I’m glad that the Xbox team hedged their bets on next generation digital video. I’m not convinced, like Robert, that HD video is going to take off in the next 10 years outside of the TV realm. I’m not even convinced it will be much of a service differentiator. Why do I think this? Tech adoption is like a pendulum that swings back and forth with cycles that repeat themselves and only slowly move the centerpiece (or biggest market) in new directions. Let’s look at some past consumer trends.

Portability over Quality

Once quality reaches an acceptable level consumers have tended to prefer portability over quality. Look at audio as a leading indicator for video. What’s beyond CD quality that’s been around since 1982? Audiophiles will tell you that CDs where a step down from records and digital distribution is a very noticeable step down from CD quality to those with well tuned ears.

I get lower quality for my itunes purchase on my iPod than I do for a CD in a CD player. But consumers will even buy CDs and intentionally lower the quality to fit lots of content onto portable players they can take with them anywhere instead of having to carry a giant case of CDs. I know that hard drives keep getting larger in smaller sizes, but carrying lossless audio from a CD still feels like a burden compared to a lower quality MP3.

Why do millions of people download movies from a 320-240 source like iTunes? To carry movies with them.

Instant Gratification over Quality

Music stores don’t offer lossless partially because their research probably tells them that users want instant gratification with their streaming and downloads. The bandwidth for instant video gratification can barely keep up with current DVD quality on my speedy cable modem. I don’t have any faith that faster speeds are going to reach me in the next 10 years. They haven’t in the previous 10 years. Betting on bandwidth infrastructure is a leap of faith that I wouldn’t bet my service on.

The consumer choice can be seen on the Xbox Live marketplace today. There are a bunch of movies available in HD or DVD quality. The DVD quality will start playing in < a minute but it would be hours to start watching an HD video. It’s a Friday night. You want to watch the latest movie. Which version are you going to pick? Blockbusters recent ads and stock increase shows how much people value the instant gratification of a trip to BB over 3 days for Netflix… and they still had to drive somewhere.

Want more evidence that people care about instant gratification over quality… Youtube and Myspace. Youtube video quality is terrible, but that doesn’t stop millions of people from enjoying it. Myspace web pages are terrible, but you can publish instantly and share you music and thoughts with friends. Would I preffer HD youtube content? Sure, but does the latest video clip of a stoned paula abdul need to be in HD for over a million people to enjoy it? No. The people have spoken and they want OK quality instant content over great quality not-so-instant content.

Selection over Quality

I’ll go with whatever online rental service offers me the best selection of content with decent quality. That’s the only beef I have with the Xbox marketplace. They don’t get content up as fast as the Hollywood video down the street does. If Netflix could put 90% of their content up digitally with youtube quality content tomorrow… they’d win. I believe that when consumers are faced with the choice of limited HD quality downloads or anything they want to watch in DVD quality… they’ll pick the DVD quality. It’s good enough. You might be able to tell the difference in quality between the blu-ray spiderman disc and the DVD, but can your wife? Upscaling technology that makes DVDs 720p has gotten really good. I just don’t see people moving very quickly.

If you listen closely you can hear Conan saying "In the year two thooooooousand… people will start purchasing DVD audio discs". But do they? Wikipedia says that DVD audio releases are now rare. Most people just by standard CDs. They’ve been around for 23 years and the selection is unbeatable.

Finally

Maybe I’m a luddite, but I just want instant access to standard DVD quality TV shows and movies and if companies get bogged down trying to make all that possible in HD they are going to miss the boat. Again, it’s why I like the Xbox strategy. Offer both options. Let customers choose. There was a HUGe quality jump between VHS and DVD that I just don't see with the DVD to HD jump.  Most people probably think that thier DVDs are already HD anyway if thier shown on a big enough TV.  When the bandwidth and storage space problem is solved and I can download MI3 in HD and carry it on my gen 4 Zune with a built in 1080p projector… give me a call. :-)