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Blu-ray victory fizzles out

Posted: 18 Aug 2008 ?? ?Print Version ?Bookmark and Share

Keywords:digital? DTV? HD? SD? analog?

So the high-definition (HD) DVD format war is over, and Blu-ray disc is the apparent victor. But what was it all worth? How will the spoils of the format war compare with the bounty that Blu-ray's predecessor, standard-definition (SD) DVD, enjoyed during its reign as the video optical-disc format king?

Some expected sales to explode, predicting that in a few years, Blu-ray decks would outsell even SD DVD devices. However, not only have Blu-ray deck sales not logged dramatic increases since the end of the format war, but Digital Tech Consulting Inc. (DTC) does not expect Blu-ray to represent more than a third of all DVD devices sold five years hence. DTC estimates that global non-PC Blu-ray deck sales will represent only 3 percent of all DVD devices sold in 2008 and only 31 percent by 2013.

As for pre-recorded packaged media, DTC estimates that nearly 5.5 billion units of DVD discs will ship into the market in 2008. For pre-recorded Blu-ray, the estimate is upward of 180 million units. Even with an impressive growth curve, DTC projects that the HD discs still won't come close to approaching DVD disc shipments in the future. True, these HD disc projections are for the early years of the new format's life. Still, it seems unlikely, given the plethora of HD programming distribution options consumers will have, that HD DVD will evolve into a Goliath like the SD DVD industry before it.

There are several market-specific reasons why Blu-ray will not replace DVD. But historically, no mainstream media format has ever been supplanted by a slightly improved, compatible product. For instance, digital audio tape could not displace the compact cassette, S-VHS did not supplant VHS, and neither Super Audio CD nor DVD-Audio replaced the CD. Likewise, Blu-ray presents no practical advantage over standard DVDsuch as added convenience or longer playwhereas that was the case when vinyl records replaced wax, CD replaced vinyl and DVD replaced VHS.

Packaged media alternatives
But DTC believes there are more game-changing reasons Blu-ray won't approach DVD's success.

Format war's disappointing spoils: Only a third of DVD decks sold in 2013 will be Blu-ray.

The most profound factor is the new network delivery option available to content owners to get their HD content to consumers. Traditional pay-TV service providers, as well as Internet and mobile-service providers, now have a greater ability to offer consumers an alternative to packaged media. The increased bandwidth afforded by AVC/H.264, as well as upgrades in network infrastructure, should aid traditional pay-TV providers in convincing consumers to get more of their TV and movie programming through HD video-on-demand and DVR services.

Advanced pay-TV services may represent a big threat to the packaged-media business, but Internet video delivery to the TV is the giant looming over all video distributors' heads. As technology advances and more Internet content is available, the amount of content being viewed over the Internet is enough to have Blu-ray suppliers and traditional pay-TV providers, scrambling to the business model drawing board.

Although prerecorded video optical discs will continue to ship in the billions of units annually, there will be little or no growth in the overall video optical-disc business, even with the industry settling on a single standard for HD discs. By contrast, iTunes video sales will experience significant growth-and Apple represents only one service provider at the genesis of a market for pay video delivered over the Internet.

Discs spin on
As disruptive as the direct electronic distribution of pay video is, it will be years before anyone writes the obituary for the video optical-disc format. Even though the Blu-ray format may not reach the successful heights of its DVD cousin, DTC estimates that it will experience explosive growth throughout the coming years. Forecast is that nearly 3 million Blu-ray PCs will ship in 2008, growing to more than 15 million by 2012, for a five-year CAGR of 62 percent. Similarly, Blu-ray CE products will experience a CAGR of 111 percent over five years, with unit shipments of just over 5 million in 2008 growing toward 36 million units by 2012.

With a CAGR of 257 percent between 2007 and 2012 for prerecorded Blu-ray discs alone, there is no real argument for saying the Blu-ray format will be less than a success. Which yardstick the industry uses to measure that success, however, is a different matter. New distribution pipelines will force the industry to change how it assesses the success of individual sectors.

iTunes video sales vs. DVD shipments: Internet video delivery looms large.

DTC believes that the additional choices consumers will have for receiving entertainment programming will create a bigger market for direct delivery of video programming. But that doesn't mean the news is good for all players. Without some radical changes in business models, incumbent video-programming providers must contend with some erosion in their core businesses. The only unknown is the degree of erosion.

Blu-ray may have emerged victorious in the HD video disc format war, but its supporters had better keep their armor on, because the bigger battle is the one commencing between packaged media and electronic distribution of content.

- Maya Jasmin, Stewart Wolpin
Digital Tech Consulting Inc.

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