Why Blu-Ray Should Never Have Existed: Technology Lesson Learned

Rob Enderle

A number of experts are pointing out why Blu-Ray is a mess. In hindsight, Blu-Ray should never have existed. Looking back at what happened with this technology can help us avoid similar mistakes in the future with a variety of products.

 

Today I'd like to cover the warning signs and point to Blu-Ray as the current example of a problem product that can crop up in any company, from IBM to Microsoft.

 

Now, I know a lot of people still believe Blu-Ray is winning (though that number declined sharply after Paramount and DreamWorks jumped ship), but if you really step back, you'll realize all it is doing is ensuring HD-DVD doesn't win either, and the impact of that on the movie industry has to be in the billions.

 

Danger Sign One: It Can't Stand on Its Own

 

I've seen this over and over again, and am surprised more of us don't point this out. If a product requires substantial support from the parent to keep it alive, including funding levels that probably can't be reasonably recouped, it has a very high likelihood of failing.


 

Successful products generally need some boost in terms of marketing and backing, but if they need sustained investment over long periods of red ink, at some point there is likely to be an executive change, and the new guy will immediately realize that the product needs to be killed.

 

We saw this years ago with OS/2. The level of investment was unprecedented, and to keep Louis Gerstner, the CEO who was brought in to turn IBM around, from killing it out of hand, he was maneuvered into publicly promising to support it indefinitely. Shortly thereafter, he killed funding for the offering quietly, leaving a lot of companies that had listened to the empty promise hanging in the wind.

 

With Blu-Ray, the warning sign was the tie-in to the PlayStation 3, which was the big crutch for the product. I was just as blind to this early on as everyone else, and didn't realize until too late that rather than the PlayStation assuring the success of Blu-Ray, Blu-Ray assured the failure of the PS3.

 

A product has to hit on three vectors: it has to work to expectations, it has to be something people want, and it has to be affordable. The fact that it wasn't affordable killed not only Blu-Ray but effectively took out the PS3 in the process. Without the PS3, Blu-Ray couldn't beat HD-DVD, which had no similar crutch and advanced into the market much more easily (and shipped much earlier).

 

Danger Sign Two: Key Competitive Advantage Unimportant

 

In the case of competing technologies, there are advantages and disadvantages between the products. For instance, in the case of Windows vs. Linux on the desktop, the key advantage is that Linux is open source which, to the average Windows user, is not only unimportant -- when explained it might actually scare them away from the offering. Apple, on the other hand, is providing advantages consumers at least want, and is showing considerable success at the moment.

 

For Blu-Ray, the big advantages seem to be capacity and special features (something HD-DVD shared). On capacity, the reality was that you really didn't need as much as Blu-Ray offered for movies; since game developers (most of them) develop for several platforms, they were limited to standard DVD capacities, anyway. For backup, initially they had an argument, but with the growth of storage and the speed of writing to optical discs (which is very slow), both HD-DVD and Blu-Ray became impractical as backup and transport media for PC files. Portable hard drives are cheaper, easier to use (all you need is a USB port, not another Blu-Ray drive at the other end), vastly faster, and actually more portable. For special features on Blu-Ray or HD-DVD movies, folks simply didn't care. They just wanted to watch the movie. So arguing who had the best features quickly became a waste of time.

 

So Blu-Ray was better, if the buyer doesn't care, it doesn't make any difference, and the vendors who haven't yet learned that lesson are way too prevalent.

 

Danger Sign Three: Excessive Cost

 

Whether we are talking IT products or consumer offerings, there are price windows that the market will accept. While you can (and Sony is actually expert at this) bring out some things high and let them drift down successfully, this generally only works if you are entering a green field (Global Positioning Systems are a good example) or moving against a technology that is stagnant (Apple's entry into the MP3 player market).

 

In most cases, a new technology will enter on top of an old technology which is still advancing, and if the company doesn't own the market for the old technology, as was the case with DVD, and the old technology is both seen as good enough by many buyers, up-selling will prove to be tough.

