Doomsayers are already writing the obituaries of Blu-Ray as expensive players and discs prevent widespread adoption of the new high-def format.  But through BD-Live and the massive size of the discs, Blu-Ray can offer unique experiences that make the discs worth paying for.

Hurting Blu-Ray are the proliferation of upscaling DVD players and high-definition download services, all of which are cheaper and good-enough alternatives.  Further, online piracy with free movies of DVD quality are always compelling.  So how does Blu-Ray carve a market niche?  The movie file itself is an infinite good, able to reproduced an infinite amount of times with negligible costs.  Blu-Ray quality movies, taking up 25-50 GBs of memory, are more taxing than a 1 GB movie even on my 1 terabyte hard drive.

Registered purchases of the Hellboy II Blu-Ray disc had the chance to join a live chat with director Guillermo Del Toro. Though I didn’t participate, the exiting potential to talk to directors and movie staff is a valuable scarce good (access to these celebrities).  Future discs might take this even farther with live commentary and discussions of the movie (it’s the magic of picture-in-picture).

The Dark Knight Blu-Ray included further technological innovations, changing the aspect ratio on the fly to better reflect the IMAX format the movie was filmed in. At this point, no pirated movie format can offer this feature, and while it’s limited in its appeal, it’s a start of turning Blu-Ray in a unique experience above just “it looks really good.”

These are the kind of features that can convince some to buy plastic discs (rather than, say, sue them into doing it).  These features reward fans for their loyalty and for spending their money.  Blu-Ray’s interactive potential is still in its infancy – most early discs don’t have any online functionality – and some companies might be waiting for more people to buy players before investing.  But that’s short-sighted thinking.  DVDs still look pretty good even on high-def TVs.  It’s unlikely Blu-Ray will ever be a complete replacement for DVR, sharing the limelight with download services.  Only by embracing the format for its strengths and exploiting those can you convince the market to embrace the format themselves.  Unique, scarce features are the way to convince people to give you their money.

The last hold-out for HD exclusivity has apparently joined the Blu-Ray team, as reported by the USA Today.  Many blogs and pundits were predicting the largest seller of DVDs would announce its exclusivity at next week’s Consumer Electronics Show.  With Blu-Ray discs outselling HD-DVD more than 2 to 1, Warner Brothers’ move is likely to expedite an end to the high-def format war with Blu-Ray as the winner.

In August, Paramount went HD-DVD exclusive even though Blu-Ray had a small lead, prolonging the format war.

The announcement makes me wonder about another prediction spreading around the internet about an Ultimate Xbox 360 to be announced by Bill Gates’ keynote at CES.  The Ultimate 360 sounds like a geek wet dream with improved hardware, silent fan, built-in WiFi, IPTV service, 320 GB hard drive and a built-in HD-DVD drive.  The IPTV is probably happening (screen shots have already been leaked) but how embarrassing would the HD-DVD drive be should the format fail. As exciting as the prospect could be, the truth is the next week would be all about bashing Microsoft desperately jumping on some anti-Sony bandwagon.  It also lends credence to director Michael Bay’s theory that Microsoft wants the format war to continue so it can bolster its video download service.

Also, if Microsoft decided to include the HD-DVD drive, what happens to game makers?  Can they make games using the HD-DVD discs?  If so, that means Microsoft single-handled spreads the format war into video games where no format war (except consoles themselves) existed.  And that’s just mean. 

This is of course total speculation and quite a segue from the subject of this post, so just consider this my pre-CES posting.  Go Gears of War 2 announcement!

Like Leonardo DiCaprio running to the doomed Titanic, Paramount has gone HD DVD exclusive. They cite HD DVD’s lower cost and market ready technology, both reasonable criticisms of the Blu-Ray format, if it weren’t for the fact that Blu-Ray players out sell HD DVD players 2 to 1 and Blu-Rays sells as many discs. Blockbuster and BJ’s Wholesale are Blu-Ray exclusive while Target only stocks Blu-Ray standalone players (Target continues to sell HD DVD discs).

The worst part of this, as many commentators have recognized, is now the format war will continue longer (Paramount is committed to HD DVD for 18 months).

Personally I only own a Blu-Ray player (in my PS3) though I have yet to buy any Blu-Ray discs and refuse to spend extra money on the 360 HD DVD attachment. Even with a Blu-Ray player I am hesitant to buy discs at the premium prices. It’s more cost effective to pay for premium movie channels and on demand.

Movie companies are forgetting they aren’t just competing with two HD formats for consumer money and attention. I can continue buying regular DVDs or rent from Netflix. On Demand offers a growing list with a developing HD niche. And, of course, there’s always piracy.

Now that’s the question in front of movie companies. This HD format war can continue because DVDs still sell enough to make everyone tons of money. But eventually HDTVs will spread and consumers will demand a format winner. If the movie companies haven’t settled down with one format or the other, consumers will find alternatives. And not all of those choices will make movie companies happy.