Yes, you read that right. I said Blu-ray. Ever since the defection of Warner Bros. from HD-DVD to Blu-ray a few days before the Consumer Electronics Show(CES), every expert who knows anything at all about this industry has predicted the demise of HD-DVD. And they're wrong.
The most important reason is that no one is an expert on the high-definition marketplace. The industry barely even exists so people making projections based on expert knowledge of laser disc or DVD figures are only slightly more accurate than Voodoo shamen sorting chicken bones. You just can't rely on recent sales in a nascent industry and extrapolate a projection from it. Projections about what people will or will not do at this stage are even less accurate than political exit polls.
My thoughts are not based on any secret knowledge of the DVD marketplace but I have a pretty good knowledge of business. Absent an overwhelming leap in technology from Blu-ray some time soon, here are my reasons HD-DVD will win:
1. Technology: My wife is not an expert on technology, she just likes the 'experience' of technology. She has an Apple iPod. Apple did not invent the MP3 player, they don't even have a particularly good one, but even though it is technologically unspectacular Apple controls the experience in a way she likes. They took very basic components, built software people like, negotiated agreements with vendors and created an elegant way to buy and use music. Even I sometimes use iTunes. I just don't bother with an iPod. The iTunes experience made the iPod valuable.
This is the first place where experts are wrong; they rely on the past. They insist that Apple's adoption of (and success with) controlling the user experience means everyone must now do it to win. Marketing experts, like military commanders, are always preparing for the last war and not thinking about the one in the future.
In new technology markets, absent an overwhelming marketing buzz, engineering and the advantages it brings are likely to win. HD-DVD has top-notch system design and that means player stability and lower cost and consistent manufacturing. HD-DVD is half the cost of Blu-ray and every player sold comes with an ethernet port to do upgrades because Toshiba focused on functionality, not the experience. The iPod and its experience came out years after I had an MP3 player and Apple got into that business because it was already popular and just needed a killer product. Early adopters are not worried about the 'experience', they want the best tool. I still have three Replays in my house because they are better than TiVo. I simply configured them so my wife had the easy experience she likes.
Because Blu-ray can fit more data than HD-DVD (25 GB per layer versus 15 GB per layer) and they have adopted a higher audio and video transfer rate (54Mbps versus 36.55Mbps) they are regarded as 'technologically superior' but Betamax was also technically superior to the VHS VCR. Betamax was also championed by ...
2. Sony, and this is one fight they can't afford to lose. Experts will contend that Blu-ray cannot lose because Sony is betting it all; their movie studios on the home viewer market, their Playstation 3 with gamers and computers with everyone else. Marketing people love to think big companies who bet it all can't lose - and it's a safe bet. Sony only stopped making Betamax players in 2002 so it's true they stick to their guns, but not losing hardly counts as a win.
Betting it all means they will do whatever it takes, the theory goes. That's marketing talk, not business. The people running the businesses at Sony have a Plan B, as do their Blu-ray brethren at Pioneer and Samsung. Showing support does not mean they will drive their business into the ground. Plus, they are squared off against a team with another company that's used to sticking with a plan named ...
3. Microsoft: Did you use Windows 1, 2 or 3? I didn't either. But a lot of people used Windows 3.1 even though it wasn't as elegant an experience as the Apple interface. Microsoft can stick to a plan in a way that conservative committees making decisions at Sony cannot. Of course, just because Microsoft sticks with a decision doesn't mean they are fanatical. You don't see them promoting Microsoft Bob these days. But when they believe, they put their money behind it. Netscape used to own the browser market too but Microsoft won that with an inferior product. HD-DVD has the benefit of not only being not inferior, it's also cheaper.
Microsoft is sticking with the Xbox and with HD-DVD on the Xbox, at least for now. In addition to Microsoft (and Toshiba), Intel and Hewlett-Packard are also along for the HD-DVD ride.
But what about the people who make the content and the decision, those bean counters in ...
4. Hollywood: The most ridiculous, faith-based nonsensical thing I have read or heard on this subject has been that the Warner Bros. move to Blu-ray somehow tilts the battle away from HD-DVD. Nothing could be further from financial reality.
Broadcom and Sigma and other chip companies have to think about foundries and inventory and manufacturing estimates - without huge write-offs, they are stuck on their path. Hollywood studios do not have that concern because they are not in the manufacturing business. Studios are going to make movies in whatever format the public wants, Warner Bros. included.
Rumors that hundreds of millions of dollars have changed hands to cause these mass defections, all magically hidden in secret marketing budgets - as if no one is going to notice a petty cash marketing increase of $150 million to $400 million on any company's books - are good press but they don't mean much. Whatever money Warner Bros. got, they were smart to take it. They can sell movies in Blu-ray and, if it fails, sell them again in HD-DVD. But they do not dictate to the market what the market will buy.
Most movie studios are behind Blu-ray but Toshiba alone has sold 50% of the HD players. I see estimates, for whatever they are worth, as high as 70% of HD disc sales for Blu-ray. How can that be possible? Is a player that costs twice as much going to win based on movie sales? Not necessarily.
If Blu-ray sells 100 machines and each customer bought 7 discs with it, that's good for studios and not great for player manufacturers. If HD-DVD sells 300 players and 1 disc with each, Toshiba is much happier than studios. Which of those groups can easily change direction? The studios. If it's true that Toshiba sold 50% of the players out there, disc sales to-date are not all that relevant. 300 potential customers versus 100 tells the tale. Studios have to make discs for people who want to buy. The perception that hardware companies can fight to the last drop of studio blood is misguided.
Toshiba has made no secret that they think, all things being equal, the same quality at a lower price will win. Aficianados can argue until they are blue in the face about bit rates but to the average user, the quality of either format will be spectacular.
So I think Blu-ray is going to lose this fight. Does that mean Toshiba and HD-DVD will be the big name in high-definition discs four years from now? Maybe not.
Apple may have an iDisc in the works right now.