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Saturday, February 23, 2008

Buying Movies on Flash Drives: Nice Idea That Doesn’t Work

With the fall of HD DVD, Blu-ray has assumed the throne as the next format of choice, but its reign will be short-lived.

Blu-ray won't enjoy the same decade-long dominance DVD did after it succeeded VHS. But that's not because there will be other challenger physical disc formats. Rather, instead of buying discs from Amazon, Best Buy or Wal-Mart, people will begin getting their entertainment in the form of digital downloads in larger volumes.

The studios backing Blu-ray already know this. At an HDTV confab last fall, Warner Bros.' vice president of high-definition media development likened HD packaged media to a set of training wheels for digital downloads.

"We can use HD discs to train consumers to move into digital, but it's a transition," said Warner Bros.' Dan Silverberg. "Downloaded content will come, but the consumer will get quicker tutorial into video-on-demand, etc., by owning a Blu-ray player or HD DVD."

It'll happen sooner than they think. With a growing number of alternatives to packaged media, combined with the relatively high prices of Blu-ray players and discs vs. inexpensive, so-called upconverting DVD players, Blu-ray will likely be the last major disc format you'll ever buy.

Netflix, a purveyor of rental discs, obviously saw the writing on the wall, instituting its Watch It Now feature last year. Amazon, which sells plenty of packaged media, has its own Unbox video download service.

The likely reason? Overall consumer spending on DVDs and high-definition discs (HD DVD and Blu-ray), both purchase and rental, has been steadily decreasing since its peak at $24.5 billion in 2004. According to the Digital Entertainment Group, a trade group that represents all disc makers, spending last year amounted to $23.7 billion.

To the chagrin of disc patent holders, discs are not the only way to consumer high-definition media now. There are so many other ways to get content: Set-top boxes are getting far more sophisticated, and will continue to do so in the next few years. Vudu, for instance, stepped up the video on demand option by adding more content than any of its predecessors, including the option for HD purchases and rentals. Apple recently upgraded Apple TV to include rentals--standard definition and HD--and a way to bypass the need for a PC to watch films on a living room TV. Even Microsoft's Xbox 360 game console has a download service for movies.

TiVo and other DVR makers that support cable giants like Comcast have traditional VOD options, and hard drive space will continue to expand. Netflix has its rentals available to watch right from its Web site, and watching TV shows online and for free at sites like,, Joost, means you don't have to buy whole seasons of TV shows on physical discs anymore. If watching TV on a PC isn't your thing, technologies like Sony's Bravia Internet Link and Sling Media's SlingProjector bring Web video directly to the TV.

Perhaps most importantly, consumers will continue to get more and more comfortable with the idea of their library being digital. We're already there with music, and it's a relatively easy transition to make to one's movie collection. But it's also true of other things like Fandango's digital movie tickets, or even airline tickets and gift cards. We live in a world where oftentimes the value is not in the object itself, but in the digital information stored on a computer somewhere. (It's an attitude that's anathema to the likes of Disney and its studio cohorts who have always pushed the concept of personal movie collections, hence the push to upgrade to the "special edition" of older films.)

"The challenge for studios is really about convincing consumers to upgrade their libraries, (and) upconverting to 1080p (the highest resolution currently available) doesn't necessitate buying a whole new format," said Josh Martin, HD and video analyst for The Yankee Group.

People will get tired of replacing their favorite films to the trendy format of the moment. The price of the software ranging from $20 to $30 for Blu-ray discs right now will eventually drop. But compared with less than $5 for a digital copy makes it an easy decision for many.

The biggest roadblock is of course bandwidth, which causes the process to be long and painful and ultimately not worth it for many. But that will change. Consider, for example, this scenario.

Using Fios from Verizon, it's possible to currently download several episodes of a TV show at approximately 5 megabits per second, or 625 kilobytes per second.

A 44-minute 640x360 (not high-definition) episode of Terminator: The Sarah Connor Chronicles that my colleague Declan McCullagh downloaded via iTunes is 510MB.

