CES
The 2008 Consumer Electronic Show is winding down. As usual, there were lots of announcements, although very few were actually significant. Following that trend, Bill Gate’s farewell keynote was fun but light in content. This certainly marks the end of an era. We will miss you, Bill.
In fact the most discussed topic during this week at CES was the decision taken by Warner to abandon the HD DVD format. It is widely expected that this announcement will quickly lead to the demise of this format. This is certainly a victory for consumers, even though Blu-Ray is more expensive than HD-DVD, and sends a clear message to the CE industry (Sony included) about the need for standardization.
Many have been quick to point out that Blu-Ray’s victory may be short lived and that in the near future digital downloads will replace physical media for high-end video. No need to be a rocket scientist to know that this is true. Still, it will take a couple of years before most people in developed markets can download a 20GB file in less than two hours (the average movie viewing time). That means that there is an opportunity for movie studios to make some real money out of HD media over the next five years or so.
What is interesting, is that unlike previous revolutions (CD, DVD, Blu-Ray), digital downloads will not compete with previous the standard by offering higher quality but instead will focus on convenience exactly like the iPod which offered less audio fidelity than CDs but was much more convenient. Right now we still do not have the iPod equivalent for digital video. Sure, media centers and next-gen consoles like the XBox 360 and the PS3 are attractive for those who get their content illegally and store it on a collection of big hard drives but what about the average user who wants access to a large library of content, potentially all movies ever made? The solution is clearly a video on demand (VOD) system and not a media centre.
Apple, Microsoft, Google, cable companies and many others seem to have understood that trend perfectly well and are racing against each other to be able to be the first company to provide a viable solution. Right now cable companies offer a very limited amount of titles and CE companies until now had no rentals, which is key to succeed in this market. That will change quickly, starting next week with Apple expected announcements. However, competitors will follow quickly as this is in the best interest of content owners. Since there is no standard for video rentals we can expect competition to be as harsh as the blood bath we witnessed during 2007 Blu-Ray vs HD-DVD death match. However, in this case the consequences for consumers may be much more beneficial. Since rentals disappear after viewing the movie, the is no concern about losing your investment. Consumers will take their decision based exclusively on price, ease of use, media quality and library size (as well as product availability and awareness).
Who will win this war? Google, Apple and Microsoft are already well positioned as they have demonstrated that they know how to handle large collections of digital media. In the short term Apple has an edge with the popularity of the iPod, while Microsoft can leverage their huge XBox installed base. Right now I am discounting Sony which is in my opinion more focused on making Blu-Ray a complete success than in competing in this emerging market. In the end, it will come down to each company’s ability to partner with content producers as well as creating attractive, reasonably cheap devices. Since this will be a long war, expect the company with the most focus to ultimately win.