD-DVD during the next couple of years.
As far as backup goes, who really wants to use optical disks, anyway? Optical write times have traditionally been rather ugly; as a result, I doubt many of us would want to regularly write 10 or more Gigabytes onto Optical media. A Mirra server or Maxtor One-Touch will typically be easier to use and more likely to protect your valuable assets and is generally less expensive.
In the end, if one of these standards must win, Blu-ray has the inside track. But if we don?t end up with one standard (or maybe even if we do) the market is likely to stay with dual layer DVD for now as ?good enough,? suggesting that the next big move, still years out, will be holographic storage.
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