Digital downloads will be Blu-ray's downfall

With the fall of HD DVD, Blu-ray has assumed the throne as the next format of choice, but its reign will be short-lived.

Blu-ray won't enjoy the same decade-long dominance DVD did after it succeeded VHS. But that's not because there will be other challenger physical disc formats. Rather, instead of buying discs from Amazon, Best Buy or Wal-Mart, people will begin getting their entertainment in the form of digital downloads in larger volumes.

The studios backing Blu-ray already know this. At an HDTV confab last fall, Warner Bros.' vice president of high-definition media development likened HD packaged media to a set of training wheels for digital downloads.

"We can use HD discs to train consumers to move into digital, but it's a transition," said Warner Bros.' Dan Silverberg. "Downloaded content will come, but the consumer will get quicker tutorial into video-on-demand, etc., by owning a Blu-ray player or HD DVD."

It'll happen sooner than they think. With a growing number of alternatives to packaged media, combined with the relatively high prices of Blu-ray players and discs vs. inexpensive, so-called upconverting DVD players, Blu-ray will likely be the last major disc format you'll ever buy.

Netflix, a purveyor of rental discs, obviously saw the writing on the wall, instituting its Watch It Now feature last year. Amazon.com, which sells plenty of packaged media, has its own Unbox video download service.

The likely reason? Overall consumer spending on DVDs and high-definition discs (HD DVD and Blu-ray), both purchase and rental, has been steadily decreasing since its peak at $24.5 billion in 2004. According to the Digital Entertainment Group, a trade group that represents all disc makers, spending last year amounted to $23.7 billion.

To the chagrin of disc patent holders, discs are not the only way to consumer high-definition media now. There are so many other ways to get content: Set-top boxes are getting far more sophisticated and will continue to do so in the next few years. Vudu, for instance, stepped up the video on demand option by adding more content than any of its predecessors, including the option for HD purchases and rentals. Apple recently upgraded Apple TV to include rentals--standard definition and HD--and a way to bypass the need for a PC to watch films on a living room TV. Even Microsoft's Xbox 360 game console has a download service for movies.

TiVo and other DVR makers that support cable giants like Comcast have traditional VOD options, and hard drive space will continue to expand. Netflix has its rentals available to watch right from its Web site, and watching TV shows online and for free at sites like ComedyCentral.com, Hulu.com, Joost, means you don't have to buy whole seasons of TV shows on physical discs anymore. If watching TV on a PC isn't your thing, technologies like Sony's Bravia Internet Link and Sling Media's SlingProjector bring Web video directly to the TV.

Perhaps most importantly, consumers will continue to get more and more comfortable with the idea of their library being digital. We're already there with music, and it's a relatively easy transition to make to one's movie collection. But it's also true of other things like Fandango's digital movie tickets, or even airline tickets and gift cards. We live in a world where oftentimes the value is not in the object itself, but in the digital information stored on a computer somewhere. (It's an attitude that's anathema to the likes of Disney and its studio cohorts who have always pushed the concept of personal movie collections, hence the push to upgrade to the "special edition" of older films.)

"The challenge for studios is really about convincing consumers to upgrade their libraries, (and) upconverting to 1080p (the highest resolution currently available) doesn't necessitate buying a whole new format," said Josh Martin, HD and video analyst for The Yankee Group.

People will get tired of replacing their favorite films to the trendy format of the moment. The price of the software ranging from $20 to $30 for Blu-ray discs right now will eventually drop. But digital copies costing less than $5 a pop, it's an easy decision for many.

The biggest roadblock is of course bandwidth, which causes the process to be long, painful, and ultimately not worth it for many. But that will change. Consider, for example, this scenario:

Using Fios from Verizon, it's possible to currently download several episodes of a TV show at approximately 5 megabits per second, or 625 kilobytes per second.

A 44-minute 640x360 (not high-definition) episode of Terminator: The Sarah Connor Chronicles that my colleague Declan McCullagh downloaded via iTunes is 510MB.

"It requires 193 kilobytes per second to watch live, which is easily doable on Fios barring network congestion," McCullagh points out. (Levels of compression or a change from the H.264 video codec will have different results, of course.)

Comcast customers--and there are far more of them than Fios customers--have speeds today that vary widely, but 187 kilobytes per second in real-world tests is a good estimate. Assuming a one-hour high-definition TV show (with commercials) is around 5GB, that requires 1,388,888 kilobytes per second or 1.38 megabytes per second to watch.

So Fios is about halfway there about at best, and Comcast's 100 megabit per second connection, which it promised at CES would be a reality by 2009, could pull it off.