Cringely's Thoughts on Blu-ray

[Chris Gohlke]

<div class='os_post_top_link'><a href='http://www.cringely.com/2009/06/is-blu-ray-a-failure/' target='_blank'>http://www.cringely.com/2009/06/is-...-ray-a-failure/</a><br /><br /></div><p><em>"There is growing sentiment in the industry that Blu-Ray, as it was originally intended, is a failure. How can that be? Wasn&rsquo;t it just a year ago that Blu-Ray, with its greater data capacity, triumphed over the opposing HD-DVD standard? Well promises were made to achieve that victory and now it appears promises may have been broken. Understand that the success or failure of Blu-Ray has little to do with games and everything to do with movies. Two historical events informed the battle between Blu-Ray and HD-DVD. First was the epic and costly 1980&lsquo;s competition between the BetaMax and VHS tape cassette standards. Second was the triumphant succession of DVD over VHS, when we all replaced our tape libraries with disks, gladly paying anew for what we already owned, buying every Hollywood exec a new Mercedes in the process."</em></p><p>Cringley argues that the reason Activision is putting pressure on Sony has more to do with a failure of Blu-ray than game sales.&nbsp; Although I was hoping HD-DVD would win, I think the perceived failure of Blu-ray is really a matter of falsely defining the definition of success.&nbsp; Expecting Blu-ray to replicate the success of DVD was not reasonable.&nbsp; Neither HD format offered the kind of upgrade that DVD offered over VHS.&nbsp; Plus, people have lots of DVD players, so unless they want to restrict their viewing to just one TV, they've got to replace all their players, which is not exactly cheap.&nbsp; One of the great features of HD-DVD was the combo disk, which eliminated this problem.&nbsp; Eventually, Blu-ray players will achieve penetration through a slow war of attrition as old DVD players get replace and Blu-ray players reach a price that DVD players will no longer be produced.</p>

[Felix Torres]

Notice that Cringely speaks of a "perception" that BluRay is a failure.
Present tense.
As of today, that is, of course, 100% accurate.
And the "perception" part is not from the consumer side, but rather from the participants in the industry itself; the studios, CE companies, retailers...
And the reason that perception exists is that when most of these players signed on to the BluRay bandwagon, they did so in the face of certain promises.
1- They were told in no uncertain terms that consumers would gladly pay double/triple for movies in HD than they would for DVDs. A list price of $50 per movie was openly discussed in the media by BluRay developers/promoters in the early days before HD-DVD emerged as a challenger. In fact, the reason there was an HD DVD at all was due to the pricing issues.

2- They were told in no uncertain terms that PS3 would launch with 10 million units and sell twenty in the first year because there was great pent-up demand for Hd gaming. That price would not be an issue because the Plastation name would make everything good; that people in Europe would never buy anything but Plastation no matter how poorly treated they felt by Sony.

3- They were told that consumers would gladly accept a multi-tier standard that introduced new "profiles" every year with incremental features and they would cheerfully buy new players every year or so to get those incremental features without noticing the planned obsolescence aspect.

4- They were told the BD sales ramp-up would be so fast that there would be no bottom-line impact from "Osbourne-ing" their cash cows.

5- They were told that because Blu-ray had so much space, they could master their movies using the old tried-n-true Mpeg2 codec and they wouldn't have to buy new workstations and new software and retrain their staff to use them new-fangled VC-1 or h.264 codecs. And they were told that consumers would be unable to tell the difference anyway.

6- They were (later) told that if they backed BD they would avoid the mandatory managed copy feature of the competing HD-DVD spec.

7- They were told that although BD depended on an expensive stamping foil only available from Sony there would be no disruption in supplies for disks nor would the "massive" launch of PS3 dry up supply of blu-ray drive components.

Promises were made, bribes exchanged, expectations set.

When Cringely says the industry perceives BluRay as a failure it is because they are measuring it against the promises, not the real world. They are measuring it against the "if only I'd known!" 20-20 hindsight of knowing their backing of BD ROM has bought them the worst of all worlds: higher manufacturing costs, component shortages, consumer spec confusion, consumer backlash, a forced rush-transition to the new codecs they weren't supposed to need, added development cost from hiring Java programmers, and now the forced adoption of the very feature--managed copy--they chose BD to avoid.

