Tuesday, June 16, 2009

Pyrrhic victory

Although Sony won the Blu-ray standards war, the FT reports that it’s failing to help the bottom line:

Hollywood's expensive bet on Blu-ray technology has failed to prevent a sharp decline in home entertainment sales, dealing a blow to the film industry as it grapples with the global economic downturn.

Home entertainment revenues across the industry fell more than $2.6bn in 2008 as sales of standard DVDs tumbled, according to a new report from Screen Digest, a research company.
There are a variety of explanations for falling DVD sales. Some say piracy, some say rentals, some say downloads. I personally think the issue is the declining marginal utility of additional DVDs: in 1998 it was novel to own a random-access (semi) durable movie, but eventually everyone had video pacifiers for their kids and more movies than they ever watch.

Meanwhile, the lack of demand for Blu-ray has been noted for some time. Again, I wonder whether the marginal value of the increased quality (and slight manufacturing cost increase) justifies the 50% price premium.

Whatever the reason behind declining DVD sales or the failure of the next generation to catch on, this is a reminder that it’s impossible to accurately estimate a priori the value of winning a standards war. The Blu-ray circumstances may be unique, but as David Wood reminds us, it’s hard to predict the future.

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