I have two points here.
First, who does Sony think is going to rebuild a DVD collection from scratch to make it all Blu Ray? Is anyone going to do this? Yes, we did rebuild our VHS collections for DVD - that's true. But a) the difference between VHS/DVD is night and day, b) DVDs offer tons of superior convenience like interactive menus and slim storage, c) they offer boatloads of extra content, and d) VHS hasn't entirely gone away anyway. Some people still use it for hard to find items and for recording.
Now why would anyone rebuild a DVD collection into Blu-Ray? Do any of those reasons hold up? No, they don't. Blu-Ray is only a marginal improvement. There might be a gradual migration of sales, sure, but nothing like the arrival of the DVD standard. This is laserdisc, folks. You heard it here.
The second point is that the entire video sales industry is about to start showing symptoms of the terminal illness that is currently afflicting the music business. Why would anyone buy music if they can download it for free? The only thing keeping the patient on life support at this point is that some people still haven't figured out how to share music online. Why do you think Barry Manilow has been putting out chart-topping CDs lately? Could it be because his audience is the only demographic left that still gets its music from Target?
I already know early adopters that illegally share movies online. Probably you do too. The only thing slowing the mass adoption of movie stealing is the still (at this point) high memory and RAM demands that these downloads make on current computers - movies are big files - and also a general ignorance on how to do it easily. But over time, and I'm talking only a few years, both of these obstacles will vanish.
"But movie downloads give you a grainy, low resolution picture!" say the studios. "Plus, you get no extra content!" Sure, sure. But it's free, and that's the key word. You know what food always tastes good? Free food. It's the same with Batman Begins.
Government enforcement? Impossible. I've said this before and I'll say it again. If your intellectual property can cheaply and quickly be converted into ones and zeros, there is absolutely no way to protect it from piracy. That's essentially a law of nature. The cost it would realistically take to enforce anti-piracy policy would be far greater than the benefits gained.
Movie-download-pay-services? Won't work. How can you beat free? Movie-download-for-free-if-you-look-at-some-advertising services? Same deal. How can you beat free with no ads?
We are only a few years away from the complete collapse of the home video market. There will always be a market for the movie theater experience, but the act of going to a store and buying a "thing" that you take home and unwrap and slide into an expensive player? Those days are fast approaching their end. Everyone will be carrying around massive movie collections on keychain flash drives, all acquired illegally and for free, and it just can't be stopped. There might still be a few people - A/V geeks, who want the whole hi-def experience and who therefore will still shell out big bucks for legitimate movie-watching equipment and the movies themselves - but they will be few and far between. They will be like their counterparts in the 60s and 70s: the guys who had their own screening rooms where they could run films at home. But the rest of America will watch lower-res free movies.
You don't think America will settle for lower-res? Think about the telephone. When I was a kid, there were no cell phones. Every call was on a land line and it was crystal clear. Now, it's the 21st century, I live exclusively on a cell phone, and the quality of any particular call is shitty. "Hello? Can you hear me? Can you hear me?" That's modern phone life. We settled, en masse, for shitty phone reception because the reward was the enormous convenience that came with cell phones. Movie viewing is about to take its own step backward, for similar reasons of convenience.
Short sell those film stocks now, people, the floor is about to fall out. And Blu Ray. Think about all the champagne corks popping over there at Sony. Do they have any idea what's about to happen? The format war is over. But Blu-Ray didn't win. My keychain flash drive won.