Surprise: No Blu-ray for the Xbox 360

Posted by Wolfgang Gruener

Opinion – Microsoft squashed speculations that there is a Blu-ray add-on for the Xbox 360 in the immediate future. But is the announcement really a surprise? Is there an immediate need for a Blu-ray drive in the Xbox 360 right now? While we believe that Microsoft has to take some responsibility for the failed HD DVD format by not offering an integrated drive for the console, we think it is not the worst decision to leave Blu-ray alone right now. What do you think? Here is some food for thought.

After weeks of speculations we now know that Microsoft has no specific plans for a Blu-ray drive for the Xbox 360. In an interview with Reuters, product manager Aaron Greenberg said that the “Xbox is not currently in talks with Sony or the Blu-ray Association to integrate Blu-ray into the Xbox experience." In an interview with TG Daily last week, Greenberg also noted that HD DVD’s demise does not affect the console’s position as an entertainment center and that Microsoft isn’t that focused on high definition with the Xbox 360.

Is Microsoft downplaying its defeat in the format war battle? Or didn’t Microsoft care about HD anyway?

From an entertainment perspective, Greenberg’s statements are certainly surprising. The Xbox 360 is designed to be everything to everyone; it is positioned to bridge the gap between the Wii and the Playstation 3. We stated before, if Microsoft could build a microwave into the console, it probably would. Competing with the PS3 on the higher end would mean that the Xbox 360 would need a Blu-ray drive, right?

Well, not necessarily. Blu-ray disc sales have been growing quickly, but they are still far behind the regular DVD. Yesterday, we published an article that showed rising average retail prices for Blu-ray players. Combine that with a $25 or higher price tag for a Blu-ray movie disc and there may be a good chance that the transition to DVD to Blu-ray in fact may take as long as previously expected. 2012 looks like a reasonable time frame when Blu-ray movie sales may actually be able to surpass DVD sales. Clearly, the DVD will remain the mainstream for several years. That of course does not take into account how the Internet distribution of content, which is considered Blu-ray biggest threat at this time, will pan out. Microsoft certainly has positioned itself in this space very well and it would not surprise us, if the company will be pushing this platform aggressively.

From a quality perspective, it appears that Xbox 360 owners really don’t mind that the PS3 potentially scales a bit further and offers higher resolutions. And as long as there are so few 1080p games out there that clearly show an obvious advantage over 720p for the average gamer, Microsoft has no immediate need to switch to Blu-ray game disc support.

Cost, of course, is another factor to consider. Microsoft was able to bring its game division into black partially because it was able to drastically reduce the manufacturing cost of the console. Price is one of the main advantages Microsoft has with the Xbox 360 over the PS3 at this time and it is unlikely Microsoft will put a financial dent in its strategy. An expensive internal Blu-ray drive makes no sense from a cost perspective at this time – especially if you can pick up a high volume DVD drive for about $10 and have to pay more than five times that for a Blu-ray drive on the OEM market.      

You may argue that there is an opportunity for an external Blu-ray drive and there may be third-party companies looking into that direction right now. But should Microsoft offer such a drive right now? In my opinion, the half-baked external HD DVD drive is one of the key reasons why HD DVD failed. While Sony was pushing Blu-ray into the enthusiast market with every PS3 sold, Microsoft was hoping that Xbox 360 owners would pick up an additional bulky HD DVD drive. It turned out that “only a small fraction” of Xbox 360 owners ended up purchasing the drive.  

Perhaps Microsoft was caught on the wrong foot when Toshiba announced to shut down HD DVD, but the company surely should have seen (and certainly did see) the trend. While it is picking up the pieces from the failed external HD DVD drive strategy right now, is the company likely to invest in another external drive, especially when the PS3 is offering an integrated drive? Of course not.

But there is an interesting twist in that story. If Microsoft wanted to offer such a drive, it probably could do so as early as Q2 or Q3 of this year, without having to negotiate with Sony directly and spare itself the embarrassment of the lost HD battle with the PS3. Toshiba has direct access to Blu-ray technology through its joint venture with Samsung: Toshiba holds 51% of Toshiba Samsung Storage Technologies (TSST). Ordering a Blu-ray drive from TSST for the Xbox 360 could be as easy as choosing a new DVD ROM supplier.    

From today’s view, however, it looks like Microsoft will hold off from offering an integrated HD drive until the Blu-ray disc has become mainstream -  and when it has become clear if consumers prefer Blu-ray or the Internet as their movie platform. If analysts and visionaries are right, these decisions may fall into the 2011-2012 time frame - just about the time when we expect the next Xbox, the next Playstation and the next Wii.

What is your take? Should Microsoft offer a Blu-ray drive for the Xbox 360?