 

While HD-DVD had a heavy focus on cost, both from the standpoint of media and drives, Blu-Ray did not -- it was more of a technology pure play. Blu-Ray has, in terms of retooling, already consumed massive amounts of investment on the manufacturing side. Most of this is actually done now, and this was pointed out as a serious problem at the front end.

 

But on the player side, the HD-DVD players are now close to high-volume pricing, which kicks in at $200; Blu-Ray is still 12 to 24 months away from these price points. Why this is critical is up-converters (scalars) are both getting better and coming down in price. A scalar takes a low-definition image and electronically augments it so it looks like a HD image. Right now, DVD players in the $200 range have excellent scalars which most find look more than adequate on their new HD sets. The cost advantages of the old technology remain high, as the media for both HD-DVD and Blu-Ray are substantially higher than standard DVDs.

 

Next year, good scaling DVD players will be well below $200 and that gives both formats limited time to start building a base.

 

Blu-Ray, from day one, couldn't get to where it needed to be in time. Had this been fully vetted (and I'm quite sure Sony's partners were not aware of this), Blu-Ray would have never left the lab.

 

Wrapping Up

 

Getting excited about cool technology is great; letting that excitement get in the way of good judgment can be expensive. In looking back, I actually wasn't asking the right questions either, and know better (I initially supported Blu-Ray and assumed Sony wasn't foolish enough to sacrifice the PS3 for Blu-Ray). So this is as much a reminder for me as it is for you. Remember if a product:

 

1. Can't stand on its own; 2. Has competitive advantages that actual customers don't care about; and 3. Can't possibly meet cost targets on time.

 

Then don't invest your money in it, and for your company's sake, don't invest your company's money in it, either. As I conclude, the news is hitting that another Sony storage technology has a problem; it seems F-Secure has identified Sony's MicroVault USB memory stick the source of a significant PC vulnerability. Maybe there is a fourth rule having to do with Sony.

 

In the end, technology battles can be painful for all involved. This one has cost the movie industry billions and put Sony at extreme risk in several business areas. Keep your eyes open and make your choices not on what you want to win, but on what likely will win, and you may want to hold off making any choice when the choice isn't clear. In this case, that last option still may be your best choice.



