Why Apple TV Won’t Kill Blu-Ray, Yet

March 28, 2012

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.

 Related Posts:

Content, Cost and Convenience Will Win the Digital Video War

Walmart’s Disc-to-Digital Service: What’s Right, What’s Wrong

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Tags: Amazon, Apple, Apple TV, Blu-ray, iTunes, Netflix, Panasonic, Roku, Ultraviolet, Xbox

12 Responses to Why Apple TV Won’t Kill Blu-Ray, Yet

  1. Ben Drawbaugh on March 28, 2012 at 3:50 pm

    I think you mean the average internet connection is 6.1 Mbps, not MBps (which is actually faster than my 35Mbps FiOS at 48.8Mbps).

  2. Dave on March 29, 2012 at 6:58 am

    Siegler is an Apple fanboy who appears to write solely to drive traffic. Did you see how HBO made him steal? Puh-lease. It’s too bad, because he seems to be a smart guy with good insight. But I have a hard time taking him seriously and steer clear of his work.

  3. Troy on March 29, 2012 at 3:35 pm

    I’ve been trying the Appletv angle for about 18 months and have a love/hate relationship with it. Prices for tv seasons are ridiculous. Quality on HD content is between good and great (I’d rate Bluray as amazing) but the standard def rentals/purchases are subpar. Here’s where it annoys me; in Canada, we cannot buy 1080p movies – we can only rent them, and only then I can only rent them through the appletv. This means streaming and the Internet here cannot keep up during heavy load times. I prefer to download to my computer first then stream to the Appletv which brings me to my second beef. Going through the movies there is no standard when it comes to quality. Some movies only have standard def quality and others only HD. Some are HD for rental only and others are for purchase only. I prefer HD rentals/purchases and I won’t buy movies through Apple until this is figured out.

    • Gabe Gagliano on March 29, 2012 at 7:10 pm


      I’ll see what I can find out about the iTunes store and Canada.

    • h0mi on April 2, 2012 at 6:47 pm

      “Prices for tv seasons are ridiculous. ”

      But you get episodes sooner rather than later. It’s more immediate than buying the DVD/Blu-ray.

  4. Adrian on March 29, 2012 at 11:53 pm

    I think you will find hd newer movies on iTunes at $4.99 rather than $4. Could you review vudu hdx v iTunes 1080p at some point ?

    • Gabe Gagliano on March 31, 2012 at 9:00 am

      Thanks Adrian, I’ve updated the story to reflect the $5 for new releases. Good idea on the comparison.

  5. Joseph Brizendine on April 2, 2012 at 7:06 am

    No, thank you. I’d rather not jump on the bandwagon and phase out my DVD collection. Surely not everybody gets to own an Apple TV and it’s still a fresh idea, so, expect a lot of bugs in it or glitches.

  6. Troy on April 2, 2012 at 8:50 pm

    At $2.99 (Mad Men HD/ episode), $3.49 (The Killing, Breaking Bad, Fringe HD/episode), and $4.49 (Game of Thrones HD/episode) there is a huge gap in the prices for HD content. And there is no guarantee that the content will available before DVD. Game of Thrones is first season only – it didn’t come out until the DVD release (at least in Canada) and the second season may not be available soon.

    To highlight how out to lunch the pricing is consider the ‘new’ channel in iTunes labelled Hanna Barbera. It just released ‘Wacky Races’, an old cartoon from 1968 for $32.99. It just so happened I saw it for sale in a local dollar store for $11 on DVD two days before. Same content and you’re charged a $22 premium for not getting it on disc. And it’s not just this show. Older shows (not all – it’s hit and miss) are charged prices that are all over the map and usually more than the DVD copy. Breaking Bad Season 2 is $39.99 on iTunes vs $26.99 BluRay. Season 3 $39.99 vs $35.49. Game of Thrones is the same price for season 1 regardless of iTunes or Bluray. It makes zero sense to charge the same or more for content that isnt physical.

    You’d think Apple would force content providers to the same type of pricing structure as music. It is cheaper to buy an album on iTunes than on CD not so for tv and movies.

    • Gabe Gagliano on April 4, 2012 at 10:01 am

      As far as Game of Thrones goes, HBO controls its content very tightly. They timed the released of the DVD and streaming to promote season 2. See more here: http://www.techofthehub.com/2011/12/game-of-thrones-blu-ray-leads-to-hbo.html In other cases, Apple doesn’t have the same leverage with the studios as it did with music.

      Yes, I can find instances where the DVD or Blu-ray costs less than the streaming version. One reason is that traditional retailers have to find ways to clear inventory space. I have been on the hunt for Blu-rays or DVDs that come with iTunes Digital Copies. Once you enter the code into iTunes, it’s available to stream via Apple TV. The problem is that every discounted Blu-ray I see that I like has an expired digital copy. If it’s truly a blu-ray worthy movie I will break down and buy it regardless of digital copy.

  7. Russ on May 23, 2012 at 6:29 am

    UPDATE: Universal movies are now in iCloud, Fox is now the only studio left that doesn’t allow rewatching from iCloud however you can still rent Fox movies on the Apple TV or buy them on iTunes on a Mac or PC and stream them to the Apple TV.

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