Not only have the studios Osbourne'ed themselves, they managed to do it biblical fashion. Consumers are, to a large extent, on strike, waiting for the endless succession of updated Blu-Ray spec changes to end, they are waiting for players to reach the price that HD-DVD had reached 18 months ago, waiting for movie pricing to come to the same sub-$20 level that HD-DVD offered. And in the meantime, consumers have stopped buying DVDs. Not all of them, of course. But pretty much everybody who intends to buy a BD player in the near future (whenever the price--value equation reaches parity) is actively avoiding DVD purchases; after all, why buy something now you will only have to buy again in six, twelve, or eighteen months?

That is classic Osbourne-ing; freezing you current cash flow by aiming your customers at a product they can't or won't buy today.

And the industry did it to itself. They wanted to maximize their take, squeeze every last possible penny out of their customers and instead managed to squeeze them out of the market entirely. Even worse, because of the added infrastructure and manufacturing costs associated with BD, they *can't* meet consumer expectations, even if they wanted to. And then, to add insult to injury, we get a recession that is verging on a baby depression and what ABC calls a "new normal" of much more measured and considered consumer spending.

Yup! Blu Ray is a failure.
Won't stay that way, of course.
Eventually costs will come down.
Eventually the economy will pick up.
Eventually the studios will forcefeed BD adoption by phasing DVD out; its their only alternative now.

No battle plan ever survives contact with the enemy. And when the enemy is yourself... :-)

[doogald]

Consumers are, to a large extent, on strike, waiting for the endless succession of updated Blu-Ray spec changes to end, they are waiting for players to reach the price that HD-DVD had reached 18 months ago,

I don't know what HD-DVD players cost 18 months ago, but I think that consumers are "waiting"* until the price of players is only a small premium over DVD players. Say, that when you can get an Blu-Ray player for $75, maybe $99. And they may as well sell the disks for the same as the DVD titles, maybe a dollar or two more.

(* Of course, they aren't actually "waiting", but I think that masses won't consider a Blu-Ray upgrade until the pricing is like that.)

[Felix Torres]

Okay, since I haven't blathered enough, here's the other side of the BD soap opera:

What set Cringely off on BD this time were the comments by the Activision exec. These comments have been miscontrued to an extent by a lot of people to mean that the PS3 installed base isn't big enough to support Activision in the style to which they've grown accustomed to, leading to the inevitable claims of "greed!!". That if twenty million consoles sold aren't enough...!

Thing is, that is *not* what the gentleman was referring to.
His whole point is that the return on investment on PS3-cross platform games is inadequate compared to the other two platforms. In other words, it is the per unit *net* profit that is the issue, not the absolute number. And what the gentleman really wants is not for Sony to drop prices--he knows full well that with Sony losing US$40 per console by their own admission, they are in no position to implement a price cut big enough to change their market position significantly--but rather, what he wants is for Sony to lower their royalties for Activision. He is, essentially, negotiating in public; tarnishing the brand to get Sony's attention.

In corporate negotiations, this is the equivalent of "going nuclear".

Why is activision doing this?
1- It is a long established fact that coding a PS3 game runs 50-60% higher than coding an equivalent game on 360 because of a variety of factors (mostly the assymetric multiprocessing and split memory configuration of the PS3 architecture, plus the fact that PS3 code development depends on very expensive workstations, simulators, and cross-compilers) all of which increase labor costs.

2- When MS launched the original XBOX, one of the tools they used to garner third-party support was lower royalties to offset the smaller installed base, plus a constant focus on the attach-rate (the number of games Xbox owners buyed) to highlight the "quality" of their dedicated-gamer customer base.

