The
Hollywood Economist
The numbers behind the industry.
Sony's Blu-Ray DVD.
If you want a glimpse of Hollywood's near future, you need
only watch a single scene in David Lean's Lawrence of Arabia
on the split screen at the ground-floor showroom of Sony's
New York headquarters. On the 70-inch TV, you see swarms
of Arab camel-riders racing across the blazing desert. On
the screen's left half, the Arabs are so blurred together
that they can hardly be distinguished from the swirling
sands. When they cross over to the screen's right half—presto!—they
pop into such sharp focus that their facial features are
recognizable. It's the same screen and the same Lawrence
of Arabia. The difference is that the source for the left
half of the screen is a conventional DVD, and the source
for the right half is a Blu-Ray DVD, which, although identical
in size and shape to the conventional DVD, holds at least
five times as many color pixels, or picture elements.
The
left half of the screen is composed from approximately 87,000
color pixels—the maximum that a conventional DVD can
hold—while the right half is composed from more than
490,000 color pixels. The 400,000 or so additional color
pixels, by providing more details, nuance, and depth, create
a high-definition picture. The Blu-Ray DVD is able to display
these additional pixels because it employs a blue laser—hence
its name—that has a smaller beam spot than the standard
red laser and can distinguish between more densely packed
data on a disc. In fact, the blue ray can read as many as
eight wafer-thin layers—the top layer being only one-tenth
of a millimeter—which can contain 20 times as much
data as even a dual-layer conventional DVD. Such massive
storage—up to 200 gigabytes—provides an almost
endless capacity for add-ons by home audiences. For example,
with a touch of his remote, a viewer could go from watching
an action movie to participating in an interactive game
based on the movie, or he could switch to a 3-D version
of a particular scene. Sony and its rivals plan to have
Blu-Ray DVDs available in less than a year. So, in the near
future, the weekly audience that goes to movie houses will
have another option: staying at home and watching a high-definition
movie with interactive features that is more or less equal
in picture quality to what they would see at the multiplex.
If
history is any guide, changes in technology that make entertainment
more convenient make a difference in the way it is experienced.
The advent of mass television, for example, came very close
to killing the movie business, cutting the average weekly
moviegoing audience from 90 million in 1948 to 20 million
in 1966. Once Americans had color TVs, some 70 million people
a week stopped going to movie theaters, forcing Hollywood
to revive the movie audience with massively expensive television
advertising. Videos and DVDs—and the ability to churn
out pirated copies of them—have wiped out most of
the movie theaters in large parts of Asia and Eastern Europe.
So what effect does Sony expect that its new Blu-Ray DVD
will have on what remains of the moviegoing audience?
To find out, I proceeded from the ground-floor showroom
to the 34th-floor executive suite and put the question to
Sir Howard Stringer, the British-born—and first non-Japanese—chairman
of Sony.
Sony's
fabled success story began more than half a century ago,
in 1946, in a bombed-out basement in Tokyo. Akio Morita
and Masaru Ibuka started the company (originally named Tokyo
Tsushin) with the intention of manufacturing necessities,
such as rice cookers and space heaters, for the war-ravaged
population of Japan, but they quickly found an export market
in America for consumer electronics. They went on to introduce
a string of remarkably inventive entertainment products—including
the CD. Along the way, Sony also bought a number of American
companies to get content for these products, including CBS
Records (now Sony Music), the Columbia TriStar studio (now
Sony Pictures Entertainment), and, most recently, MGM.
Even
though Sony helped bring about the digital revolution, the
company has failed to adapt to it. The standardization required
to manufacture consumer digital products undercut the value
of Sony's branded products. For example, the Chinese and
other low-labor-cost manufacturers, using the same computer
chips, could make the same DVD players and digital TV sets
as Sony for a fraction of the cost. The result was a commoditized
rat race that became unprofitable for Sony. When it became
clear that Sony had to "revolutionize itself,"
as Sony's previous chairman Nobuyuki Idei termed it, the
revolution involved transforming Sony from a company that
had focused on engineering proprietary products, such as
the Trinitron color television set, the Betamax VCR, and
the Walkman, into one that could capitalize on—and
protect from piracy—the streams of digital data that
would include games, movies, music, and other intellectual
property. When Sir Howard assumed the leadership of Sony
this year, part of his mandate was to move the company,
as he put it, "from an analog culture to a digital
culture."
