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Published on 3/15/2005 By the DVD Insider
How many of your friends and neighbors can you count that have a digital camcorder? A PC with a burner? A set-top DVD recorder? A spindle of 50 DVDR media sitting on the shelf?

If you filled more than two hands you live in Silicon Valley which is an anomaly to the rest of the country, the rest of the world!

The hardware and media companies want people to get excited about it for two reasons - 1) royalty payments and 2) get out of the commodity market. DVD burners, recorders and media have been forced into the commodity market even before they have been widely accepted because too many manufacturers are chasing too few customers.

Commodities = Volume + Low Profits
You know commodities - those products that are manufactured and sold in significant quantities by a bunch of firms that have forced down the price to the lowest possible level.

That's one of the reason's IBM sold off it's PC group to China's Lenovo. There were other reasons of course including a stronger relationship with the Chinese government and business communities. The move gives them a decided advantage in competing for high-end systems and solutions in this emerging market. So the lack of significant bottom line profits certainly made the decision a lot easier.

IBM simply acknowledged the fact that it is very difficult to make much of a profit from the manufacture of a commodity product. They came to the same decision several years ago when they sold their hard drive manufacturing operations to Hitachi.

Most of the consumer electronics products being sold today - VCRs, DVD players, analog TV sets, etc - are commodities. That's why firms like Philips, Sony, Panasonic and JVC have such a tough time maintaining their market position. Commodities simply don't lend themselves to strong market position or profits.

The challenge also faces DVD burner, DVD recorder and even recording media producers. These generally complex high-tech products should generate a respectable profit margin for their producers rather than profitless commodities. Unfortunately, the technology leaders and wanna-be followers put themselves into the position because they: A) believe the market forecasts are real and B) know that by acting rapidly they can get the largest possible market share. They all drink from the same Kool-Aid pitcher.

Too many producers push out too many products with a limited demand. When demand doesn't materialize they sell their huge inventories at whatever price they can get and another commodity product category emerges.

The salvation for many seems to be convincing the consuming public that they really want and need high definition video. The operative word here is convincing because while DVD was significantly better than VHS, high definition is just slightly better. Is it worth the investment of discarding your present TV set and the associated recording and playback devices?

In the long term, probably not.

Are you going to have a choice? In the long term, probably not.

Hollywood Wants High Def
The movie industry wants high def and the consumer electronics industry wants high def. Movie people want it because if you want to copy a movie across the Internet today you "can" do it. Okay it takes 2-3 hours to accomplish but it is possible. To do the same in high def would require 8-10 hours. In addition, the new formats - HD DVD and Blu-ray - are being designed at the outset with stronger digital rights management so making copies will be more difficult. Of course with high def media initially coming out at $20 - $40 per disc it is difficult to see why anyone would want to rip a movie.

The fact is that blue-ray technologies and high def won't be meaningful until 2006 and won't be mainstream until 2007. But that timespan isn't deterring the two camps because there will be huge amounts of money involved in licensing fees from the people who decide to produce players, drives, recorders, content and recordable media.

While the movie and content industry states that it wants to deliver a better consumer experience, they are really more concerned about having a technology that provides the 100% copy protection the industry demands. Studios are claiming to start to feel the bite of piracy. As quickly as possible they want to ensure they avoid the "fate" of CD sales and online file swapping.

For all of the parties involved it is all about the money.

Because the Blu-ray disc (BD) and high definition DVD (HD DVD) technologies are quite different, a compromise technology probably won't be reached. One camp will have to blink so only one technology will be delivered to the marketplace. Or one of the manufacturers will have to do what Sony did with DVD burners - produce a solution that allows the consumer to play BD, HD-DVD, DVD and CD. Such a box will be expensive during the early years so this could move volume consumer demand out even further. Without a single solution we could be looking at high def not really taking off until 2008? 2009?

But consumers have come to enjoy the universal solution that DVD provides. Writing and reading DVD+/-R and to a lesser extent DVD+/-RW gives the consumer the ability to buy the lowest price, best quality media when he or she goes to the store and know their unit at home will record and play it.

Blu-ray Out First
To convince the marketplace that BD will win, HP has said publicly that they will begin selling PCs with Blu-ray burners in them this next year. Sony, which also owns the rights to over 13% of the content in Hollywood, plans to offer the PlayStation with the technology. This is well ahead of Toshiba's offering of systems incorporating HD-DVD technology. The press can hardly wait to get their hands on units to start reviewing the new tech.

What about PC maker # 1 - Dell - and #3 - Lenovo/IBM? What about the "other" PC producers? They'll go where the volume and the money is… DVD. And keep in mind that HP didn't say they would exclusively offer Blu-ray burners, so expect to see most of the units going out the door with DVD burners.

With the street price for burners sitting at $70, DVD recorders at about $150, DVD players going for as little as $20 and DVDR media priced about 60 cents (and less) per disc, we're only now seeing the consumer demand coming close to the volumes of devices/media being produced. Since consumers vote with their credit cards and checkbooks, what are they going to do?

Buying Today?
All of the good TV sets today are offered as HD-ready so that's a no-brainer. But what will you purchase next year - DVD or a flavor of Blue-ray technology? Take a look at the movie titles you want to buy or rent and what's your choice? DVD. Take a look at the TV content you just have to archive? Not a lot of high def! How many high def full-length videos do you plan to produce? For that matter, how many feature length DVDs?

Consumers are only now beginning to convert from VHS in large numbers. In many parts of the country and the world people are finally stepping up to DVD quality. High def is better? Is it that much better? Consumers - mainstream consumers - will probably wait for 2006 to make that call. If the hassling continues they may wait until 2007 or later.

Right now a Lenovo/IBM Thinkpad with slim DVD burner looks real good!

- The DVD Insider

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