Why Blu-ray's victory might not matter for long

Sony's format beat out its Toshiba counterpart, but digital-delivery options evolve faster than a spinning disc.

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    A customer shops for Blu-Ray movies at a Best Buy store in Burbank, Calif.
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After a slew of defections from the HD-DVD camp, Blu-ray is now the worldwide standard for high-definition movie discs. Sony, which lost in the 1980s when it backed Betamax cassettes over VHS, can now bask in its new format triumph.

But how long will this Blu-ray victory matter? Now, the champ must prove itself against a radically different competitor: movie downloads.

Internet video is already a big success on PCs. The Web offers everything from silly clips on YouTube to reruns on network television websites. Yet most people still prefer watching videos from their sofas, not their desk chairs. So, companies are scrambling for ways to cut out the computer and send digital movies and shows directly to TVs.

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On-demand is already on the rise. Internet-connected TVs could continue the what-I-want-when-I-want-it trend even further – possibly eclipsing the need for plastic discs.

Internet traffic carrying video to TV sets will grow 10-fold from 2007 to 2011, according to Cisco Systems. And by 2012, piping movies straight to TVs will be a $1.5 billion business, predicts ABI Research.

The trick is whether companies "can provide easy-to-use solutions with good quality and large libraries, while offering attractive pricing options, whether subscription, download-to-own, or rental," says ABI research director Michael Wolf in the report.

The same thing was said of legal digital music vendors in 2003. Then came Apple's iTunes store.

Having already transformed the MP3 market, Apple is trying to bring that same formula to televisions with the second iteration of its Apple TV. While the original model of this set-top box required your computer as the middleman, the new version, released last month, needs only an Internet connection. You can rent movies for about $4 each; HD-quality rentals are a dollar more. Or, you can buy the video for $10 to $15 – but the 40-gigabyte hard drive in the lower-end model fills up after about 30 movies, fewer if you want high definition. And if the drive is full, you have to start deleting your movies.

DVD rental giant Netflix already offers online movies on PCs, and in January they announced a deal with LG to stream video right into televisions. The coming Netflix-branded box, due out in the second half of 2008, will be just one of the possible avenues the company plans to offer. Netflix also discussed teaming up with video-game consoles, most of which now come with Internet connections, to use them as a back door to TVs. The zinger is the price: Netflix says subscribers who use its mail-based rental plans will get the streaming TV service for free. No word yet on the price of the set-top boxes.

On top of these recent announcements, there's Vudu, Movielink, Amazon's service via TiVo, cable on-demand packages, and even video plans from some phone companies – such as AT&T's Homezone.

"There's a lot of interest in getting into Internet TV," says Larry Hettick, a digital-home- services analyst for Current Analysis in Sterling, Va. "I don't see Internet TV taking over anytime soon. But it will certainly be a key part of the market from here on."

Even if consumers are slow to accept Internet video on their TVs, Blu-ray faces another major obstacle if it plans to sweep the market: good old DVDs. Just because Blu-ray beat out HD-DVD, doesn't mean that it's the successor to DVDs. Really, it's just another competitor.

After VHS's long reign, DVDs tricked everyone into buying their favorite movies (and, increasingly, TV shows) all over again. That won't necessarily happen a third time. TVs are getting larger, and Blu-ray discs promise unparalleled picture quality. But in the past year, stores have carried more "upconverting" DVD players, which turn normal DVDs into something pretty close to high definition. Connoisseurs will tell the difference – most people will not.

The bottom line? Just because the high-def battle is over doesn't mean you have to buy a new living-room gadget anytime soon.

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