The underlying reason why I think Sony has won the console war is simple – Blu-ray.
It is of no secret that high definition TV has and will continue to proliferate. While I myself has not yet converted, I have every intention to replace my bulky TV to an LCD TV soon. I will also likely buy an additional one in my relatively smaller bedroom.
With HD TV comes HD content. DVD quality on a large screen HD TV just does not give the clarity one yearns for after watching true HD content. And in the case for high definition storage media, Blu-ray has won. You can watch the following over-the-top, very funny video to get the point.
http://www.youtube.com/watch?v=frZTf3mX97c
Other than online or cable/satellite distribution of HD content, Blu-ray will probably be the only main stream format in the next 5 years. I think one can safely assume that it will also be the main stream format within the next 10 years. Any other challenging format such as Flash or Hard Disk based media will have to overcome the hurdle of getting Studios to support, an extremely difficult task. For online distribution to post serious challenge, Fiber-to-the-premise has to proliferate first, as cable and DSL won’t cut it. I do not know how long FTOP build-out will take, but it’s probably quite a long process to get to mass adoption, at least in the US.
Blu-ray won the HD storage media war only recently, after the defect of Time Warner to its camp, and is still at the very beginning stage of ramping up. Newly released DVD is just starting to promote both the DVD format and Blu-ray format. However, I believe this will accelerate much faster than what people expect as movie studios will try to lure buyers into paying for higher priced HD content so they can soup up their income statements for any recessions.
By packaging Blu-ray in PS3, Sony is poised to take a fair share of the Blu-ray player market when HD TV owners upgrade their DVD players. Through neither a scientific nor statistically significant survey, most people I talked to prefer to buy a PS3 over a plain Blu-ray player when times come for their choice to play Blu-ray content.
Current negative arguments on PS3 mainly focus on its lack of title hits, and its shadowing by Wii on market share and gameplay. While there are numerous challenges for other media to replace Blu-ray, there’re no obvious hurdles for PS3 to gain a hit-title which will ignite the popularity of the machine. Also, consider that DVD players are so much more popular that game consoles, and if PS3 is able to co-exist with Wii in a home environment because of Blu-ray, the future for PS3 will be very bright.
Sony (SNE) current price is approximately where it was at Jan 06, mainly due to fear of recessions. Nonetheless, it’s only clear that Sony had won the HD content war very recently, and that any royalty from Blu-ray will be new revenue for Sony (certainly much much more than royalty from Betamax), and that PS3 can likely ride the wave of Blu-ray, I believe Sony has now real intrinsic value not fully valued by the market.
The current technical picture for Sony stock is quite bad, and it can certainly go lower, or even much lower. However, at some point, Sony stock will (or already have) provide a very favorable risk/reward ratio to investors. What that point is, it will be another blog entry.
