Yes, I am stating unequivocally that Blu-ray disc technology is already obsolete. But not because there is a better pre-recorded viewing technology, but rather the Blu-ray disc obsolescence stems from a changed marketplace. Online Streaming coupled with changing media consumption patterns means that those Blu-ray Disc players and movies delivering the latest and greatest viewing experience are already becoming obsolete and will never achieve the success and ubiquity of VHS or DVD players.
This must be especially frustrating for Sony because of just how much effort they put into winning this format war, remembering the bitter taste of losing the VHS vs. Betamax format war and the long-term ramifications of that loss. While the battle between Sony and Toshiba was fairly short and brutal, Toshiba’s decision to cede the field to Sony is beginning to look smarter and smarter.
Sony had the killer app, which in this case wasn’t actually an application but instead was a gaming console, the PS3, which included Blu-ray player capability. This meant that the small cadre of hard-core PS2 gamers who automatically upgraded to the PS3 were a built-in audience for the new format. This fairly significant population, for a fledgling technology at least, meant that those studios on the fence when deciding between the two formats couldn’t afford to risk ignoring the Blu-ray format altogether therefore eliminating HD-DVD only exclusive deals. Toshiba had no similar killer app but it did have the easier to understand name. And although it marketed the heck out of the name, it just wasn’t able to overcome Sony’s PS3 advantage.
With this advantage Sony, to use an old cliche, won the format battle, but will ultimately lose the consumption war. The reasons for this are complex and intertwined. Netflix and Hulu are of course two of the biggest culprits, but so is the DVR. Another big reason for the shift from pre-recorded media viewing to streaming, is the the Xbox360, and it’s attendant Xbox Live service. Xbox Live not only allows streaming of NetFlix movies right to your TV, but it also streams ESPN and other HD TV shows and pay-per-view movies. If you doubt streaming’s popularity, this number may help put things into perspective - Microsoft now has over 25 million subscribers using the Xbox Live service that’s more than the combined readership of the top 25 US newspapers.
As a former journalist, I hate to keep picking on newspapers, but if you are part of the rapidly shrinking minority of newspaper readers you can open up the Sunday circulars and see the effects this shift in viewing habits is already having. Just 4 or 5 years ago a season of a hit television show was available in boxed set on DVD for $35-40. Now multiple seasons of very popular shows can be had for $15 per box set on sale. That kind of rapid price erosion only happens in a changing marketplace.
Another reason for the shift in viewing patterns away from purchasing pre-recorded viewing media is that the original magic of being able to watch a movie whenever you wanted in the comfort of your own home has long since been forgotten – this is now done without thinking and is considered a perquisite of living in the 21st century. This is because there is always something new to watch, something that wasn’t true when the VHS player first rose to dominance in the 1970s.
Back in the 1970s there really were few choices for TV or gaming entertainment – your TV probably only had the big three broadcast channels (yes, back then ABC, CBS andNBC were the big three, FOX didn’t exist) with maybe possibly the addition of 30 or 40 cable channels if your household splurged on that new-fangled luxury called “Cable”. The video game industry was then dominated by Atari – whose hits included Pong, Missile Command and Breakout. The personal computer revolution was in its infancy and there were no ISPs providing Internet access. Instead people with computers (a relatively select and well-off few) dialed into BBSs with their 300 baud modems to peruse, download and upload software libraries and leave messages.
The one alternative to Cable was Satellite TV. But at the time this required a 6-foot dish on a post in your front yard and a degree in electronics theory and astronomy to make everything fully functional. Rural Americans quickly embraced the benefits of satellite technology because in some parts of the country they might have had only 1 TV channel from which to choose. In fact the adoption of this highly visible technology was so rapid that there was once a joke floating around Appalachia that West Virginia’s new state flower was the Satellite dish. This of course is not true, because I’ve been to West Virginia and have seen their actual state flower in full bloom – the sight of entire hills and valleys aglow with blooming Rhodendrons is quite unique and well worth a visit. But I digress.
Given the paucity of choices available, owning and therefore watching a great movie like the Godfather or Citizen Kane repeatedly made sense. But now owning movies makes less and less sense despite the hopes of the movie industry that everyone will go out and replace their VHS and DVD libraries with Blu-ray Discs. As the saying goes, if “wishes were horses beggars would ride”. This simply won’t happen.
Another factor working against video ownership is that the movie industry has embraced, or accepted depending on your view, fragmentation as a strategy. The proliferation of movie screens and the shift in revenue streams means that studios don’t have the same reliance on domestic US ticket sales that they once did, now that revenue streams are a mix of domestic ticket sales, international ticket sales, pay-per-view revenue, and Video sales. This diversification of revenue intertwined with the fragmentation of movie audiences means that there are fewer and fewer “big” movies that everyone wants to see and own.
To put this into perspective 2009′s Avatar is the highest grossing domestic movie of all-time in absolute dollars but in inflation adjusted dollars it only ranks 14th at less than half the revenue of Gone with the Wind. In fact only 5 of the top 25 grossing movies in inflation adjusted dollars are from the last 20 years: Titanic (6th), Avatar (14th), Star Wars: Episode 1 – The Phantom Menace (20th), Forest Gump (23rd) and The Lion King (25th).
The Internet obviously has driven the biggest change in media consumption and leisure time activity – both in obvious ways by using it to consume content (see Netflix or Hulu) but also in less obvious ways in producing content (see Youtube) or in collaborating and communicating (see Facebook). Putting the Internet aside, video gaming has also begun to absorb a significant share of leisure time – both console based (Xbox, PS3, Wii) as well as online gaming communities.
These MMOGs, with WoW being the biggest, are increasingly generating signficant revenue, while most top-selling video games out-gross most movies. For example the best-selling Xbox 360 video game – Halo 3 – has sold over 8 million copies. If we assume an average price of $40 - lifetime revenue for the game is approximately $320 Million which would rank Halo 3 2nd among 2008′s movies.
I could keep going and talk about web-enabled TVs, smartphones, social media, etc. but I think it’s fairly clear that while Blu-ray may become the standard technology for prerecorded viewing technology, it won’t ever achieve the ubiquity that previous generations of viewing technology enjoyed. The bigger question beyond just movies and video technology is what will achieve that ubiquity of mind-share and revenue-share that they formally occupied? Will anything? What does it mean if nothing ever achieves this again? What business opportunities will be created when everything resides in the long tail? Which businesses will be destroyed? If you know the answer please share your thoughts, opinions, comments and questions below. -t
UPDATE: According to the Wall Street Journal DVD sales were down 14% year-over-year in the 2nd quarter, and have shrank from almost $16 billion in 2007 to under $13 billion in 2009. More detail here: http://www.thommitchell.com/2010/08/23/update-on-blu-ray-and-dvds/