The Adventures of Andrew Maurer

Walking back from class today, something strange caught my eye. It was a Blockbuster DVD rental, something I haven’t seen at all since being at university. It got me thinking about the future of home entertainment. Up until this point there has  been the VHS/Betamax format war, DVDs, and just recently, the Blu-ray/HD-DVD format war. The question is, where is home entertainment headed in the next decade?

At present, DVD is still the dominant format in the industry. Although Blu-ray has won out against HD-DVD and although a huge number of consumers have access to high definition televisions, market infiltration for Blu-ray is still very weak – market share is a measley 5%. I see this as in large part due to the fact that the format may be seen as a luxery. Although significant technlogical improvements have been made over DVDs, most consumers are perfectly content watching DVDs. Indeed, with a big screen and good sound system, DVDs provide a very comfortable viewing experience. Moreover, consumers in the market already have DVD players and new players cost as little as $30 at Walmart or the like; whereas Blu-ray players are still in the $200-$300 range. Blu-ray technology is also still significantly more costly at present, with the disks themselves having five times the capacity of DVD media. Not only that, but because of the size of the DVD market, returns to scale are much greater meaning higher profits are to be had. To top it off, now that the world finds itself creeping into recession, consumers will be cutting back on luxery goods the most – further bad news for Blu-ray.

No, I don’t see Blu-ray as the format of the futre, the big money will go to companies streaming movies. Although quality may not be at the same level as Blu-ray at present, the good thing about watching movies over-the-wire is that the only limit on quality is the video source and the bandwidth of the service provider; and that is being improved continously. Companies currently in the industry are TIVO, Apple TV, and ISPs themselves such as Shaw. The reason I see this as becoming the major market for home entertainment is not because of the improvements in quality, but because of the ease of use. There is no question that consumers place significant utility on the ability to stream movies straight to their TV without the need to leave the couch. The same benefits lay on the supply side, distribution of videos digitally is far less costly than the sum of DVD factory costs, rental stores that stock them, plus the cost of replacing worn out media. The big question, though, is why have we not seen significant growth in the digital content delivery market in the past few years? I don’t quite know the answer to this, but I would hazard a guess that it is due at least in some part to ISPs not wanting to handle the huge increase in bandwidth required to stream to households nationwide. But as technology improves and caps on bandwidth become a thing of the past, streaming will take the market. Streaming has taken root, now is its time to grow.