CES Countdown #12: Has streaming media already rendered discs obsolete?

This just in, the format war is over. The 18-month honeymoon analysts had given Blu-ray has prematurely ended, and while sales have risen from nothing to something barely eclipsing okay, its successor may already be over the horizon.

In paleontology, there is a concept known as the Alvarez Hypothesis. This hypothesis originally suggested that a giant asteroid impacting the Earth's surface triggered the subsequent extinction of the dinosaurs.

Applying this hypothesis to consumer technology, it could be said that 2008 was the asteroid that will ultimately extinguish disc media.

Digital Entertainment Group data shows that DVD sales actually hit their peak in 2005, stagnated, and are now on the decline. As of November, independent tracking service Nielsen VideoScan reported a 9 percent overall drop in DVD sales, and an even greater drop (22%) in higher-priced, high definition titles.

Since Blu-ray became the unofficial successor to DVD, a number of analysts predicted that sales of the high definition media would eventually come to offset any declines in DVD sales. Parks Associates analysts went so far as to predict that Blu-ray player sales would actually surpass most other electronics items during the next four years as they gain traction in the developing world. Analyst Kurt Scherf predicted that unit sales would climb to around 40 million by 2012.

Since the dawn of 'Infinity'

Scott M. Fulton, III

Easily the biggest announcement from CES last year wasn't even from a consumer electronics device company. It was from Comcast, whose CEO, Brian Roberts, dropped what seemed at the time to be a huge bombshell in a town that was otherwise occupied with measuring the biggest plasma display: Comcast would be rolling out a service capable of delivering thousands of titles to consumers through very-high-speed cable lines, all in crystal-clear high-definition, on-demand.

The intention was for the company to eventually be able to add 3,000 new HD titles to a perpetually available HD library, every month. Granted, the service is only available in limited regions of the country now, but where it is available, the selection is growing at a relatively exponential rate. Some 500 titles were available last May, growing to 1000 in September, and with the possibility of reaching a milestone goal to be announced at CES 2009. Quality of service has been debatable. Some customers are noticing that picture quality does appear to be compressed, in order to fit all that content through a narrow pipeline. While Roberts touted 100 Mbps connections within the company's reach by, at one point, as soon as 2010, that type of infrastructure expansion may take more than the company had originally planned for. Meanwhile, Infinity has company. Netflix' conversion to a full-time VoD supplier has gone full-tilt, with the addition of Roku's set-top box last May, and the addition of service avaialility through LG's and Samsung's Blu-ray players as well as through TiVo DVRs. While Comcast continues its expensive infrastructure upgrade, which is on the order of a major public works project, Netflix continues to make deals, implement new components of its network, and become a true contender against Comcast for the nation's VoD supplier of choice.

However, Neilsen's figures show that not only is Blu-ray not shouldering the weight, but it's buckling under the pressure. Despite the fact that Warner Bros' first BD-Live title The Dark Knight broke all previous Blu-ray sales records by moving 1.7 million units in December, it is still dwarfed next to the 11.8 million DVDs that same title sold.

In July, Netflix CFO Barry McCarthy said that less than 10% of Netflix subscribers have Blu-ray titles in their rental queues, suggesting that adoption was so low that it had little chance to have an appreciable effect on retail sales.

With Netflix and Blockbuster both vending their own on-demand video services that strip out the tremendous overhead associated with mailing, sorting, and maintaining an inventory of discs, it's no surprise Netflix should rebuke Blu-ray in such a way.

During the first Netflix earnings call of calendar year 2008, CEO Reed Hastings waxed prescient and gave DVDs five years to live, saying that he expected them to remain viable due to their affordability and ubiquity, but that streaming media is the way the world is heading.

Downloadable and streaming content has made tremendous leaps this year in availability and relative quality. Users can stream content to even the most humble netbook from one of the surplus of video syndication sites, or access their Slingbox content via Sling.com. High definition fans can hook up to Vudu, and receivestreams in 1080i that cost between 99¢ and $2.99; or can get Netflix on Demand high definition streams through their Xbox 360.

Even Sony, one of Blu-ray's highest profile supporters, has begun to offer streaming 720p content via its Bravia Internet Video Link. Meanwhile, the best-selling Blu-ray player today, Sony's PlayStation 3, is currently trending downward in sales.

The meteor has definitely hit. But the most interesting thing of all is that we've seen it coming the whole time. In an article from the Des Moines Business Record nine years ago entitled "Will DVD Players Replace VCRs?" author Jeanne Lightly said: "The surge in [DVD Player] sales suggests that the new technology is not only catching on where other consumer electronics innovations did not, but that it's also on track to overtake videotape in a few years as the home entertainment format of choice. Until, that is, it's supplanted by 'video on demand'-- the opportunity to retrieve any movie via cable, satellite or, ultimately, the Internet -- which is still some years off."

But the question remains, what is the value of Blu-ray as DVDs senesce, and streaming media comes into maturity?