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Blu-ray players can be found in 11 million U.S. homes.

Blu-ray’s copy protection arm last week approved a long-awaited managed copy license agreement that will give consumers the ability to make a digital copy of their Blu-ray discs. That got me started thinking: Can Blu-ray ever win big in the marketplace?

Blu-ray may have a presence in 11 million U.S. homes, but truth be told, those players are mostly PS3s, where the main use is, not surprisingly, playing games. And in spite of that presence, its win in the standards war, and continued adoption of HD TVs, the sell-through of Blu-ray discs to consumers is a testament to Blu-ray’s sad state. Three years in, sales for Blu-ray discs in the U.S. are on track for full-year sales of $1-2 billion in the U.S., while DVD sales in 2000 – three years after the first DVD video players were sold in the U.S. – were humming along at a $4 billion-a-year clip.

In large part, Blu-ray still isn’t succeeding — even with all its advantage — because there are plenty of alternatives. No doubt, many consumers find regular ol’ DVD players look pretty good on their HD screens and, if they don’t, they can always buy a cheap upscaler instead. A consumer can also choose to do away with discs altogether, getting content from one of the many of the over-the-top streaming services at their disposal.

But it’s not just a bounty of consumer choice that has Blu-ray singing the blues. No, its also choices Blu-ray itself has made. Opting for a premium pricing structure compared to standard DVD has no doubt contributed to tepid demand.  While Blu-ray disc prices have been coming down, a quick click over to Amazon shows Blu-ray prices are still significantly higher than regular DVDs — despite consumer’s pinched wallets.

But perhaps the biggest contributor to Blu-ray’s disappointing results is an obsession with restriction rather than innovation.  The best example of this is the standard’s managed copy efforts, which aren’t so much a solution to but rather a symptom of its continued lack of compelling consumer offerings. Sure, on the surface managed copy looks like a win, but peeling back the layers shows how limited this effort is: not only do consumers have to buy a new player to use it (managed copy), they’ll also have to fork over more dough for the right.

Sound like a winner to you?  Me neither.

To be certain, no one can blame home entertainment chiefs for being wary of piracy, particularly as higher-speed broadband allows movie transfers to happen in hours – even minutes – and not days. But the continued efforts to stifle innovation will eventually turn consumers against Blu-ray.

When Bill Gates predicted Blu-ray and HD-DVD would be the last optical disc standards, some snickered. But as Blu-ray continues to stumble, Microsoft, Apple and others are making significant strides toward digital distribution. The irony is that if Blu-ray continues to release half-measures guaranteed to disappoint, blame for demise of the disc may ultimately lie with Blu-ray itself — not digital distribution.

Question of the week