Until recently, the history of home entertainment was the history of encoding formats. For movies and music to get into our homes, manufacturers had to invent some medium that was capable of holding Star Wars or ABBA Gold. And so it went: vinyl, eight-track, cassette, Betamax, VHS, CD, DVD. Our shelves filled with slabs of plastic, spools of magnetic tape inside cartridges, and 5-inch discs stamped with binary-encoded metal foil.
Now, home entertainment has a new idea: high-definition video. By increasing the number of pixels in an image, HD encoding can deliver a sharper picture. Because high-definition images pack more visual data, HD movies require more storage space than DVDs can provide. So, naturally, we've now got two new encoding formats: the Toshiba-backed HD-DVD and Sony's Blu-ray.
The movie studios and electronics manufacturers think—wrongly—these new high-def formats will extend the market for home-entertainment media indefinitely. Both formats will fail, not because consumers are wary of a format war in which they could back the losing team, a la Betamax. Universal players that support both flavors of HD should appear early next year. No, the new formats are doomed because shiny little discs will soon be history. Here are four reasons why.
The Internet. On Nov. 22, Microsoft will unveil its Xbox Live movie-rental and download service—the first to include HD content. This is obviously a shot across the bow of Sony's PlayStation 3, which includes a Blu-ray player. (The Xbox 360 plays only standard DVDs out of the box.) The significance of Xbox movie rentals reaches beyond the console wars, though. For one, using the Xbox for over-the-wires delivery of HD content removes the need for physical media. It also removes a key barrier for iTunes-style sales of movies, particularly high-definition movies: Once you download The 40-Year-Old Virgin in HD, how do you get it from your computer to your plasma screen? Few people have their PCs connected to their TVs. But every Xbox 360 is connected to a TV, and most are connected to the Internet (to use Microsoft's Xbox Live online gaming service). Don't have an Xbox? Similar services from Apple, Netflix, and others will soon pour HD movies into homes using a broadband connection and a cheap set-top box.
Cable on-demand. Like Microsoft's console, your Comcast box is a fat-pipe conduit between the company's inventory of HD content and your HDTV screen. Furthermore, on-demand playback is immediate—you don't have to wait for downloads to complete. Movie studios wary of siphoning money from DVD sales have mostly avoided making new releases available on demand (proof, perhaps, of on-demand's potential earning power down the road). That's starting to change, though, and a premium tier of titles is now hitting on-demand at the same time they're hitting Blockbuster. And just as record labels' fears over music downloads were placated by copy-protection schemes implemented by iTunes, Rhapsody, and other online services, the cable companies will soon put together content deals that make sense for the studios. Microsoft's Xbox movie rentals, which expire 24 hours after they are downloaded, are a good example of what those deals will look like.
New formats mean pricey hardware. After spending $3,000 or more on an HDTV and multichannel audio gear, nobody's in the mood to burn another pile of cash. HD players aren't cheap: $350 to $600 for HD-DVD and $750 to $1,000 for Blu-ray. Sony's decision to support Blu-ray in the PlayStation 3 is a strong-arm tactic to drive demand for Blu-ray-encoded movies. But this loss-leading move could sink Sony's new console—and maybe even the whole company—when Blu-ray stalls out.
The rise of the hard drive. When you buy a DVD, you pay for the cost of embedding a piece of plastic with data, packaging it, shipping it to retailers, and stocking it on shelves. Movie downloads require only the space necessary to store the data on a hard drive for as long as you want to hold on to it, either for a single viewing (in the case of rental downloads like the Xbox 360's) or forever (archived on your computer or an external drive). On iTunes an album costs about 10 bucks—as much as $8 less than some CD retailers charge, partially because of the reduced cost of getting music to buyers online. Look for the same savings when it comes to downloading movies. And then there's the fact that hard-disk storage capacities are pushing ever upward while size and price drop. In a few years, you'll buy every episode of The West Wing on a drive the size of a deck of cards rather than on 45 DVDs in a box the size of your microwave oven. If you think that sounds far-fetched, consider that shortly after releasing a comprehensive, eight-DVD New Yorker collection (since updated to nine discs), the magazine released the same collection on an (admittedly expensive) iPod-sized hard drive. Which would you rather have, especially once the price of hard drives sinks even lower?
Make no mistake: Buying movies online isn't there yet. Titles in standard-def are few, in hi-def fewer still. With five times the visual information of a standard-def flick, an HD download of The Matrix, were it even available, could take all day over the average broadband connection. And a simple, consumer-friendly system for storing, backing up, and accessing a large movie library is probably a year or more off. As for cable on-demand services, they are clumsy to use, lack a deep back catalog, and lag behind DVD release schedules. (Meanwhile, DVDs fit nicely on a shelf, rarely fail, and don't require annoying download periods or sophisticated gear to get them to play on your TV.)
All of that will change—and fast. It will change because consumers want it to change. Music buyers used their modems to force the major labels into the fear zone and Tower Records into bankruptcy. The same will happen to the movie studios and DVD retailers unless they curb their disc addiction.