The
Blu-Ray DVD is a critical piece of this strategy. As I learned
in Tokyo, its multiple layers not only can store vast amounts
of digital data, they can also be used to record data downloaded
from the Internet. For example, after buying the Blu-Ray
DVD for Spider-Man 3, a consumer could then add
on a game, music video, or a prior sequel from Sony's Web
site. When I asked Sir Howard if there was concern that
the Blu-Ray DVD would result in a further eroding of the
world moviegoing audience, he answered that it was "a
chicken-and-egg problem." The "chicken" was
theatrical movies; the "egg" the DVD (plus television
and licensing rights). Sir Howard, who is also chairman
of the American Film Institute, pointed out that it would
be difficult to conceive of great movies, such as Lawrence
of Arabia, being made without a movie theater audience
to establish them; the dilemma is that it's the "egg"
not the "chicken" upon which the studios increasingly
depend for their money.
So,
even while trying to avoid fatally injuring the chicken—movies—Sir
Howard said that studios are under increasing pressure to
"optimize" their profits from the proverbial golden
egg, the home audience. Indeed, the Blu-Ray DVD make this
balancing act more difficult: With its interactive features,
it appeals to the very teenage audiences on whom the multiplexes
now so heavily depend. It's also a vital part of Sony's
latest version of its PlayStation, due to be released next
year. The prior versions of PlayStation have sold more than
100 million units and have provided the Sony Corporation
with up to 40 percent of its profits. PlayStation 3, while
it may sound like a child's toy, is in fact an incredibly
powerful computer, exceeding in its processing power IBM's
famed Deep Blue. The Playstation 3 can play high-definition
movies and super-realistic interactive games and surf the
Internet, providing a gateway for further digital consumption.
In addition, the Blu-Ray will allow Sony to reissue its
movie titles in high definition. In fact, part of the stated
justification for acquiring MGM was the profits to be realized
from reissuing the 4,100 films in MGM's library in the Blu-Ray
format.
At
some point, Sony has to overcome a competing high-definition
format, HD-DVD, sponsored by its traditional rival, Toshiba.
HD-DVD, like the Blu-Ray, uses a blue laser optical reader
and renders an equivalent high-definition picture. The principal
difference is that Toshiba designed the HD-DVD so that discs
can be stamped out by existing DVD manufacturing equipment
(which unfortunately is also owned by video pirates). That
design makes it less expensive to implement, but the HD-DVD
lacks the recordable multilayers or massive storage space
for interactive features of the Blu-Ray.
While Sir Howard preferred not to speculate on the outcome
of this potential format war, I predict that the Blu-Ray
will prevail for three reasons. First, Sony has a critical
mass of movies that it can release on Blu-Ray. Aside from
its own titles, Disney, 20th Century Fox, and Lions Gate
have agreed to release their titles on Blu-Ray. Next, almost
all of the leading computer manufacturers, including Dell,
Hewlett-Packard, and Apple, are committed to using Blu-Ray.
So if a studio wants its high-definition DVDs to be playable
on personal computers—or for that matter on PlayStation
3—it will have to issue them in the Blu-Ray format.
Finally, the situations of Sony and Toshiba are not symmetrical.
For Sony, the Blu-Ray is an integral part of its overall
strategy. For Toshiba, the HD-DVD is just another product
they manufacture. If the company reached an accommodating
deal on licensing fees, it could also make money by manufacturing
the Blu-Ray DVDs. One way or another, however, the moviegoing
public will soon have one more diversion from movie theaters.
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