Could video-on-demand overtake HD discs by 2011?

According to analysts, just three years from now, 129 million people worldwide will be subscribing to Direct-to-Home Video, most likely with high definition. Will HD optical drives plummet into a niche market along the way?

The ongoing battle between the rivaling Blu-ray and HD DVD formats for high-definition optical drives keeps capturing huge attention, even though the combined Blu-ray and HD DVD market today only consists of a few million units sold, give or take a few depending on who is doing the counting.

Recent reports by industry analysts suggest that high-def components might always remain a "niche market," and that in any event, these consoles are already starting to be dwarfed by HD video content being beamed to homes over the Internet, cable, satellite, and other broadband networks.

Bpth Blu-ray and/or HD DVD formats "must start to make an impact on the HDTV viewer next year if hi-def [consoles are] to become more than just a niche market," said Richard Cooper, an analyst at Screen Digest, in a report published in December.

Yet in marked contrast, the direct-to-home video (DTHV) pay-TV market will add up to 129 million subscribers worldwide by 2011, according to a report issued this week by In-Stat. What's more, the firm expects HD content to be a major driver behind DTHV, which accommodates video on demand (VoD) over the user's choice of delivery systems.

"HD is rapidly becoming a key differentiator in the US, and some Western European countries like the UK have exhibited strong growth potential for high definition," observed Michael Inouye, an In-Stat analyst.

As evidence, Inouye cited a growth rate of 273% in HD subscribers for the UK's BSkyB satellite network between the third quarter of 2006 and the same period a year later.

But much more recently, as part of its annual earnings report today, US-based Comcast announced the addition of 1.8 million additional subscribers to "advanced" Comcast services such as HDTV and DVR.

Video sports programming is a strong emerging market for HDTV, with football teams such as the New York Giants, New York Jets, and Dallas Cowboys now upgrading their stadiums to support HD broadcasting. A study released by Comcast at the end of January showed that 47% of consumers expected to make an effort to watch the 2008 Super Bowl game in HD video.

Curiously, the exact opposite seems to hold true, at the moment, in the DVD market, where HD content isn't yet much of a driver at all.

"High-definition content is not the primary motivator for consumers to embrace next-generation optical disks," according to a recent report by Jupitermedia. In that study, conducted by analysts Michael Gartenberg and Ina Mitskaviets, only 24% of consumers cited HD content as a motivator to upgrade their home DVD equipment.

Gartenberg and Mitskaviets pointed to several factors behind consumer hesitance, including the lack of "broad unified hardware support" in the current Blu-ray/HD DVD space; an absence of "deep content support" for Blu-ray and DVD; and the lack of a "clear and visible consumer value proposition" for buying HD drives as opposed to ordinary DVD drives.

Meanwhile, "the growth and penetration of broadband is facilitating content delivery directly to consumers without the need for any optical disk," according to the report. "Combined with portability and the ability to move content from room to room as well as on to portable devices, the market for downloaded video content continues to grow each day."

The Jupiter analysts further noted that, although much of the content -- including downloads from Apple's iTunes -- remains lower than that of DVD discs, Microsoft is now offering full 720p encoded movies and TV shows via its Xbox Live Video Marketplace.

According to reports by other analyst firms, although the dramatic increases in the VoD market will happen over all channels, the Internet will lag behind cable for some time.

In-Stat's Inouve estimates that digital satellite pay TV revenues will skyrocket to $96 billion by 2011.

By comparison, a study published in December by the research group Understanding and Solutions says that online video today represents only 1% of the US home entertainment market...and that single percentage ponit is currently driven by iTunes and Xbox Live.

"Online video services and title availability are limited, pricing strategies are enbryonic, and the technology infrastructure has yet to catch up," said Mai Hoang, an Understanding and Solutions analyst.

By 2011, though, online video will step to an 8% share, representing $2.9 billion in consumer spending, according to the U&S analyst.

Moreover, the current Blu-ray and HD DVD format war might not even really matter all that much four years from now, with VoD rising to the forefront.

"Multiple formats will co-exist in the future, and no one format will control the home entertainment landscape," Hoang predicted. "The new generation of high-definition video formats will also help to shore up packaged media's presence within home entertainment revenue streams."

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