Sony’s Big Bet on Blu-ray

Sony has probably made its single biggest gamble to date with the Playstation 3. Lost in all of the stories about Sony’s recent struggles, is the monumental importance of Blu-ray succeeding. Sony has bet the future of two of its strategic pillars (video playback and video gaming) on Blu-ray’s success. These two strategic pillars are out on the table in a high stakes standards battle.

This is not the first standards battle Sony has been in, and not even the first in the video marketplace. Many will remember Sony’s loss in the Beta versus VHS battle of the 80’s, which they lost despite having the superior technology. This time around they have paired with their nemesis from that standards battle, Matsushita, and the rival is instead Toshiba. Sony currently holds a slight lead over Toshiba’s platform, but Sony had a lead in the Beta versus VHS struggle as well, only to find itself blown out of the marketplace.

In the VHS versus Beta showdown, Sony had no movie studios on its side. In fact the movie studios sued Sony to remove the Betamax from the marketplace. This time around, not only does Sony own a movie studio, and so have at least guaranteed initial support, but they have lined up several other movie studios as well. Sony has learned from its previous mistakes in other ways as well, including recognizing the importance of the movie rental market. Sony has locked up Blockbuster to promote Blu-ray ahead of the holiday buying season, which promises to possibly decide once and for all which format will win.

Whichever new video format sells the fewest players this holiday season will likely lose all access to the video rental market and all hope of widespread success. At stake are the ongoing royalty payments from video player manufacturers incorporating their technology into their consumer units. This has led to key players in the industry (retailers and movie studios alike) demanding payment from Sony and Toshiba for their exclusive support.

The second strategic pillar Sony has bet in the standards battle is its video game platform (Sony Playstation 3). If Blu-ray loses this holiday season then Blu-ray will become marginalized to use only for Playstation 3 games and possibly some computer backups (the disks hold up to 15GB of information). If Blu-ray wins then this fate is bestowed upon Toshiba’s platform – being marginalized to use only for Xbox 360 games and possibly some computer backups (the disks hold XXX GB). If Blu-ray loses this holiday season, Sony’s Playstation 3 will remain the number 3 console for the remainder of this console wave.

A Blu-ray victory could catapult the Playstation 3 to the top of the video game marketplace by virtue of its secondary benefit, acting as a BluRay player. Given the cost of a standalone Blu-ray player, a Blu-ray victory will greatly increase the chances of husbands and children being able to convince others in the household that buying a Playstation 3 is a good purchase. Booming Playstation 3 adoption might just accelerate the possibility of it being adopted as the digital center of the living room. Sony will soon begin rolling out digital video recording (DVR) capabilities for Playstation 3’s in Europe and possibly a video download store for American Playstation 3’s to try and solidify a position in the center of the digital living room. Blu-ray may secure this position for Sony or leave the door open for Microsoft and Apple.

All their chips are out on the table, will Sony’s bet pay off this time?

What do you think?