Dialog: The final format war

Has the end of one of the most embarrassing disputes in the history of consumer technology come too late? Has Blu-ray won one war only to find itself facing a new competitor: video-on-demand?

The historic battle between VHS and Beta ended decisively at the dawn of the era of home-recordable video. VHS had plenty of time to enjoy the spoils of its success. A format war might have erupted at the dawn of the compact video disc era between two groups of vendors led by Philips and Matsushita, though they were able to come to terms in time for the sunrise of DVD's window of opportunity.

Today, it is the video-on-demand era that appears to be on the horizon, and yet it is here when the collision between the interests of two sets of intellectual property holders has finally come to a gruesome, though decisive, resolution. Will Blu-ray have time enough to enjoy its place in the sun? Or will Sony and its allies revive a classic scene from a Chuck Jones cartoon, where the coyote finally clutches onto what appears to be a live bird, and just before beginning his victory dance, comes to realize slowly, carefully, that there's no more cliff to prevent him from falling victim to gravity?

It's a topic that we discussed at length with our regular source of insight on such matters, technology analyst Carmi Levy. We began with the obvious question: Who benefits from the demise of HD DVD?

AR Communications Senior Vice President Carmi Levy
AR Communications Senior Vice President Carmi Levy

CARMI LEVY, Senior Vice President, AR Communications: I think it benefits everybody, really, with the obvious exception of Toshiba, which now has to eat a multi-billion-dollar investment and also has to take the hit to its prestige. But certainly some of [its competitors] learned that lesson in the '80s with [Sony] Beta, so I'm sure that they can seek some advice from Sony in getting over it.

This really is a good news story for pretty much everyone who isn't Toshiba. Obviously, from a consumer perspective, now we have a winner. It's much easier for companies to introduce products and related services, third-party products, to the market, knowing that there will be a market for Blu-ray going forward. More hardware vendors will be motivated to get into the market, and start introducing players and other value-added devices. With more studios introducing content, obviously, the number of titles that are in-market will go up dramatically in the months to come, and then that will exert downward pressure on prices for both hardware as well as content, so that price differential between high-def Blu-ray discs and standard-def DVDs will start to come down as well. Within a year, a year and a half, those differences will be fairly minuscule.

So now that we have the disc-based medium question answered, all of the other pieces can fall into place such that high-def will now more rapidly become the standard for viewing video-based content.

SCOTT FULTON, BetaNews: Well, you say, "now that it will more rapidly become..." Three years ago, we saw a path toward high-def when things looked a little clearer, and we thought, "This is an intellectual property spat; they'll solve this because they're not going to repeat VHS v. Betamax, good heavens!" We predicted that, as time goes on, there would naturally be downward pressure on prices for the standard DVD format, and that would encourage its rapid obsolescence surely by 2007, and then we'd be moving into 2008 with happy consumers having been successfully migrated onto this new island of high definition.

"The vast majority of the market...deliberately stayed on the sidelines and watched this format war play out, and it's given them three extra years to look at what they have, and confirm to themselves that standard-def DVD really is good enough."

Carmi Levy, Senior Vice President, AR Communications

But since the existence of the format war, I detect a bit of reticence among general consumers, the people who would not have been the first adopters anyway, people who are now today more likely to say, "I've got my standard def and I'm stickin' with it no matter what you do." You could put downward pressure on prices, but that downward pressure isn't as likely today to force standard DVD into planned obsolescence the way it was going to three years ago.

CARMI LEVY: Absolutely, because the vast majority of the market, including pretty much everybody in that middle demographic -- the average Joe who wants to buy an inexpensive movie and watch it on date night on Saturday, or bring home movies for the kids -- deliberately stayed on the sidelines and watched this format war play out, and it's given them three extra years to look at what they have, and confirm to themselves that standard-def DVD really is good enough. So I think you're absolutely right, there will be a fairly large percentage of people out there who will now be later adopters to high-def than might have otherwise been the case, and they'll hold onto their DVDs as long as they possibly can because they just don't see the value in upgrading.

But technology moves in only one direction -- forward -- and it only moves at one speed -- fast. And at some point, the studios will reach a tipping point where the majority of their income is being derived from high-def media and not from standard-def media. And when that happens, when these late adopters and the draft dodgers [come to] represent the minority of the market, eventually new content will stop being released in standard-def. The world will leave them behind. And they'll have no choice but to either upgrade to Blu-ray or simply transition from standard-def DVDs to what comes after Blu-ray, which is essentially universal delivery of content via the Internet.

I think we can all easily conclude that this is likely going to be the last standards war for a physical-based medium, and Blu-ray is likely going to be the last player of a physical media type that we're going to buy for our homes. After this, it's fat pipes that connect into our homes and deliver content. We're not there yet because the pipes aren't big or fast enough yet, but when they become big and fast enough to deliver full-length, high-def films in a reasonable amount of time, in a manner that's easy enough for the average consumer to manage, even Blu-ray will be obsolete.

So conceivably, we may in fact have a small minority of the market that will never transition to Blu-ray, and will simply use their DVDs until the Internet becomes a stable enough platform to deliver high-def content reliably. And I doubt that'll affect uptake for Blu-ray; right now, all brakes are off, we're going to see a flood of new products and new content in the year to come, and basically not even consumers who are satisfied with standard-def DVD will be sufficient to slow that down.

Next: Blu-ray vs. fat pipes...vs. the consumer

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