Yes, you read that right. HD DVD got it right, by bowing out now, because they realized that they are late to market. The concept of a larger optical format delivering higher quality content may have found success 5 years ago. However, in today’s environment, it is virtually a non starter. There are two basic and overpowering reasons why Blu Ray will fail:
1. Pornography. Being from the technology industry, it is amazing to analyze the role that pornography has played in the adoption of new technologies. Before the VHS tape, there was no easy way to consume pornography except a small pornography store on the seedy part of town. But the VHS tape changed all of that, and millions of pornography lovers flocked to the VHS format, purchasing VHS players over the Sony Betamax players.
Here’s the key point. Pornography is the tie breaker in the classic chicken and egg problem of content and players. Let me explain. The chicken and egg dilemma is a classic marketing puzzle. Consumers were hesitant to purchase betamax players because there were not enough betamax movies to play/rent. On the flip side, the movie studios were hesitant to produce and distribute more films in the new format since there were not a sufficient number of players to monetize. And then Boom. Pornography enters. For the pornography producers, it is a huge win since their prior distribution model was inefficient and limited the size of the market.
Hence, in the 1980’s, pornography drove the adoption of the VHS standard. Fast forward 15 years, and a new standard emerges DVD. Fresh off their VHS success, the pornography industry jumps on the new efficient standard. DVD was a quantum leap in video quality, but more importantly, dramatically reduced production and transportation costs. Before the movie industry blinked, there were a large number of DVD players ready to break the chicken and egg paradigm once again. DVD was a huge success.
Now shift to the present. The pornography industry was not moving to either the HD DVD nor Blue Ray. One simple reason the internet. The internet has already leap frogged either optical format. Despite the fact that Blue Ray is the sole HD DVD format remaining, it is hard to imagine a plethora of new pornography introduced in the new format. The reason is efficiency of distribution. It costs a lot less to distribute a movie over the internet than through an optical disk. The business risks are less, and the end user cost is also less. It’s just not going to happen.
2. Video on Demand. On top of this Blue Ray has another huge competitor – Video on Demand. It’s over game, set and match. Video on demand allows one to watch a full HD movie without any new hardware of software. It is amazing! To watch a HD movie within seconds in your own living room that almost rivals the quality one gets in the movie theater.
It is the esssence of efficiency. Straight from the movie studios to my house. They don’t have to stamp the movie millions of times and then place them in boxes, and then shipped out to individual stores. Think about all of the people that are eliminated from the distribution chain. Companies that stamp disks, companies that make boxes, shipping companies such as Fed EX, retail companies such as Walmart and Best Buy, and movie rental companies such as Blockbuster and Netflix. All of these companies will lose with the acceptance of HD Video on Demand.
And who is the winner? We are! Due to the inherent efficiencies, Video on demand will be less expensive. But that’s just the beginning. The efficiency should also allow movies to be made available sooner. And in the longer run, a much wider selection will be available. This is a key point. There is a cost for BlockBuster and BestBuy to continue to carry an old movie like CaddyShack in their stores. In addition, there is downside risk for the movie maker if these units stay on the shelves too long. All of these issues disappear with Video on Demand. Even in the medium term, Video on Demand will have the best selection as well.
I honestly see no way that Blue Ray can compete with these two large market dynamics. Rest in peace, Blue Ray.