Blu-ray is no longer Sony's key to winning the format war

Chris Tompkins — Tue, 01 Jul 2008 10:33:21 -0700

Home-theater buffs will gasp in horror, deride me and mock my lack of taste for what I am about to say. But the evidence is hard to deny: Sony is finally starting to realize that compressed, downloadable movies -- as opposed to physical media like high-definition Blu-ray discs -- are the way of the future.

This may come as a surprise to HD fanatics and observers who have watched the entertainment giant spend billions promoting the Blu-ray format. The push included a $3.3 billion dollar investment in the Playstation 3 game console, which supports Blu-ray discs. Now as more consumers watch movies online, Sony is hedging its bets on Blu-ray, by introducing two new ways to stream movies directly to the home. The first method comes with the new Playstation 3 firmware and allows PS3 owners to order from a direct-download movie store. The second method uses a device called the Bravia Internet which connects to Sony's Bravia TV line.

These new add-on technologies seem like attempts to wage a two-front war against competitors in both the physical media and streaming arenas, instead of focusing all of its considerable resources on the right format for the future. Even though Blu-ray trounced Toshiba's rival HD-DVD format, Sony seems to have realized that it merely won a small battle in the wrong war. Now Sony is skirmishing on the new front, streaming media. Its most recent volley came with the announcement that Bravia Internet owners will be able to download Will Smith's new movie, Hancock, before the DVD release.

So why is Sony now hedging its bet on the expensive "Blu" format, that was supposed to make the PS3 console the machine of the future? The company assumed that HD alone would be a big enough draw for Blu-ray, but interest simply hasn't materialized. Right now, only 25% of American households own an HDTV, and just a fraction of those users actually view any HD media. As for the other Blu-ray features -- HD-DTS, Master Soundtracks, multi-streams -- I doubt any of them are must-have features for the average consumer. I'd even wager that most HDTV owners will barely notice the difference between 1080p resolution Blu-ray and 720p streaming media. These touted Blu-ray features end up being largely irrelevant to anyone not owning a $20,000 home theater.

On top of that, the media industry is predicting that by current projections, Blu-ray sales won't overtake DVD until 2012 and that's more than enough time for Netflix, AppleTV, Tivo, or Hulu to multiply the number of streaming HD customers who no longer need physical media. These users will enjoy a virtual library many times larger than most individuals could own, accessible at any time. The very idea of owning a movie could fade away in lieu of subscription models or simply the cheap price of renting.

If Sony's hedge is successful, what will happen with Sony's hardware investments in Blu-ray and the PS3? Right now, Sony has an expensive, money-losing, Blu-ray box in the PS3, that can't seem to decide if it's made for watching movies, playing games, or streaming media. It's classic Sony behavior, releasing devices and proprietary technologies which don't focus on the features that average consumers crave. It happened when Sony's miniscule RAM-based MP3 players were largely ignored for Apple's hard disk-based iPods. Storage space -- not physical size -- ended up being the feature music junkies desired. It's happening again with the Playstation 3, and Sony's last-second repurposing of the expensive device to download movies isn't a good fit when other streaming devices are much cheaper.

Sony's other innovation, the Bravia Internet box, only works Sony's Bravia televisions, as an expensive add-on to an already premium priced TV. This walled-garden strategy with the Bravia isn't likely to gain significant market penetration, much less win the format war. For that to happen, half-hearted attacks won't be enough. Sony will need to fully engage on the streaming front, if it intends to win against the likes of Netflix/Roku, Hulu, and Apple.

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