Sony's Blu-Ray problem

The New York Times has an important article up about the looming next-gen DVD format war. After reading this, things really aren't looking good for Sony and its Blu-Ray allies.

The gist of the story is that as cost and production problems have cropped up for Blu-Ray, industry giants have gone from staying neutral to exclusively backing HD-DVD (Microsoft and Intel) or from only supporting Blu-Ray to backing both formats (Hewlett-Packard and LG Electronics). The quotes tell the tale:

"The pendulum is swinging back to the HD-DVD camp," said John Freeman, who runs a technology research firm, Strategic Marketing Decisions, which last year declared Blu-ray the front-runner. "It will be interesting to see if the Blu-ray group can recover. It's only a matter of time before people start backing out of the Blu-ray camp."
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"It's too early to move into this market," said Katsuhiko Machida, the president of Sharp, a Blu-ray company that has not released details for its players in the United States. "Blu-Ray won't be a big business until probably 2008," he said, so "we can watch and see what happens."
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Most important/worrisome: "It was very, very clear that Sony was not going to back down from Blu-ray, and they are basically betting their company on it," said Kevin Tsujihara, the president of Warner Brothers Home Entertainment Group.

All of the PlayStation 3's delays, problems and unknowns can be traced to Blu-Ray. No Blu-Ray, no extra $300 drive whose technology isn't quite ready -- and thus no high price tag or huge loss taken on each unit sold. Without Blu-Ray to worry about, Sony likely could have overcome the troubles with mass producing a complicated new graphics chip/processor, since that happens with every new console. Without the uncertainty of Blu-Ray, all the other details could have fallen into place long ago -- and we would have seen working demos by now, and actual mockups of the console.

I'm worried -- and all gaming fans should be -- that Sony has chosen the PS3 to make its last great proprietary stand. Sony had to back down on its original DVD format and join a rival group. The 90s explosion of cheap, high-quality electronics from elsewhere in Asia made Sony's brand-name edge moot. The company missed out on a whole new generation of consumer electronics when Apple succeeded with the iPod and iTunes. The flat-panel TV boom has made Sharp and Samsung as prominent as Sony. The PSP's proprietary UMD format is fizzling.

Sony is apparently hoping that its huge PS2 installed base and the PS3's hype will give it a built in, insurmountable head start in the DVD war -- and will deliver the kind of proprietary victory that has eluded the company for a couple of decades. Which is a fine plan, in theory -- if it made logistical and financial sense. With each passing week and each new article, that seems not to be the case. And as the Times story shows, the rest of the consumer electronics/entertainment world recognizes this.

In a typically astute New Yorker column about Sony's proprietary vanity, James Surowiecki wrote: "Ultimately, Sony doesn’t have much choice: it will either change or continue to come up short." The Blu-Ray bet shows Sony is not yet ready to change. This might be the final time the company has a choice in the matter.