3- (This is why Cringely said Activision had a BluRay problem:) A significant fraction of the PS3 installed base consists of people who bought the PS3 as a "cheap" BluRay player rather than as a gaming console. So, when Activision looks at Sony's published numbers and installed-base claims, they have to perforce "discount" that number by a certain factor to weed out the non-gamers from the gamers to try to figure out their likely customer base. One way they may be doing it is by accepting that the PS3 *gaming* customer base is at least as active at gaming as the 360 customer base; on an individual basis, they buy as many games as the 360 gamers. This, of course, implies that if the PS3 aggregate game attach rate is 30% lower than the XBOX's it is because 30% of the customers use the console as a BD-player rather than for games. Discount the installed base (for gaming sales) like this and you'll see that Sony's claimed 22 million console installed base is performing more like a 15 million installed base console. Which is half of the 360 30 million installed base.

Suddenly its not hard to see where Activision is coming from, no?
Or what Cringely means by saying Activision has a bluray problem.

By tying the PS3s fate to BluRay, Sony has muddied the waters and devalued their installed base in the eyes of the third party developers who, naturally, look to the example of the original XBOX and want lower royalties to compensate for the higher development costs and smaller customer base.

Perfectly logical.

So why go public?
Well, obviously, Sony is not being receptive enough in private negotiations. They are, apparently, still in the PS2 era in their minds; thinking that they still own the console gaming industry and that any setbacks are purely temporary. Or acting as if they think it, anyway. (Sort-of like the old Monty Python skit: "I'm not dead yet... just a minor scratch... I'm perfectly fine..." And Activision is saying; "Dude, that's a nasty wound! You need surgery before you die! Do something!")

Another (possible) reason Activision is up in arms is that Sony's strategy dujour is to highlight all their First-party, AAA mind-blowing exclusives that are coming like clockwork every other week over the next 20 years (yes, they do pre-announce games that early. ;) ) Now, in the console business, the platform owners are always to an extent competitors to their third-party "partners". Nintendo in particular is one platform owner that traditionally has soaked up massive portions of the game revenue spent on their platforms (this is not just a Wii issue). And now it appears that Sony is going to do the same. Sony does not help their standing with developers when they spend all their time speaking of all the fantastic games *they* are going to deliver and contrast them to the more modest amount of first-party exclusives Microsoft has announced (especially since Microsoft policy is not to hype non-Halo games beyond a one-year horizon. :) )

Think that is bad enough?
It gets worse.
The japanese gaming market is to all intents and purposes a separate universe from the rest of the gaming world. Mobile gaming rules. PC gaming is minimal. And what console gaming there iis, s very...idiosyncratic. What sells elsewhere does not often sell in japan, gaming-wise. Now, PS3 has not done as well in Japan as PS2 and the 360 has done better there than the original XBOX but still Sony has outsold them about 4 million to 1. Which means that, outside Japan (Activision's primary area of operations) the installed base tally actually looks more like 29 million for 380 and 18 million for PS3 *before* discounting for BluRay customers. (Suddenly it looks like PS3 gamer-customers are actually *more* active than 360 owners. Or, more likely; XBOX has more casual gamers than PS3.)

More tales of woe? Yup:
An unknown but probably significant of the hardest core of the hardcore gamers are multi-console owners. People who own PS3, XBOX, and/or Wii. When it comes to multi-platform games (Activision's business model) an unspecified majority of those cross-platform gamers routinely buy the 360 version of the games available on both 360 and PS3. (One word: GHOSTBUSTERS. Look it up for sad laughs.) So that is *another*, though much smaller, installed-base "discount" Activision bean counters need to factor in.

Add it all up: more expensive to develop for, smaller customer base, and stronger, more active competition from Sony itself (I wonder how many people know that in sheer size, Sony is the third largest gaming software company on the planet behind only Activision and Electronic Arts; they own a *lot* of inhouse studios) and the question is why *hasn't* Activision dropped PS3 yet, no? (Well the fact that it runs two-three years minimum to develop a console game explains it; they bet a low of money on PS3 in 2006 and 2007 expecting a "year of PS3" sometime down the road.)

