Funny, I just ran into this article that gives me my first real glimpse of how profits really work here.

http://www.bloomberg.com/apps/news?pid=20601101&sid=aSqWqCkwB48s&refer=japan

Relevant points:

Sony Corp. Chairman Howard Stringer's triumph over Toshiba Corp. may not be enough to prevent earnings growth from slowing 

Sony's Blu-ray hardware business model isn't very profitable,'' said Morgan Stanley's Tokyo-based analyst Masahiro Ono, who doesn't plan to raise estimates for Sony. ``Even if it's profitable next year, we can't expect a high margin.''

Mizuno said Blu-ray royalty payments are too small to boost profit, without providing a figure. Sony doesn't own the technology and members will share royalties, said company spokesman Masayo Endo, declining to provide figures or elaborate on revenue sharing.

Highly recommend reading this article for anyone truly interested in how Blu Ray affects Sony and the PS3 long term.  

who cares about the HD format war ?

People will continue to rent or buy DVD's for the next 10 years, then digital distribution will be in full swing.

^ yeah sure.

the real war begins. online distribution vs disk-based.

there is absolutely no question online is gonna win, as everybody in this thread has implicitly acknowledged. the only question is: starting when? if it's 5 years from now, 3-4 years of blu-ray sales isn't too bad.

my belief is that blu-ray will hit its peak in about 2 years (2010), and online distribution takes over from there.

Why does this keep coming up?

1) mass market share for downloads is most definately years away - i.e. while a minority (which will grow) are downloading now, they are massively outweighed by those buying/renting physical media

2) a lot of people just like a physical copy - that's all there is to it

3) DVD and BR are not in competition. Hello! The big companies have decided BR is going to replace DVD and you can bet that therefore it will (even if they have to stop making DVD disks to force the last laggards off the format)

4) You can bet Sony and other BR backers will also get their fingers in DLC as well - and compared to many Sony is in a great position as it owns content (is that a Sony Studios movie you downloaded? Thanks for the revenue!)

5) Even if another format pops up it is unlikely the studios are going to go through another format war anytime soon - i.e. BR is going to get a completely free run at the market now - and remember point 3) - DVD is not competition for the format, its a transition from one to the other.

So please let this go. The odds are simply in BR favour at this time and for foreseeable future whether you like it or not.

PooperScooper- I have titles that would make me want to upgrade to another format, I call it the "Star Wars" factor. When a format has the saga I start to take it seriously. I was just making a statement that adoption rates and title selection will prevent Blu-ray from becoming the dominant format for movies for quite some time. I'm thinking that most consumers think the same way and are waiting for their favorites to come to the format.

There's a lot for us for which Movies are like Books, we want to own a hardcopy as part of collection :)
Somehow Music has slowly fallen out of that categorie whereas the book industry has resisted much better to digital stuff.

We'll see where the movie industry falls, closer to music or to books ?
I say books...

There is a BIG difference in music vs movies. To be able to play music on a very small device is a huge plus , thus a plus for downloading music. But the opposite is true when it comes to movies , the bigger the HDTV and bigger the sound system the better, thus a plus for Blu-ray.

 i counter your claim with...http://www.amazon.com/Portable-DVD-Players-Audio-Video/b?ie=UTF8&node=172521

portable movies are great for when your traveling or commuting or just trying to keep your kids quiet in the car.  yeah, the bigger the screen the better sure.  but being able to bring your movie collection with you would be a huge bonus for most people including myself.  a format that could be used both at home and convenient enough to travel with would be a huge selling point.

i mean seriously, have you never been to a gym and seen people watching whatever on their ipod video?  believe you mean you'll never see blu ray players at the gym.

and since i keep on prating on and on about the convenience factors of digital downloads....this is the one thing that could actually get me excited about blu ray.

http://kotaku.com/341869/sony-makes-blu+ray+to+psp-movie-transfer-official

if they expand this idea so that you could transfer your blu ray movies easily to other devices (read ipod) i would be much much more excited about blu ray format.