MG Siegler recently penned a piece called, “The New Apple TV Will Finish What The Mac Started: Killing Off Discs“. Not so fast MG! While the Apple TV is easy to use and provides a great overall user experience, there’s several barriers to it or any connected device or platform killing off Blu-ray. Yes, this is the year that the US consumer will watch more movies on-line than on DVD and Blu-ray. It’s just a matter of time before discs go away. Before that happens, Apple or any competing ecosystem will have to overcome the challenges of bandwidth, content and ubiquity.
Just like Blu-ray, the new Apple TV supports 1080P video. In my own testing, I can see the difference in picture quality between the new Apple TV and Blu-ray. However, it’s similar to appreciating the subtle flavors of a fine wine. Furthermore, you are not going to notice the difference unless you have a large screen HDTV (or sit really close). The other place where Blu-ray has an edge is with surround sound. Blu-rays typically come with high quality DTS Master Audio or Dolby TrueHD soundtracks. Apple TV, on the other hand, uses the older Dolby Digital format for surround sound. It still sounds good, but the bass had a little less boom and the overall sound was a bit less immersive. Once again, Blu-ray provides the best audio and video experience in the living room, but the one Apple TV provides is not too far behind. Other comparisons came to similar conclusions. When you consider the bandwidth Apple TV and other streaming boxes work with, the quality is amazing.
As MG points out, most customers won’t realize or care about the difference in quality. I agree but even when they realize the difference, they would chose the convenience of streaming over the effort of obtaining a physical disc. It’s just like folks opting for lower quality music MP3s. Yes, I will still go out of my way to get my hands on the Blu-ray version of certain movies but I’m the exception not the rule.
However, top notch streaming quality is still dependent on the bandwidth to the home. Akamai’s latest “State of the Internet” report shows that the average connection speed is now 6.1 Mbps in the United States. Also, the adoption rate of high speed Internet was reported at 45% and growing (access to 5 Mbps or higher). That’s enough for Netflix to stream 1080P to the 3rd generation Apple TV. However, half the market still needs more bandwidth to access HD streaming video. It’s changing rapidly, but it will take time nonetheless.
A bigger problem is content. There are two providers of TV shows and movies on Apple TV: Netflix and iTunes. There’s more than enough to watch between both services, but there are still significant gaps. Namely, select titles from Fox and Universal are not included because of a exclusive arrangement with HBO. We’re not talking about long tail content, but recent releases including Inception and X-Men: First Class. The word is that Apple is going to get this worked out with the studios. Until this happens, folks will turn to other sources when there’s a particular movie they want to watch.
That brings to the last and biggest hurdle: ubiquity. Blu-ray will have some staying power since it’s a standard just like VHS and DVD. With those standards, the consumer had lots of choices when it came to devices. There’s also lots of ways to rent or buy movies. Contrast that with the world of streaming video. Between the universe of devices and services, there’s a lot of fragmentation. The second-generation Apple TV has sold over 4 million units since launching in September 2010. Assuming Apple sells another 4 million units this year of the new Apple TV, it would mean the device is in 7% of US households. Without some of the game changing features in the rumored Apple HDTV, Apple will not have massive market share in the living room. Compare that with the fact that Blu-ray players are already in 25% of US households. In addition, some of today’s Blu-ray players offer a better selection of video streaming services than Apple TV. I recently reviewed one of Panasonic’s 2012 Blu-ray players and it had almost every major video streaming service outside of iTunes including Amazon Instant, Netflix, Hulu Plus, VUDU and Cinema Now. There’s also competition to Apple TV in the streaming only space. For example, the entry level Roku LT only costs $49 and offers a wider variety of streaming services (but lacks the Apple TV’s Airplay and iTunes extender functionality).
One could argue that ubiquity exists with next-gen game consoles which are in 56% of US households. However, only 50% of those devices are in the living room. On top of that, the market penetration isn’t as impressive when you realize that it’s divided between three gaming platforms: Wii, Xbox and Playstation3. Of the three, the Xbox now offers the most compelling experience for watching TV shows and movies. Hence, the fragmentation of living room devices is probably the biggest reason why Blu-ray will survive for some time to come.
One benefit of this fragmentation is more opportunity for price competition. This is the place where Apple has a leg up on its competitors. With its move to 1080P, iTunes is now comparable to VUDU in terms of picture and sound quality. iTunes is also similar to VUDU in that both offer a la carte rentals and purchases of recently released movies. While renting a 1080P movie on VUDU costs $6, it only costs $4 ($5 for new releases) to watch on Apple TV via iTunes. So much for Walmart’s strategy of “Low Prices. Everyday. On Everything” (Walmart is the parent company of VUDU). Based on my quick survey, buying an HD movie on iTunes typically costs less than buying a Blu-ray (and you can easily download it to your iPad or iPhone). There’s also “iTunes Extras” providing additional content that is not available on most other video streaming services.
Oddly enough, the Apple TV may offer an awkward solution to this fragmentation: Airplay. Up to this point, Airplay would let you stream content from your iPhone or iPad to the Apple TV. The problem was that certain iOS apps like HBO GO disable the ability to stream to an Apple TV (HBO has cited security concerns about the second gen ATV). However, the next release of the Mac operating system, Mountain Lion will also offer Airplay. The difference being that the Mac can access most video streaming services through a web browser. It’s unclear to me if services like HBO GO will be able to prevent Airplay from working in this scenario. In this setup, you can stream almost any service onto your Apple TV. It may not be the best audio and video quality but it would work.
So, unlike VHS or DVD or Blu-ray, the streaming video world hasn’t successfully implemented a standardized format like the MP3. Netflix is the closest thing to it being omni-present on almost every connected device. However, it has limited access to new releases. UltraViolet offers the promise of a standardized format but it’s still in its infancy, has limited device support and is technically complex. While physical discs will go away, it’s not clear which platform will dominate: Apple, Amazon, UltraViolet or something else. Until all this works itself out, keep enjoying your Blu-ray player. It’s the one reliable way to get all of the content you want today.