Wednesday, February 27, 2008

New HD Format War: Downloads via iTunes Movies Rentals with Apple TV 2.0 vs. Blu-ray

If you haven't seen the Macworld 2008 keynote (extended demo?), or the Apple TV Guided Tour, please do so before you keep reading. It has been a few weeks now that I have spent with iTunes Store movie rentals on both Apple TV 2.0 and on the Mac/PC. Before I really start making my case, I thought it highly interesting to look at the following timeline (inspired by Keith Olbermann's Bush Administration Terror and Polictics timeline):
I don't think I missed anything in the HD format war timeline. Make no mistake the HD format war continues, but it has shifted to downloads vs. Blu-ray discs. When I look at this timeline, a few possibilities emerge about what went on behind the scenes:
  • Warner's was paid off (by some amount, not necessarily the rumored $400m) by Sony to end the HD physical media format war
  • Warner's looked at their 2007 HD physical media sales data and sees Blu-ray always outselling HD DVD, decides to stop supporting HD DVD
  • Studios know that digital downloads are the future anyway, agree to start supplying Apple with content that most every other digital download supplier has
  • Warners in particular know that digital downloads are the future, Apple TV 2.0 might just have this right, better consolidate on a single HD physical media format as a hedge against iTunes
  • All of the above
Seems pretty clear to me that HD movie rentals on iTunes, in particular Apple TV, are going to be very successful. They have a high probability of marginalizing Blu-ray, but overall won't be wildly successful because there are still a bunch of limitations imposed by Hollywood on legal movie downloads. Once these restrictions are lifted, I think you can say goodbye to Blu-ray, joining HD DVD in the dead HD format graveyard.

iTunes to Hollywood: You're holding me back
Hollywood is afraid of cannibalizing DVD sales, and likes a lot how expensive Blu-ray discs are. The restrictions Hollywood is imposing on every legal movie download service only serve to reinforce pirating. They don't protect sales, I believe they actually have and will continue to cause the erosion of total sales. A lot of people have already decided they want to go digital, they have stopped or curtailed buying physical discs (DVD or HD anything), but no legal download service has been implemented that has done it totally right because Hollywood isn't letting it happen. The only place to turn for a lot of people when a business won't provide you product you want is piracy. The iTunes Store is the closest among all the services to getting it right, but Hollywood needs to take the shackles off Apple to let legal digital video distribution soar. With both Sony and Toshiba bribing studios at various times to exclusively support their HD format, will Apple use some of its $18 billion cash hoard to swing some studios exclusively to their camp and start eliminating the following restrictions:
  1. 24 hours is just too short. Jeff McManus calls me out as one of the twelve people who bought an Apple TV when they first came out. It's true of course, I have been championing the capability, the potential, of a device like Apple TV since before it came out and after I started using it. It has been great for watching movies my son likes over and over again because no one has to touch physical media. However, I have not been shy about pointing out my experiences and the flaws in Apple's video strategy.. This issue is no different. The 24 hour rule is just stupid, brain dead, as if no one has actually tried to use any service that has this rule in place already and realized there is a high consumer burn rate. It's dumb on Xbox Live, its dumb on Patriot Media (my cable provider), and it's dumb on iTunes. Jeff links to The 27 Hour rule, which easily solves the issue. Pre Apple TV 2.0, I rented Pirates of the Caribbean 3 in HD from Xbox Live. It expired because I started it on Sat. night, stuff happened, and I couldn't get to it on Sunday. This is going to be the biggest inhibitor to the service and Apple TV being extremely successful. The fact that on Apple TV you can watch something past the 24 hour window seems like a small attempt on Apple's part to let you watch a movie you have paid for, but it's a cop-out because this is totally undocumented.
  2. You can only rent HD movies from Apple TV 2.0, not to your computer. The only reason I can conceive of for Apple not allowing this is because normal user's might be confused as to why the HD copy of the movie won't transfer to their iPod or iPhone. Understandable, but give renters the option because a lot of people would love to watch in HD on their computers
  3. Still no DVD ripping. I know, legal implications and all that, but this is pretty simple. I have the CPU power and the hard drive space to do this, make it happen through iTunes. I can't chuck my DVD player for Apple TV, like I could the CD player once the iPod came out, until this happens. Either allow this, or Apple should just add a DVD player to Apple TV
  4. Rentals aren't available until 30 days after DVD release. Once again, the studios won't let consumers decide the market, they continue to try to prop up the old way of doing things, buying little slivers of plastic with bits, instead of letting consumers that want to, just download the bits. Seriously though, if I haven't gone to a theater to see a movie, and waited the 3-6 months from theatrical release, what makes a studio head think I won't wait 30 more days. You really have to have you your head in the sand to not realize most people won't care, or the ones that do are not going to buy a disc, they are going to steal your movie. Studios, you are only hurting yourselves.
  5. You can buy that movie, rent this movie, buy or rent this movie, sometimes only in SD, sometimes only in HD, and sometimes in bothWhen you need a matrix to figure out how to rent or buy content, you know it's not going to be wildly successful. When the iTunes Store was called the iTunes Music Store, the terms were relatively simple and straightforward, and sales exploded. Hollywood needs to get it's head out of the sand on this, but Apple is also to blame. 5.x generation iPods can't play rentals, for reasons unknown, but that was a huge chunk of the iPod market that can't rent, but can buy.
The Competition
AppleInsider has a good matrix of how Apple TV with iTunes Movie Rentals stacks up to the competition feature wise. The more important point though then the feature matrix I think is AppleInsider's cost comparison. Looking at the costs, if you go the Netflix subscription with a PS3, then Blu-ray is the cheaper option for HD rentals than Apple TV. However, the same problems you have with Netflix continue in this model:
  • You have to spend time managing a queue to increase the chance you get the movie you want when you want
  • You have to wait on delivery in the mail from Netflix
  • You are paying a subscription (which I dislike when they can be avoided) no matter what
So for HD rentals, I think Apple TV is the right mix of cost and convenience. What if you want to buy HD movies? Live Free or Die Hard Blu-ray on Amazon is listed as $39.98! It's on sale for $24.95. Purchase on HD media is way overpriced, that's 5x more expensive than a rental, insane. I have bought a few HD-DVD discs when I was, uh, being very stupid. Now I can rent Live Free or Die Hard in HD from iTunes on Apple TV for $4.99. My local Blockbuster store just added Blu-Ray rentals, and those are $4.99 as well. But there is no way the visual difference between 1080p and 720p and extra features (that I won't have time to watch) would justify me driving to Blockbuster and not using Apple TV. I don't think I am ever driving to Blockbuster again. Sure, I have to finish something from Apple TV in 24 hours which is a significant hurdle sometimes, but that or driving out to the store, I am not picking driving.