Add Comment      Leave a comment on this blog post
Sep 19, 2007 7:37 AM Jeff Jeff  says:
This is the biggest load of Quadswallop Ive ever heard, BluRay is far better than HDDVD and its potential obviously is beyond your measley comprehension. Reply
Sep 20, 2007 1:06 AM kenny kenny  says:
HD DVD or Blu RayI have not bought any of those devices but I will wait for the dust to settle. I am incline toward Blu Ray because of the capacity it providesCapacity for extras for moviesBloops, Director cuts, scene cutoffThese things are not included in most releases as the studios have not been very ready to add the extras in yet.Capacity for gamersThere was complains from Microsoft and other software game producers that DVD have too little capacity.So in time, the capacity will be used and better games can be developedIn so saying, I believe the winner of this war will be, in my honest opinon, the one with the cheapest Hardware Reply
Sep 22, 2007 1:43 AM Atrace Atrace  says:
"On the left, a Sony (or Panny or Samsung) BD player. Cheapest one? $500. On the right, Toshibas HDDVD players, starting at (likely by XMAS) $200-$250."Actually Best Buy has the first gen Samsung BD-1000p for 299.99 so yea...And I love the comments about the tide is turning towards hd-dvd. Anyone care to explain how? All I hear (or I suppose I should say see) is idle talk. Studio support, plus 10 manufacturers, plus ps3, plus sales figures for movies all indicate that Blu Ray is winning. Reply
Sep 22, 2007 2:13 AM Rob Enderle Rob Enderle  says:
Still, and I have both Blu -Ray (PS3), and HD-DVD (Xbox and Toshiba) players I've been watching movie downloads for the last couple of weeks and am using my Oppo DVD player about 4 to 1 over both HD and Blu in terms of movies I get on optical. Both Xbox and PS3 are moving to download models (Microsoft is ahead), Vudu is actually very good and with 5000 titles has much more content (though still not enough good content) than either HD format and a good up-converter, and most of the folks I know who were supporting one or the other last year are working on download projects now. This isn't about Blu vs HD anymore this is about either making it to mainstream and, given what I'm seeing, I increasingly doubt either will make it. HD-DVD is closer but it can't win as long as Blu-Ray is around.I don't think Sony can exit either so I don't actually see a way out of this that will work. The groups needed to come together before the PS3 locked in on Blu-Ray, they can't do what is needed now. They'll just bury each other. Reply
Sep 22, 2007 2:18 AM Allen, Sparks, NV Allen, Sparks, NV  says:
I think this is the age where consumer will no longer decide which product will survive. It will all come down to corporate marketing, partnership, and advertisement. If a new shopper goes into Target to look for a cheap way to get HD, since Target only sells Blu-ray players now, they will buy the cheapest Blu-ray player. Some dont even know what HD DVD or Blu-ray is, they just walk in, see whats available, and pick one that store employee recommends.For the educated consumers WITHOUT A PREFERENCE to who is backing what, Blu-ray should be the not-so-clear choice. The reason I say not-so-clear, is the Blu-ray specs still arent finished. BD+ just launched; Profile 1.1 is finally coming out but profile 2.0 is what we really would like; players are still expensive compare to HD DVD, and the recent loss of Paramount dumping Blu-ray support, they all working against Blu-ray. But Blu-ray does have the most advanced audio options like Dolby TrueHD, DTS-MA, and PCM, which is not available on all HD DVD. (yes I know it is available to MAJORITY of HD DVD) AVC video encoding is IMO better than VC-1 in picture quality. Blu-ray has much more storage capacity and better encoding rate. Overall, the areas Blu-ray is lacking can be fixed easily. But the area HD DVD is lacking will cost more based on storage capacity needed to make those improvements.For the people who chose the company rather than the format, I know whatever my opinion is wont lessen your hatred and fear, so Im not even going to try Reply
Sep 30, 2007 5:38 AM Larry Larry  says:
Wow- I see all the ps3 fanboys have got their panties in a wad! I just bought a 50" plasma and went ahead and bought a Toshiba hd-dvd. At $270 I'm not worried if it ends up being obsolete in a couple of years. I do like how it is region free and that many of blurays US "exclusive titles" can be imported from europe! Go figure. I loved sony's ps1 and ps2 and was going to get a ps3 when they came out, but then sony started spouting their arrogant bs and insulting my intelligence - well I haven't bought one yet. A lot of other gamers feel the way I do which is why sony is a distant third in console sales. Reply
Oct 3, 2007 11:31 AM BobbyB BobbyB  says:
Allen Sparks,Target is NOT Blu-Ray exclusive -- they are being paid by Sony to carry their $500 BD player for this holiday season. This is why they are even offering a single Blu-Ray player -- Sony is paying for the luxury! And they will not have any additional BD players in their stores.They continue to carry HD DVD discs, the XBox 360 add-on, and other HD DVD players on their website. In fact, the low-cost Ventura HD player is already on their website for $249 pre-order price.Most of the news that seems positive for Blu-Ray has Sony's money behind it -- the Target announcement, the Blockbuster deal, the new Hastings BD expansion (revenue sharing with Sony), the end-caps at Best Buy (paid by Sony) -- and don't think that Fox and Disney haven't been given mega$ in subsidies & marketing by Sony in the exact same way that Toshiba gained Paramount & Dreamworks' exclusivity...Toshiba just finally decided to get as aggressive as the BDA.This article made many excellent points. Blu-Ray needed to dominate the market & eliminate the competition in order to recoup the huge investment in BD and the exorbitant costs associated with BD disc manufacturing and creating brand new lines. The costs were in the billions. Paramount knew these costs were very real, and they chose to drop Blu-Ray. If sales were fantastic for BD, studios would NEVER be dropping support, despite generous exclusivity offers from the competition. Despite what so many PS3 fanboys claim, sales of Blu-Ray certainly are NOT "rocking the world by storm"! Blu-Ray currently maintains a meager 1.46:1 sales lead over HD DVD (with a disparity of ONLY 700,000 discs in total), and this is with the numerous BOGO sales at Best Buy and Fry's and a huge amazon 50%-Off sale on over 40 titles that lasted half a month! The PS3 has been a complete bust according to expectations, with price drops happening in Japan, US, and now Europe to help spur sales of a console that are well behind the 360 every month. Hell, Sony had to drop $100 off the 60GB console just to clear out the inflated inventory that was collecting dust in warehouses.I think this article is completely accurate in many respects -- HD DVD was always the format that was much better prepared to take the reigns from DVD. Once the Blu-Ray claims of superiority proved incorrect, the economical advantages of HD DVD appeared plain as day. Blu-Ray will become the next UMD -- another failed, Sony proprietary format trying to succeed on the shoulders of a game console. Reply
Nov 15, 2007 11:14 AM Noob Noob  says:
I'll wait for HVD Reply
Dec 6, 2007 9:51 AM Woody Woodpecker Woody Woodpecker  says:
The only thing BobbyB forgot to leave out in his tirade is how Blu-Ray sales is a sign of weakness and that BobbyB will glady pay full price for his HD-DVDs because higher prices mean superiority. Reply
Jan 6, 2008 4:46 AM Calvin Smith Calvin Smith  says:
Considering Warner Bros. move to Blu-ray only soon, its doing pretty darn well for a technology that "should have never existed". Reply
Jan 8, 2008 4:38 AM J Smith J Smith  says:
Wow, he really did nail this one on the head. Amazing insight. I'm glad now that Warner is blu, HD DVD can really take off without them holding them back. Bravo. Reply
Jan 11, 2008 6:57 AM C D C D  says:
I think hes fairly accurate in technology and pricing assesments unfortunatley the Warner move is a big blow for HD. Its rumored that Paramount isnt far behind. Blu media outsold HD media in the fourth quarter like 8 to 1 or something like that but if you ask the retailers they will tell you that Toshi HD players outsold Blu players at least 5 to 1. The Blue media is selling because of the PS users and Disney other then that the media is about equal in sales. You can see Blu Ray disk everywhere but its harder to find HD disks which also ads to those skewed numbers. Its sad beacuse HD is a better format and offers more interactive technology. Additionally many more computers are being sold with HD DVD then Blu so this fight will go on for some time. If you count all the HD DVD players sold in Computers HD DVD is crushing Blu Ray. You basically need both players and the combos are a waste of money at $900 with inferior features. This format war sucks! Reply
Jan 11, 2008 7:00 AM C D C D  says:
Oh yeah the other things are that Sony lost 800 Million dollars last year in the Entertainment . PS3 , Blu Ray division and having worked for Japanese companies for 17 years its only a a mtter of time before they crush the whole division . They are counting on software sales but as the prices rapidly decrease there will not be any margin there as well. Makes it even more interesting Reply
Jan 15, 2008 8:46 AM thor240z thor240z  says:
Let's revisit the criteria:"Remember if a product:1. Cant stand on its own;2. Has competitive advantages that actual customers dont care about; and3. Cant possibly meet cost targets on time."1. HDDVD discs sold in low qtys, and clearly could not compete with DVD or BD. Without MS backing holding it up, would it have lasted this long?2. The competitive advantage HDDVD had/has is a 'finalized' spec and internet connectivity. Actual customers want disc players to watch discs. They could care less if it does anything beyond playing great video/audio.3. Toshiba heavily subsidized its players along with the $99 Walmart deal. If it could have sustained the $99 price, it would have met its cost targets. Clearly, Toshiba could not.In conclusion, your "analysis" shows you're clearly an 'outsider' with neither good access to info nor good research easily accessible on the net. I highly suggest you spend more time in a broader range of research before you are ridiculed further.Some example tidbits of info that should have been factors in your blog:As early as the time of this article(Sept '07), you could purchase dual-format HDDVD/BD-ROM drives for the PC for $299. This should indicate to you that pure manufacturing costs for both formats are equaling & dropping.Toshiba had split from the BluRay Consortium(which was established first), and was pretty much alone in manufacturing & continuing to push HDDVD. Reply
Jan 18, 2008 10:40 AM Dean Gullberry Dean Gullberry  says:
^^^ Nailed it.Of course, we now have the benefit of hindsight as significant developments have come to light; but still, this now ranks right up there with the bumper crop of tech commentaries that have so hilariously been either (A) behind the times and developments already at the time of writing, or (B) Proven wrong in an embarrassingly short period of time.Such are the pitfalls of Moore's Law, I suppose. Reply
Feb 3, 2008 1:37 AM Mike Mike  says:
LOL! Well this writer wins the prize for most biased review, and most mistakes in a single article.... EVER!I have both Blu-Ray and HD DVD and even though they are both great, it seems fairly clear to me that HD DVD is fighting a losing battle now. And the PS3 a failure? I really hope that Mr. Enderle didn't get paid to write this article! Reply
Feb 12, 2008 6:27 AM Brian Brian  says:
Once again, Enderle's brilliant predictions and analysis laid bare for the world to see. Even at the time this was written, Blu-ray was beating HD DVD and it's gotten much worse since then. Reply
Feb 21, 2008 11:54 AM Sam Sam  says:
GAME- SET - MATCH! Bye bye HD DVD Way to call it there "President and principle analyst" Rob Enderle. GET A REAL JOB WILL YOU Reply
Mar 23, 2008 1:38 AM Allan Silliphanr Allan Silliphanr  says:
There is an obvious role for the highest level of DVD gear and disk technology, with progressive scan, HDMI cabling,16x9 wide format and "up-converting". The royalty on a DVD disk is $.12, not several dollars, and the production is far less. I work in HD3D digital. We would like to have our shows on BLU-RAY disks, but we damn sure want them played in some form of progressive scan, with up-sampling, widescreen and HDMI cables. Our HD3D production requires that. But if Blu-Ray wants an arm and a leg, we'll just say our high grade disks are "BLU-RAY FRIENDLY"!People who only sell a few tens of thousands of copies, ona given title can't pay the freight! Reply
Jun 23, 2008 6:16 AM elpep elpep  says:
Stupidest thing I've read in a while Reply
Aug 12, 2008 4:26 AM BD Consumer BD Consumer  says:
Well, after reading some comments against DB and HD-DVD, my only question is... what mr. Rob have to say about its article after knowing at this time the media war is over, and the truly King is today Blu-ray ? CONSUMER COULD NOT BE WRONG.Please! we want to hear from you ! Say something!!! :DPleeeaassee ? :D Reply
Aug 14, 2008 2:50 AM Rob Enderle Rob Enderle  says:
Blu-Ray has yet to ramp to volume and the PS3 remains a distant 3 of 3. Yes it took out HD-DVD but it then stalled the HD market move. Sony remains massively cash negative on this and, if you've looked at their finanials, is in rather bad shape at the moment. Reply
Dec 25, 2008 9:32 AM Rem Rem  says:
You sir fail! Reply
Jan 18, 2009 1:15 AM Dan the Man Dan the Man  says:
Blu-Ray already WON! Na, Na na, Na na... NA!!! Reply
Apr 22, 2014 12:18 PM Jilly Jilly  says:
I like DVDs better. I don't own blu-rays. I do have a Blu-Ray/DVD combo. I had it for 5 year. I only got it to upscale my DVD collection. I also love the fact Walmart carries thousands of DVDs more so then Target. I love those $5 Bins and $20 Disney DVD racks. I would never spend $30 on a Blu-Ray! I rather buy DVDs. I don't see much difference on a 32" and a 45" TV so yeah. Best part is, Disney's DVDs are ALWAYS in stock @ Walmart. The Blu-Rays never are in stock, plus I would never pay over $25 for Disney or any Universal film. I also buy Anime on DVD as well and WWE DVDs. Reply

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