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Why is it that every single article written about Netflix (NFLX) - or movie streaming or home entertainment in general - always has to mention the obsolescense of the optical disk? Could it be that bias and personal belief systems are driving the decisions made by those who are betting the farm on streaming and not plain and simple business logic?

Let's think about this a bit more rationally. Consumers like choice. They like to browse and to own physical product versus a digital copy. Sure, if it's cheaper and more convenient, they will stream. That said, let's call a spade a spade and say that Blu Ray so far is a much better technology than streaming via broadband. Blu Ray is the force driving Coinstar to gain traction over Netflix, is the reason that the "death of the disk" is not materializing at all, why Sony (SNE) pulled out of the Starz deal and why Starz bailed on Netflix.

In the end, the technology is not somehow "newer" or more advanced because you use an internet connection. Digital video disks are digital. They have been for almost twenty years now, and the Blu Ray physical disk is still the best technology in the business.

NFLX: The biggest loser in the failure of the DVD to die out is Netflix. This company faces potential state sales taxes in the future, higher stamp prices, the potential for the Postal Service to charge the company more than other customers, and increased backlash from studios who don't want Netflix to kill the Goose that laid the golden egg -- the packaged home media market. Netflix's brazen attempt to move us all into the 21st century has backfired because most Americans simply detest the idea of watching a movie via a computer or buying another set top box to stream a movie when a Blu Ray player is easier to use, has better picture quality, and is no harder to use than the ROKU player.

Netflix is a world class business but it made a mistake by telling its customers that streaming is the future, and then tried to bend the market into its perception of the future. If there is one thing that consumers in America covet more than anything, it is choice. By offering streaming as a supplement to DVD's, Netflix created a situation where it switched to Beta-Max before VHS won out or moved over to HD DVD right before Blu Ray took hold. The bottom line is that most Americans don't like streaming, they prefer physical product. Sure, most of NFLX's customers will stick with streaming only, but that's only because they already bought their ROKU players and can't go back to the old DVD player even though from purely a convenience and technological standpoint Blu Ray is the superior concept.

CSTR: Coinstar is a winner here because it realized that all the talk of the death of the DVD was just that, talk. In the end, talk is cheap. Money talks and BS walks -- Coinstar has a better deal and a better value proposition than Netflix because Netflix spent too much time and money pushing internet movie convergence when it should have focused on its DVD business. Netflix could have even made a play for a post bankruptcy movie gallery or Blockbuster, but instead it focused on its vision of the future which looks to be the Betamax version compared to Blu Ray disk. CSTR is in the sweet spot for now, but once movie studios realize that they stand to lose out on big money dealing with Redbox, they may extend the new release window to two or three months. If the studios extended the window, they could prevent Redbox from crushing its own margins over the long term. One wonders if the studios actually think more than three steps ahead or if they are simply competing against themselves in a race to the bottom (which is a world with no choices besides Redbox). One wonders when Lions Gate (LGF) and Disney (DIS) will decide to stop doing business with Redbox and Netflix altogether, which seems like their only hope for long term profit growth.

Look, I have no position in these stocks but like many customers, I prefer choice when it comes to how I watch a movie. For me, the DVD is still the most enjoyable experience around. For many others, streaming is more fun. In the end, the studios hold all of the cards and they decide how we view movies. Whenever a company tries to force consumers to move into a certain format there will be severe backlash, and right now that backlash is helping Coinstar at the expense of Netflix and also the major film studios -- why make a $400MM film if we all wait to rent it for $1 a day? The studios will have to adapt or die, and in this case that means sticking to their guns with Blu Ray disk and telling Netflix and Coinstar thanks, but no thanks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Earth To Netflix: Blu Ray Is The Future Of Home Entertainment