Next-gen DVD a non-starter?

As the launch of the next-gen optical formats approaches, so too does the …

The New York Times is joining the fray of nay-sayers proclaiming a forthcoming dud in the next-gen optical storage wars. Like so many, the NY Times' Ken Belson is running with the story that the next-gen is too little, too late to keep users interested, suggesting that we've already entered into the age of disc-less wonder. The article, which is mostly an oversimplified rehashing of recent developments, suggests this overall assessment of where things are:

There are growing signs, though, that the battle for supremacy in this multibillion-dollar market may yield a hollow victory. As electronics makers, technology companies and Hollywood studios haggle over the fine points of their formats, consumers are quickly finding alternatives to buying and renting packaged DVD's, high-definition or otherwise.

I wanted to briefly address this story, because it's one of the longer and more considered opinions on this topic to date, and I can promise you one thing: there will be many, many more stories of this ilk before 2006 closes. We're currently ramping up to CES in Las Vegas in early January, when both HD DVD and Blu-ray proponents will be debuting what will essentially be their launch configurations (hardware line-ups, drive specs, movie availability, etc.). In true journalistic fashion, the reports of what goes on at the show will be foreshadowed then followed with reports about how Joe and Jane don't really need/want hi-definition, how they're confused, and how they can't justify the upgrade. And when we get to 2007 and penetration is strong, they'll pretend they never wrote this stuff.

First, let's not bother with the classical problems of a new product launch. We all know about early adopters, high initial costs, limited initial feature selection, and low quantities of launch titles. These are the things that define a launch, and repeating them and their challenges is a waste of time. A product, not there mere existence of a launch and its concomitant problems, is the key to success.

But one angle I've seen recently, and this is picked up by the NY Times story, is that the next-gen battles are taking place amid a disinterested populace. Yet this is what you would expect: leaving aside Ars readers, most people aren't going to have much interest in learning about products that you can't even buy yet. But once products are on the shelves, things will slowly start to change. The reason why brings me to the second flaw with the nay-sayer's arguments: the idea that people are already getting what they want, without the need for a new format.

Leaving aside piracy in its entirety, the article talks about the challenges posed by on-demand, existing DVDs, and HD cable offerings. Two of these things can be done asunder with little work. Both on-demand and HD cable offerings, while certainly important pieces in the video entertainment segment, have done no significant damage to the existing DVD market. While DVD sales have slowed on their aggressive growth, DVD is still remarkably strong, and a huge money maker.

There's a good reason for this. First, not everyone has digital cable and can even use on-demand. Second, on-demand is subject to the release schedules of the movie studios, which often favor DVD releases before on-demand schedules (indeed, on-demand usually falls last behind pay per view and premium network debuts). Third, on-demand movies are typically made available only to people who are paying for premium movie channels, if the movies are recent. This brief presentation of the reasons why on-demand hasn't obliterated DVD sales can be applied to cable offerings as well. There is a well-established ecosystem for movies, and I think you'll see the industry lean towards simultaneous releases before you'll see them abandon the optical disc as a centerpiece of their business model.

Note that I'm not saying that on-demand is a non-factor. It is a factor, but it's one which the movie studios have complete control over, and I don't think anyone needs to be reminded about how that industry protects its darling products. Case in point: look at how they want to manhandle DVRs. Another issue facing the movie industry is the personal entertainment library. What's to stop users from simply recording movies from cable and keeping them for ages? If Joe and Jane, for instance, didn't care about new movies, they could make out this way. Well, you might think so, but as a testament to my argument relating to the studios doing whatever it takes to keep the disc in play, look at their legislative efforts. Things such as the broadcast flag and their attempts to close the analog hole are not about piracy, they're about making it illegal for you to keep broadcast shows for long periods of time. Think about it: how on earth does a rolling deletion buffer address the problems of piracy? Can you imagine Frank The Pirate waking up on a Tuesday, realizing his pirate to-do list has been shattered because he failed to get movies off of his DVR in less than three days? What a joke.

And to close, the article ignores the most important part of this puzzle: both next-gen technologies are backwards compatible. Within two years, standard DVDs will start disappearing from the shelves. Even if you stick with DVD, chances are that the discs you buy for your DVD player will be hybrid discs with standard DVD and HD content on the same disc. And this is all part of the plan. Yes, players will be expensive. Yes, Joe and Jane may be hesitant. Welcome to every launch that's ever happened. While the confusion of having two competing standards will make for an interesting year, a clear winner is likely to emerge, and consumer confidence will increase. A few million PS3 sales won't hurt, either. And finally, let's not rule out the possibility of hybrid players coming to market, should things stay stagnant for too long.

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