Ah, my cable company
They have been getting the bulk of my video on demand dollars unless they didn't have something I wanted to watch and Xbox Live did. But no more. I hate my cable box/DVR, the interface is some Motorola crapfest that works slowly, or just plan incorrectly, doesn't even use a widescreen layout on my HDTV, and is almost entirely text based. The new Apple TV UI (see the guided tour) uses the whole width of your HDTV and shows you actual posters to help you pick a movie you want to watch, what a concept! However, Apple TV still has the 5-15 minute stream queue time that Xbox Live does, though Apple TV is better about it not telling you the download is ready when it isn't. The Moto cable box works well once you have found something you want to watch, but it's pain until you do. Prices are the same though.

Xbox Live
I am just going to quote a comment I made on Scott Hanselman's blog:
This is so easy, I mean I know you work for MS now, but Xbox Live is only competitive on the surface. Renting any movie on Apple TV will be much simpler than renting them on Xbox 360. The blade interface is simply horrible by comparison to what the new Apple TV interface is. It will take more clicks of the Xbox remote or the controller to actually get to rent anything than with Apple TV. On the 360 you have to browse for something, the Apple TV has search. No MS Points, no loans of fractional dollars to a multi-billon company, you buy in dollars and pay in dollars (or whatever your local currency is when that comes online). Movie previews that don't suck, even with the latest Xbox software update, the movies previews are simply horrendous compared to what the Apple TV already offers. Rentals from Apple TV will have real chapters comparable to DVDs, not the time based division that all rentals I have seen from Xbox Live have. Apple will never remove content from iTunes, it's there forever. Pirates 3 expires from Xbox Live in May I believe. Apple TV is silent, Xbox 360 sounds like a low power hairdryer. Xbox HD rentals are a little more expensive than Apple TV, unless I have messed up my MS Point to dollars conversion again. The only "advantage" is the the 360 plays games, but I don't think it's wise to rely on the 360 for too much besides games since it's so fragile. Everyone I know, except for me, has had their 360 die, some more than once.
Conclusion
I may still get a PS3, actually now that the Metal Gear Solid 4, DualShock 3, 80 GB Playstation 3 bundle for $499 in June has been announced, that is looking like a pretty sweet deal. But I would get the PS3 as a game machine first, and as an upscaling DVD and Blu-ray player second, or maybe hardly at all. I mean, having a physical disc player still makes a good target for birthdays/holidays for the parental units to buy something for, they don't know or understand how to gift through iTunes. I can't see myself buying Blu-ray movies though at current prices, the price is wrong Bob.