Its all about the royalties at this point.
The pressure for a price cut is really a red-herring because Activision clearly understands (as well or better, maybe, than Sony) that the PS3 does not exist in a vaccum; there is still the XBOX, out there.
Where Sony is losing money hand over fist as a company, Microsoft is still minting money regularly. Where Playstation is an overall drag on the Sony bottom line, XBOX is actually propping up the MS bottom line in the face of tighter corporate IT spending (exactly as Gates and Ballmer envisioned when they got into the console business). And where Sony is losing money on every PS3 sold at US$400, MS makes money on every 360 sold at US$199. And, MS has not been shy about letting Sony know that they are prepared to fight a price war at the drop of a hat, that they will counter any price cut Sony makes, as necessary to maintain their competitive advantage. In fact, MS has already fired *two* shots across Sony's metaphorical bow, letting them know they mean business; first, they have *not* updated their high-end Elite sku to the latest hardware but appear instead to be phasing it out in favor of a series of Special Edition packages highlighting significant game releases (like the recent Red Resident Evil 360). Second, and more ominous, MS has quietly slipstreamed a flash-memory upgrade from 256MB to 512MB into their US$199 Arcade model. It is trivial, of course, but by the move they are telling Sony that they are comfortable enoough with their manufacturing costs that they don't have to squeeze every last penny out of their designs.

Whether Sony gets the message it is likely Activision got it.

In the end, it all comes back to BluRay.

Bluray has not taken off so BluRay hardware costs have not come down as fast as anybody expected. It isn't just the living room BD players that haven't significantly dropped in price, but also the bare drives for PCs. A year ago the cheapest BD-ROM you could buy for a home theater PC was $129 and came with playback software. Today the cheapest runs $109 but *doesn't* include the playback software. And, tellingly, the best deal is a $129 model that burns DVD and CDs and reads BD *and* HD-DVD.

Yup! HD-DVD isn't quite dead, there's still a bit of motion left in that zombie :eek:

Its unlikely, given how secretive japanese multinationals are, but I really would like to see somebody do a "Soul of a new machine" style book about the genesis of the PS3. I really, really want to know WHAT WERE THEY THINKING?!!:D

I find the whole think fascinating; like watching slow motion train wreck.
Its a regular (technical) soap opera...
:p

[Outlaw94]

Like any other product it comes down to one thing..... PRICE....

DVD hit the big time because the players price got down below $100 quickly. When the cost of the player was down, the cost of the disc followed and you could get new movies for $20 (or less the first week they were released).

This $100 player and $20 new release DVD is the price point that was wildly accepted by everyone, not just the early adopters, which by all accounts, if you are reading this website, You are more than likely an early adopter.

Bluray players are still $200 and up (for a decent player), new released bluray movies are usually $25 to $35 in stores. Hey amazon, buy, etc are great, but I don't want to order every movie I own. i like instant gratification and I should be able to buy the movie in a brick and morter store.

Lets also look at the players. DVD player just work. Start up fast, no updates to play the latest movies. Bluray players, take forever to start up, and need constant (1 to 2 times a year) updating to just play the latest movie.

I own a bluray player and love watching movies in HD, but I refuse to spend that much money on a bluray disc. I wait for sales or until amazon has a nice sale going.

Where the studios are losing out? Well i will not buy a new movie on DVD if it is something that I know will look better in bluray. So not only do they not sell me the Bluray disc at the high price, but I will not buy the DVD version either.

I have worked in finance for a retail company for many years and no matter what preception your customers have about you or a product of yours (quality, customer service, etc.) the bisggest one is PRICE. If you are priced too high for the customer or view your prduct as being to highly priced, they will not buy?

[Felix Torres]

I have worked in finance for a retail company for many years and no matter what preception your customers have about you or a product of yours (quality, customer service, etc.) the bisggest one is PRICE. If you are priced too high for the customer or view your prduct as being to highly priced, they will not buy?

What you're referring to is value.
Price is what you pay, value is what you get.

Most of the public seems to think the value of BluRay does not match its price.
And hence are staying away.
Not universal, of course, but there sure seem to be a lot of us waiting for the price to meet our point.
Big miscalculation by the BD backers.