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Technology vs. Content
So as it turns out, the games actually don’t matter in the video GAME market. What matters is getting a big studio like Warner to commit to Blu-Ray…

Imagine what the story would have been if Warner had switched to the other side, it would have been a disaster for Blu-Ray, for the PS3, and for Sony as well (of epic proportions.) Sony really bet the company on Blu-Ray, and it looks like they have turned the corner.

Instead, public perception has swung on the PS3. The blue noose around its neck is no longer, now it becomes an asset especially as production prices drop and the price premium for including a next-gen optical drive goes down. The reason this works is that adoption of new video games consoles is much faster than that of new movie or music formats. So even a middling sales volume for PS3 had a huge impact on the Blu-Ray vs. HD-DVD user base battle.

Everyone has wanted a winner in the Blu-Ray HD-DVD battle, and the longer the stalemate has gone on the more everyone wants a winner. So it’s become a self-fulfilling prophecy in a way. This has been the biggest news in awhile, and now everyone is willing to more or less declare Blu-Ray the winner, more or less in the hope that it will become reality, and we can all go out and buy a Blu-Ray player to take advantage of our 42″ flatscreen HDTV’s.

I Coulda Been a Contender
Microsoft erred by not dropping the price more last year to widen the gap from PS3, and catch up a bit with Nintendo. Although hindsight is 20/20, I think he is right on. But Microsoft is fully aware of the implications of this news and is going to have to counter it somehow.

The other possibility (since that opportunity passed last year), is that Microsoft could’ve tried to help tilt the battle to HD-DVD’s side (maybe they did, but evidently not enough.) They didn’t actually need HD-DVD to win, although that would be a big benefit. They would’ve been happy with the status quo of a format stalemate, as that prevents PS3’s Blu-Ray from being as big a benefit as it will now become.

Microsoft has a large enough user base that it won’t get destroyed or anything like that. But I think the recent Blu-Ray news decreases the chances of Microsoft achieving big profitability on XBox 360 because they are now in a war again (3-sided, no less).

In addition, there are rumors that Sony will soon drop the base PS3 price to $299. This would be a good move by Sony, and I think perceived as a proactive move on the heels of Blu-Ray’s recent wins. This is the point at which Blu-Ray stops being a noose around the PS3’s neck, and becomes a key differentiator vs. the XBox360.

A $300 PS3 is a great deal almost as much as a $99 HDDVD player. Microsoft can come out with a Blu-Ray atttachment drive, but the total cost of ownership will be in Sony’s favor.

Sony sacrificed the PS3 (at least out of the gate) in a big gamble to push Blu-Ray, and now it seems it will actually pay off. If they are going to really try to build enough momentum to catch up to Microsoft, they need to strike while the iron is hot, and with all the Blu-Ray talk recently, the iron is now hot.

I know the games matter the most, but in terms of general marketing and holiday consumers, a $300 Blu-Ray playing PS3 is gonna be big. Until a couple of months ago the PS3 is probably the last next gen console I would buy, but now it is likely neck-and-neck with the Wii for me personally.

Everybody has sales projections for the new consoles based on previous sales and known information, but the biggest key factor for PS3 was Blu-Ray vs. HD-DVD, and it was impossible to predict if and when that battle would dramatically shift one way or the other. HD-DVD tried to tilt the battle with discounting over the holiday season, but it was not enough to even up disk movie sales in the face of the significant PS3 owner base.

What about Apple TV?
Let’s look at basic value proposition here-

I’m not convinced that digital downloads to a HD-based device provides a better cost:benefit ratio over physical optical media. Apple TV downloads are convenient in some ways, but inconvenient in others. You can’t take the movie with you to a friend’s house, or play it in your car, etc. (this will come as Blu-Ray increasingly replaces DVD.)

Keep in mind that a DVD contains anywhere from 4 to 8 gigabytes of data. 5 years ago, 1 gigabyte downloads would probably seem excessive, slow, inconvenient (dial-up, HD storage, CPU power, etc.) Now computer technology has caught up, but HD content requires much more data. Blu-Ray and HD-DVD disks store in the range of 30 to 50 gigabytes of data. Apple TV HD movies are in the range of 4 or 5 gigabytes. Both formats use new compression schemes too, digital download quality is going to suffer compared to next-gen disk formats.

There is also the question of content availability- in one year we know the Blu-Ray library is going to be big and get bigger, how large will the Apple TV library be in comparison?

Apple TV:Video as iPod:Music?
The other angle to look at Apple TV is comparing it to the iPod. After all, AppleTV is conceptually similar to an iPod, right? Both are HD-based devices that play back their respective primary media (music or movies) that is either downloaded digitally, or can be converted from physical media (CD’s are easy, ripping DVD’s to AppleTV involves some workarounds.)

But…I love my iPod but don’t really want an AppleTV. Why? Functionally they are the same, but the end user experience is much different. The main convenience of my iPod is access to many songs and portability. I typically buy physical CD’s, and rip them all to my iPod, and have my entire collection with me in my car and at work. Those advantages largely go away with movies in my living room- after you pick a movie to watch, you’re done for the next 2 hours, so it doesn’t matter whether it takes 10 seconds to pull it up on an AppleTV or 1 minute to pull out a DVD. And it’s not like I would tote my DVD player or Apple TV along with me, so that it’s important that I can have my entire movie collection with me. Finally, video files are much larger and slower to work with, so even if you know how to convert DVD’s to your computer, it takes much longer than with CD’s.

We Love Underdogs
For a family with a couple of kids, the Playstation 3 is starting to now ironically look like a bargain, because it plays the HD next-gen movies with the best of them, and also plays games with the best of them too, in one box. A rumored price drop to $299 could really seal the deal here.

I think Apple is entering the phone and media markets a couple of years earlier than optimal, so we shouldn’t jump to any conclusions- they’re just getting started. The iPhone is $400 and above the reach of many, but what happens in 2 years when the power of today’s iPhone is available in $99 handsets? Those handsets are still going to benefit from a good interface to handle all that functionality. And the $400 handsets are going to be even more powerful, and benefit even more from Apple’s design expertise. The same could probably be said for home entertainment, although computing is not nearly as front and center. If Apple were to eventually pull out of Apple TV, it would be short-sighted to call it mistake and failure- it was worth it to experiment and gain some experience in the living room.

So for now, it looks like Blu-Ray and probably PS3 will become the big news for 2008. Microsoft and Apple will both peter along in their respective segments, but neither has the goods to prevent Sony from finally capitalizing on their ‘bet the company’ type gamble. What’s fascinating about this is for Sony, is that for all the planning, market research, etc. that Sony must have done, at some point it is still a gut decision based on many factors that would be extremely hard to predict in advance. If there was one crucial factor that Sony could’ve anticipated, it was studio support for their HD format, and perhaps Sony knew that they could probably tilt the studios in their favor eventually, even if there would be some dark days for Sony Playstation 3 until they got the studios in their favor. After all, their new slogan is HD DNA…