Podcast: Play in new window | Download

The DVD may have died this week.

Walmart is now selling Blu-Ray high-definition optical disk players for $68 in the U. S. Sure, plain old DVD players are cheaper still, but why would you buy one? Blu-Ray players can be used with your old DVD collection just fine and will line-double and up-shift your old disks a bit so they’ll look nice (but not as nice as 1080p Blu-Ray) on your new LCD or plasma TV. So unless the Blu-Ray can’t connect to your old TV for some reason, I can’t imagine why anyone would buy the old standard.

These things happen: Moore’s Law, remember? But in this case it feels to me like the transition is happening a little earlier than I expected it would. For that I blame the economy.

DVD sales have dropped 30 percent in the current recession, which was a big surprise to the major movie studios. They expected sales to go up because movies played at home (where the popcorn is cheaper and the butter is real) are supposed to be a bargain during a recession. In a sense it seemed a perfect time to introduce Blu-Ray and get people to upgrade their movie collections just as they had upgraded their VHS tape collections for DVDs a decade ago.

That VHS-to-DVD transition was the Golden Age of home video, when old flicks earned their weight in rhinestones all over again simply because people liked the prettier pictures and random access to slo-mo nude scenes offered by DVD. So everybody happily bought all their favorite movies all over again, home video revenue became bigger for the movie industry than box office revenue. And like all participants in an unsustainable economic bubble, the movie producers and backers told themselves it would go on forever.

It couldn’t last forever because eventually all the people who wanted to buy DVD’s of old movies had bought them and the industry could only bring out new movies at a certain rate — a rate that was nothing compared to that total library conversion. What was needed, they realized, was another VHS-to-DVD experience, though in this case to a high definition standard like Blu-Ray, or its competitor, HD-DVD.

Except it didn’t work out quite that way. Both Blue-Ray and HD-DVD were late. Like Betamax and VHS, they fought it out in the market, creating buyer confusion (and movie studio confusion too). By the time Sony and Blu-Ray had defeated Toshiba and HD-DVD the DVD business was in decline (movie-related game sales were, too) and there were signs of an impending recession, which brings us to today.

The movie studio fantasy was that we’d pay $20-$40 per Blu-Ray disk, but then Daddy was laid-off and that Blu-Ray copy of 8 Mile suddenly wasn’t THAT much better than the DVD version for half the price. Some people decided to wait while others gave up completely, leading to that $68 Blu-Ray player down at WalMart. Remember WalMart is the largest seller of DVD’s (and presumably Blu-Ray disks) in America and possibly the world. WalMart is such a Big Kahuna in the home video business that they can dictate prices pretty much to the rest of the market. I predict, therefore, that after Christmas Blu-Ray prices will crash to only marginally more than DVDs and maybe even the same.

This is — like short-selling your dream house – just an acceptance of reality by the major players. They missed their chance to make big money but are fairly confident we’ll all finally switch to Blu-Ray if the price difference isn’t very much.

Think about that. It means we’re going to buy all new disks yet again, Hollywood will return to normal, and again we’ll probably be happy about it.

Lucky us.

Bentonville stands in the northwest corner of Arkansas only a few miles from Missouri, Kansas and Oklahoma. It is a little city in the Ozarks with a fine town square where once there stood a Ben Franklin variety store owned by Sam Walton. Today, that store on the square is a museum, and Bentonville is the headquarters of Wal-Mart, not just the biggest retailer in the world, the biggest COMPANY in the world. There is nothing fancy about Wal-Mart, and that certainly applies to its corporate headquarters, a nondescript brick building where every day suppliers from around the world come to peddle their wares. The place where would-be suppliers meet Wal-Mart buyers looks like an old Quonset hut from World War II. The hut is filled with folding chairs and metal tables where the meetings are held. This, with no exceptions, is how business is done, and that Quonset hut explains exactly why Wal-Mart is bigger than all its competitors and strikes fear in smaller retailers the world over.

Wal-Mart is a pure example of keeping transaction costs low as exemplified by the modest global HQ and the Quonset hut meetings with suppliers. But it’s what goes on during those supplier meetings that is even more important, because Wal-Mart buyers are notorious for demanding product design and packaging changes from suppliers — changes that are usually more intended to lower costs than to increase customer appeal. As long as Wal-Mart buys more from a supplier than any of its competitors does, Wal-Mart will get the best prices, which can be converted into the most sales, the most profits or the highest market share, depending on what Wal-Mart values at that time. So if you can keep transaction costs down, bigger is better, way better. Since the playing field is never truly level for this reason, Wal-Mart will always have an advantage, and small town retailers will always be threatened. There is nothing illegal about this, either. There is nothing illegal about being big.

Which brings us to this week’s surprise announcement that Steve Jobs would not be giving the Apple keynote at MacWorld next month.  And in fact Apple won’t be participating in future MacWorld shows AT ALL.  Isn’t this a trend?  As I recall Apple pulled out of European MacWorld events years ago.  They see the future of product introductions generally done online and at Apple HQ and they don’t care at all about third-party vendors.

But given that Apple is contractually obligated to participate in one final January show, why isn’t Steve Jobs doing the honors?  It isn’t because of his health.  I blame Wal-Mart.

A reader from Arizona just reported to be seeing an iPhone sales display being unpacked in the back room at his local Wal-Mart.   Wal-Mart is going to start selling iPhones after Christmas.

Now this is just a guess, but if Wal-Mart is about to start selling iPhones, then given the nature of their vendor relations typified by that quonset hut, they’ll demand Steve Jobs come to them – perhaps even to Bentonville – for whatever iPhone launch event Wal-Mart plans.

Steve paces himself.  There is no way he’ll do two product intros in one month.  And I doubt Wal-Mart would allow him to in any case.

We’ll just have to see what happens.