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Could the Web out-flank the format war? - November 16, 2007

By Sony chairman Howard Stringer's own admission, the format war between Blu-ray Disc and HD DVD is "a stalemate."

But while the DVD industry dithers, pieces of the infrastructure needed to deliver 1080 content over IP networks are beginning to fall into place. In just the past three weeks:

• Limelight Networks, a leading content distribution network (CDN) provider, unveiled LimelightHD, a new service it claims can deliver video at 720 or 1080p. "LimelightHD is designed to meet the rising demand for high-definition content delivered via the Internet, to television set-top boxes, media players, game consoles, and PCs," the company said. "As broadcast HD becomes commonplace, consumer demand for Internet HD will grow rapidly, prompting leading media and online companies to expand their Internet programming strategies and begin introducing online HD offerings this year." Early adopters include Brightcove, Fox Interactive Media and MSN Video.
• Akamai Technologies, a Limelight competitor, debuted "The HDWeb," described by the company as a "proof-of-concept" portal for high-definition video featuring content from the BBC, CBS, MTV Networks, the NBA and others. "Akamai's goal is to provide high bandwidth consumers with a superior online HD experience and highlight the content providers that are pushing the industry forward," the company said.
• Intel introduced its new, 45 nanometer family of microprocessors optimized for handling highly compressed HD video. "Its biggest impact is high-definition video," Intel chief sales and marketing officer Sean Maloney told the NYTimes. "It will be highly addictive."

None of those developments alone--or even together--mean the days of optical media are over. But they do give some flesh to the precise danger a high-def DVD format was supposed to address.

The studios know--or should know--that content will eventually move online, including high-def content, because that's where the consumer will be. But as a rights owner concerned with maximizing revenue and profit from a piece of content, how it gets delivered matters.

While electronic delivery promises someday to provide significant cost savings to content owners who will no longer have to press discs in advance of taking orders for a title, in the near and even medium-term optical disc is going to be a much more efficient delivery system, yielding much higher margins for the rights owner.

For now, bandwidth is limited and therefore at a premium, and it doesn't scale particularly well. If you need three to five times the bandwidth to move a high-def file, your costs will go up by roughly that amount. Bandwidth costs will eventually come down, of course, as capacity grows. But the rate at which capacity grows is largely beyond the control of the studios.

Optical disc, on the other hand, scales beautifully, as the DVD business demonstrated. The more discs you press, the lower your marginal costs, which drives higher profit margins and lower retail prices. What's not to like?

In short, the studios and electronics companies had every incentive to get high-def optical discs right, and quickly so. While Blu-ray or HD DVD may get high-def right, the format war prevented either from getting it quickly so. And now the tortoise is starting to lace up his sneakers.
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