The Economics of Optical Storage

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As was recently pointed out by science-guy Ian Anderson HERE, there are physical limitations preventing optical storage from becoming the storage medium of choice.

If you haven’t read the article, or just don’t feel like it, the problem boils down to a trade-off between being able to store lots of data on an optical platter and being able to access it quickly. The faster you want to be able to read and write data, the less data you can fit on a platter. If you try and rotate the disc too quickly it disintegrates faster than the plot in Spiderman 3.

Surely there are technical solutions to this obviously technical problem, but the real problem with optical storage isn’t the science, it’s the money behind it. The matter is best understood in three separate areas:

  1. Manufacturing Cost
  2. Development Cost
  3. Consumer Cost (Part II)

To best explain these three areas I’ll be using the current high capacity optical formats of BluRay and HD-DVD as a case study.

Manufacturing Cost

Everything we have comes from somewhere, so CDs, DVDs, BluRay discs, and HD-DVDs are stamped in factories instead of being summoned by magic. DVDs and CDs are cheap to manufacture because the technology is well established and the problems of production have been ironed out. New hi-def formats such as BluRay and HD-DVD are more expensive to manufacture for exactly the opposite reason. The manufacturing technology is young so it still costs a bundle to stamp a single disc.

No concrete numbers for manufacturing yield rates is available for these formats, but they are generally believed to be quite poor. In the case of BluRay, we’ll assume a yield rate of 50% – this number is derived from the established rumor that BluRay yields are half what they are for HD-DVDs.

Compare this with a CD/DVD yield rate of about 98% and this new format is now substantially more expensive to manufacture. You not only have to pay for the ones that work, but also the ones that don’t work, which means you wind up with a large number of hi-def coasters. The discs also cost more per unit, not only because of their lower yields, but also because the disc requires more advanced/expensive reflective materials and the “track” on the disc is much narrower and more prone to manufacturing defects.

Granted that present optical discs are still fairly inexpensive to manufacture, but as more information needs to fit in one space, manufacturing these discs will reach a cost per GB that is not far off from more conventional storage, such as a hard drive.

From a business perspective, high-density optical formats will only make sense so long as they are cheaper to make than the next best alternative. Some people may point to holographic storage as the next step in this technology, but manufacturing these discs is easily more expensive per GB than a conventional hard drive.

Simply put, the cost of making newer, denser, optical discs that are cheap to manufacture and still work will make it more practical to use a storage medium that is not an optical platter.

Development Cost

The cost of manufacturing an item is often trivial when compared to the amount of money that goes into developing new products. Some products are cheap to develop, like squirt guns. Other devices are more expensive because of their technical nature. Technical problems involve hiring very clever people at exorbitant amounts of money (geeks need Porsche’s too), and because the problems are very difficult to solve, these people need to be paid large sums for a long time.

Staffing costs are only a small part of the investment in hardware and equipment to test and manufacture a new product. It takes years to develop a product that is reliable and easily manufactured.

Examine the case of BluRay, which was somewhere between four and five years in the making. Each of those years represents money spent on prototypes, new designs, licensing fees for new technology, research and development for a new laser, and investment in manufacturing equipment. There are no figures available for what the format cost to develop, but it’s a fair guess that it was not cheap.

There is also a great deal of risk in developing a new product. No matter how good the idea is (like a blue laser based CD that holds lots of data), there’s no guarantee that you can actually make that idea a reality, or that consumers will be receptive to it when it hits the market.

Again examining BluRay, it is safe to say that the format is a complete failure. From a technical standpoint, the disc sort of delivers:

While you can store a lot of data on a single platter, what you cannot do is store that data reliably.

The nature of the thinner coating on the disc actually leads to the disc physically rotting, leaving whoever owns the disc with an expensive coaster. All the money spent on developing the product, marketing and distributing it has now gone to waste because of a lack of appropriate testing.

While disc sales for hi-definition formats are climbing, the total sales of HD-DVD and BluRay to date are about as high as what a major new release DVD sells in its first two weeks. Even if these formats are technical successes (which could be questioned), their market success is still minimal, making it unlikely that either camp will recoup their substantial development costs anytime soon.

Consumer Cost

Products are only useful if someone buys them and does something with them. Every time someone rolls out a rehash of an existing technology, improved though it may be, consumers indirectly bear the cost of developing those products. Presently we find two new HD optical formats hitting the market, and businesses are praying to their deities of choice that consumers will help offset the substantial costs of their development.

Businesses can only develop products for market if they can reasonably forecast that the market is going to favor the product enough for them to recoup their costs. There’s no way that every consumer on the planet is going to chip ten bucks into a collective pool so that Sony et al., can make good on their investment. Instead we are expected to spend way more than that by coughing up $600-$1000 for a player (which reviews generally pan as being overpriced for what they deliver) and $30-$40 for new videodiscs. There is also the considerable computer market, where fancy drives are popping up in new desktops and laptops.

So consumers have to be willing to pay more for a product that may not necessarily have any real benefit for them.

Most people do not own expensive and large televisions, nor do most people care over much about how good the picture looks so long as it doesn’t look like garbage. This leaves companies with a smaller market to sell increasingly expensive equipment to. Specifically, the market is consumers with large sums of disposable income that own large televisions and like movies enough to repeatedly purchase the same movie on different disc formats.

The second market for these particular products is in archival storage.

Companies, governments, and sometimes individuals need to backup large amounts of data in a cheap and reliable manner. People used to use CDs, then they used DVDs, and now there is the possibility of using BluRay and HD-DVD.

However, blank media in these formats is expensive, with a non-rewriteable 25 GB BluRay disc costing about $20. That’s only slightly less than $1/GB. Compare this with the cost of a 320 GB hard-drive, which usually has a cost of $0.28/GB. This makes archiving easier and cheaper on a hard drive, because no additional hardware (other than a standard computer) has to be purchased and unit costs are continually sinking.

So the archival market is increasingly small for these high-capacity optical discs, limited only to people that absolutely cannot use a hard drive or a tape drive to backup and store data.


The future of optical formats will depend on how much data can be squeezed onto a single platter in an inexpensive fashion, meaning that developing and manufacturing the discs needs to be cheap and have a high yield. A further requirement is that the consumer market must be willing to purchase the necessary hardware to make use of the new storage medium.

Because of the intense reliance on consumer uptake, optical storage must compete with alternate storage media for cost effectiveness. Already this is becoming more difficult as hard drive prices drop and capacities continue to grow. Terabyte size hard drives are already available at prices that make using optical storage for archiving or general storage both inconvenient and fiscally unsound.

The end is near for optical storage as a serious contender in the storage market, as it faces an ever-shrinking market of either specialist professionals or wealthy consumers. These two groups will not be able to provide companies developing these new optical storage technologies with an outlet to recover their development costs, leaving other, more cost-efficient, storage media to fill the gap.

Walt Shawlee


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