Wed, 27 Dec 2006

The Format War Myth

If you're older than 30 years old, when you hear the words "format war", I'm guessing the phrase "VHS vs. Betamax" comes to mind.

The popular telling of that story seems to be something to the effect of "Beta was superior, but cheaper cost and better marketing resulted in VHS overwhelmingly whipping its competition."

Into the platform coliseum there enter two new gladiators, in the area of what I call "Nex-Gen" DVD players. There's the HD-DVD camp, backed primarily by Toshiba, NEC, Sanyo, Intel, Universal Studios, and Microsoft, and Blu-Ray, backed by Apple, Dell, HP, Hitachi, LG, Mitsubishi, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony, TDK, Fox, Disney, and Warner Brothers.

Alas, it seems we, the hapless consumers will be forced to gird for a battle of mega proportions. The future of HD video discs is at stake!!

Or is it?

This whole "format war" to me smacks of the media sensationalism. "Oh no, consumers have a choice, that must mean peril lurks behind the wrong choice!"

Let's begin by taking a skeptical view of the conventional wisdom behind "VHS vs. Betamax debacle". The consensus seems to be "oh, woe be those who bought a Betamax, as VHS totally kicked its butt". Yet consider the fact that those who invested in Betamax when it first came out in 1974, enjoyed a full ten year run of that technology before Betamax began to wane (1984 was the banner year for Betamax sales).

Ten years ain't bad for a "failed platform". In fact, the DVD format was only finalized in 1996, and has barely enjoyed a ten year run. While VHS "won" the format war, it's not like those who threw their chips into the Beta camp had to sit by while the VHS victor burned the Betamax village, and drove their wives and children into slavery.

In fact, when you look at more modern "format wars", if anything, there's a trend towards compatibility. Take DTS vs. Dolby Digital. I recall buying a receiver in the early days wondering if I made the right choice by going Dolby Digital. It soon became a moot point. DVD players and receivers alike began to support both formats because the cost of doing so quickly plumetted likely due to inexpensive signal processing chips becoming widely available. Moreover, studios began to ship discs with both audio formats.

And so I suspect it will be with HD DVD and Blu-Ray. And it's not just idle suspicion either. NEC and others are already announcing chips and products that promise to meld the two technologies.

But what about the investment you make in a format that ends up going the way of the dinosaur? Just because future players (and potentially dual sided discs, one with a HD DVD press and the other with a Blu-Ray pressing) come out with support for both platforms doesn't mean your current investment will continue to be useful, right?

Fair enough, but is it really that much of a significant risk? I mean anyone talking about Blu-Ray vs. HD DVD today is either an early adopter or a fast follower. For those consumers who entered the DVD foray only in the past couple years, or for those who have yet to own a HDTV, the point is moot-- by the time they are ready to buy, the format war will be moot because both formats will likely be supported by both the hardware and software producers.

So, for the early adopters/fast followers, what exactly is the risk? Let's consider, for example, that in 1996, the DVD-ROM format had a largely equivalent competing format called DMD-ROM (I just made it up). Now suppose that I entered the market in 1997 when DMD and DVD players retail for $500. Suppose that DMDs died an ignoble death at 2x the rate of Betamax, meaning a commercial lifecycle of five years. In 2002, one could buy a decent DVD player for $150.

I would have bought a DXD player in 1997 for $500, whether that X was a V or an M, doesn't really matter. What matters is that I would have paid, effectively, a $150 penalty if I had made the wrong choice, or amortized over 5 years, about $30/year. Furthermore, consider that if the time period of failure (above I said 5 years) was actually ten or fifteen years, the cost of "switching" would be lower, and amortized over a longer period. Betamax died out in ten years, which means that a $80 DVD player today is technologically equivalent to a $500 DVD player of yesterdecade. Amortized over ten years, that's a $8/year penalty.

Like me, you've probably heard the electronics store pitch for an extended warranty or "insurance policy" for your new technology purchase. Whether or not you buy into this pitch or not, consider that such an "insurance policy" is basically baked into any new technology investment you might make, based on the argument above. In case you make the "wrong choice", this policy would basically allow you to pay $8/year, giving you the privelege of being able to swap out your "bad technology choice" for the "right choice".

My point is that the ever-decreasing cost of electronics basically builds that kind of insurance policy into every product you buy!

Plus, considering that most consumer households are going to either the "NetFlix model" or "iTunes Music Store" for video media, you'll probably not buy very many HD DVD or Blu-Ray discs anyway.

So, if you have an HDTV, to make the most effective use of it, you can't make a wrong choice by buying HD DVD or Blu-Ray. Pick the one that the companies you are most likely to do business with are supporting, and hope they win. And if they lose, so long as your format is nominally supported for the next ten years or so, contrary to some critics' FUD, you've hardly made a bad choice.

That said, far be it from me to harsh on the "I'm gonna wait" camp, because it's not called the "bleeding edge" for nothing. If there's a good reason to wait, it's because over time, like with DVD players, the prices on Nex-Gen DVD players will plummet in the next year or two. In the intervening time, if you don't have one already, you can invest in an HDTV and receive (free) over the air HD programming in most US cities, or get HD programming for nominal fees from your cable or satellite provider.

And if you already have an HDTV, seriously consider buying a HD video player. The resolution is literally twice as good, and if anything, will multiply the value you get out of your previous investment in HDTV.

In summary:

  • If you have an HDTV, go buy an HD media format.
  • If you don't have an HDTV, you'll want one of those first anyway, so feel free to wait until you do.
  • If you're gonna wait, might as well wait for the price to drop-- not for any other reason.
  • If you're still uncertain, hedge your bets by renting/netflixing/downloading your video content.
  • If you buy now, and the technology you choose loses, so long as it has a ten year run, your buyers remorse will cost you about $10/year. Seems like a pittance to begin reaping the benefits of the TV you already paid for that much sooner.
  • Despite all this, if you decide to wait for things to "shake out", realize you might be waiting 5-10 years, or at least until hybrid/dual-compatible players and/or discs hit the market. (And when they hit the market, they'll probably be the priciest of options)
That said, for me it's an open and shut case. Apple, Disney and Pixar are all in the Blu-Ray camp, and the PS3 is not only a decent media center PC, it's also the cheapest Blu-Ray player on the market. That just made the choice I made (right or wrong, time will tell) that much easier to make.

Khan Klatt

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