"It requires 193 kilobytes per second to watch live, which is easily doable on Fios barring network congestion," McCullagh points out. (Levels of compression or a change from the H.264 video codec will have different results of course.)

Comcast customers--and there are far more of them than Fios customers--today have speeds that vary widely, but 187 kilobytes per second in real-world tests is a good estimate. Assuming a one-hour high-definition TV show (with commercials) is around 5GB, that requires 1,388,888 kilobytes per second or 1.38 megabytes per second to watch.

So Fios is about halfway there about at best, and Comcast's 100 megabit per second connection, which it promised at CES would be a reality by 2009, could pull it off.

Over the last few months, we’ve had quite a debate in the comments here about the relative merits of Blu-ray, HD DVD and standard DVD discs. Some argue we don’t need discs at all because we’ll all be able to download movies. And others have suggested that the price of memory chips is falling so fast that we might still buy movies in stores, but they may come loaded on U.S.B. memory sticks or the sort of SD memory cards that go in digital cameras.
Yesterday, for example, Ken wrote this:
Flash drives are a very convenient and no-moving-parts alternative that is likely to make CDs/DVDs obsolete once price and capacity come down. Any data burned onto a disk is just as easily written to and stored on a flash drive. Not to mention the smaller size.
This got me wondering if this was indeed true. The thought that you could add programming to a television, cellphone or computer, just sticking a tiny card in a slot seems attractive. As luck would have it, an e-mail arrived from a publicist for Micron Technology’s Lexar Media unit, headlined “Working on a flash memory story?”
Soon thereafter, I was on the phone with Mark Adams, Micron’s vice president for digital media who runs Lexar.
We chatted for a minute about Lexar. And it became quickly clear that flash memory is a terrible business. Riding the memory card corollary of Moore’s law, you can give your customers four times more storage at the same price every 18 months. Your reward: margins that you need a microscope to see. Lexar, after losing ground as a result of patent battles, has clawed its way to No. 2 market share, he said. One help: a deal to sell memory under the Kodak brand in Wal-Mart.
Then to my pressing question: Could the racks of DVDs at Best Buy be replaced by racks of boxes containing movies on chips?
Not any time soon. Flash prices are falling. But not so much that you would want to have every movie you buy on a separate card. A standard DVD costs under 50 cents to manufacture and holds up to up to 9 gigabytes. It’s still expensive to make a Blu-ray disk, but the cost is still under $2, according to industry experts. Blu-ray discs hold up to 50 gigabytes.
Today flash memory chips cost about $2.50 a gigabyte. So a solid state version of even a standard DVD would be prohibitive. The cost will fall to $1 a gigabyte in a few years, but that is still is at least 10 times more than a disc of the same capacity.
But why sell movies on rewritable memory? Isn’t there a write-once technology that would be cheaper. Yes, Mr. Adams said, but not enough cheaper to make this work. (The technology is called one time programmable, or O.T.P. memory.)
Mr. Adams said there is another model that might work. Customers buy reusable flash memory devices and fill them up with movies at Kiosks in stores.
I’m not so sure this has a whole lot of appeal.
The argument goes that it still takes several hours to download a movie at current home broadband speeds, so getting a refill of movies at a store on the way home from work, say, may save time.
There is something appealing to people about buying a box that contains a three dimensional object inside with a label on it. (Why do people buy software in boxes when the same titles can be downloaded?) If you are just downloading at a store, why not just do it at home.
But there is a technological problem here too: The controllers on flash memory cards just aren’t fast enough. And it easily could take more than an hour to load a movie onto a flash card even on a kiosk. There is a lot of effort in the industry, he said, to create faster controllers, but they are not here yet.
Bottom line: As much as it seems like flash memory is getting so cheap, it will come free in cereal boxes, it’s not going to be cost competitive with discs for years. And by that time, the technological, business and social problems of downloading movies are likely to be solved.

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