The Blu-ray optical disc format, once a bastion of hope for reviving the home entertainment industry, is struggling to survive under the assault of video-on-demand and downloads.

In a new financial forecast, Sony has warned of heavy losses primarily due to its exit from the PC business and because "demand for physical media [is] contracting faster than anticipated."

In two weeks, Sony will announce its financial results. The company expects to post a net loss.

The Blu-ray Disc format

A report released earlier this year by Generator Research showed revenue from DVD and Blu-ray sales will likely decrease by 38% over the next four years.

By comparison, online movie revenue is expected to grow 260% from $3.5 billion this year to $12.7 billion in 2018, the report states.

"Movie producers have little to fear from online distribution in the long term," Generator Research said. "It is the distribution part of the movie business that should be worried, because online distribution will replace a sizable portion of their current industry."

Paul Gray, director of TV Electronics & Europe TV Research at market research firm DisplaySearch, said consumers are now accustomed to the instant availability of online media, and "the idea of buying a physical copy seems quaint if you're under 25."

"Furthermore, e-tail has hollowed out the retail structure so that it's largely [just the] latest titles in supermarkets. I suspect they are almost a gift format now," Gray said.

About to put even more pressure on physical disc formats, Gray said, is the High Efficiency Video Coding (HEVC) video compression standard, which doubles the amount of data that can currently be streamed while keeping the "high-definition" format. HEVC can support 8K Ultra-High Definition content with resolutions up to 8192x4320.

The Blu-ray Disc format simply never hit the market levels of the DVD format, which dominated the home entertainment landscape in 2004 with $21.9 billion in sales representing a whopping 96% of home entertainment spending.

Since that peak, optical disc sales have plummeted by about 30%, according to the Digital Entertainment Group. Surprisingly, DVDs still have respectable sales figures, driven mainly by kiosk-style rental machines such as Redbox.

"Many consumers see DVD as good enough," Gray said. "It is rather like a less extreme version of the CD story, where the format was so good that there was little room for improvement (at least in terms of an economically viable category)."

Gartner analyst Paul O'Donovan said that while on-demand content now dominates the entertainment market, there will also always be a desire by some to have optical disc media in the home to share with friends and family.

O'Donovan also believes optical media will someday regain traction for long-term backup and storage of personal data. "Just wait for that cloud storage [to lose] all your photos, home videos, etc," he said. "Then the good, old back-up plan will seem a no brainer."

Almost from the time of its release in 2006, pundits have been predicting that Blu-ray's reign would be shorter than hoped due to the availability of online content.

Blu-ray was officially introduced in 2006, backed by Sony and other manufacturers. Due in part to its integration with Sony's PlayStation 3, the format was quickly adopted over DVDs.

But market research firm IHS Technology said total spending on home entertainment sales and rentals increased only 0.7% to about $18.3 billion, last year. That growth is a slower than in 2012 when sales and rentals had increased 3.1% year-over-year.

Last year, about 124 million Blu-ray discs were sold in the U.S., a 4.2% increase over 2012, according to IHS Technology. Even so, because of reduced pricing for the format, revenue only increased 2.6%. DVD sales, which have been plummeting for years, dropped 13.6% last year.

Also last year, Sony closed Sony Optiarc, its optical drive subsidiary in order to refocus efforts on smartphones, tablets and netbooks.

New, higher-capacity optical formats

But don't count Blu-ray or optical drives out just yet.

Facebook recently revealed it deployed a low-power "cold storage" system filled with 10,000 Blu-ray discs.

Facebook said its Blu-ray archive system reduced storage costs by 50% and energy use by 80% compared with its current hard-disk drive, cold-storage system.

And new variations of the Blu-ray formats promise to keep data fresh for hundreds of years. For example, an MDisc, developed by Utah-based Millenniata, offers up to 25GB of capacity in a disc composed of chemically stable and heat-resistant metals. Yet, the data can be accessed through standard Blu-ray players.

The Blu-ray Disc eXtra Large (BDXL) format supports 100GB and 128GB write-once discs for corporate data storage. That specification is targeted at filling the data archiving needs of broadcasting, medical and document imaging companies.

BDXL discs have write-once, read many (WORM) options with 128GB capacity discs and rewritable capability on 100GB discs.

"I'm not sure how successful these new versions have been in the corporate world...[but it's] got to be a good long-term solution that's better than HDDs, flash or tape storage," said Gartner's O'Donovan.

Lucas Mearian covers consumer data storage, consumerization of IT, mobile device management, renewable energy, telematics/car tech and entertainment tech for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is lmearian@computerworld.com.

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