Six reasons we're skeptical about XStreamHD

Last week, XStreamHD made by a major step toward launching its service by signing a content deal with Lionsgate. We've been writing about the company since it made its debut at CES 2008, and we've always been impressed with the hardware and performance claims: "studio master"-level image quality and lossless 7.1 audio. XStreamHD promises to deliver movies via satellite at Blu-ray level quality--for both video and audio--which is something no other service currently offers.

But as XStreamHD gets closer to launching (the current timeframe is "late summer"), we're having a hard time figuring out who the service will appeal to. A lot has changed since 2008, especially in the digital delivery of movies, and XStreamHD has several factors working against it.

1. You need a satellite dish

There's no getting around the fact that needing a satellite dish for what is essentially a supplementary entertainment service is a huge barrier to entry. Apartment dwellers don't always have the ability to install a dish and even homeowners won't be thrilled about a dish on the roof and more wiring. Considering that on-demand movies are available over broadband from other services (Netflix, Vudu, Amazon VOD) and cable TV providers, the need for a dish is a hassle.

2. You get only about 40 movies on demand

XStreamHD doesn't actually stream movies from the satellite in real-time. Instead the company uses what it calls Pre-Fetched Entertainment technology, which means that it automatically downloads around 40 movies (with the default 1TB configuration; more movies can be stored if you add storage) to your hard drive based on what it thinks you'll want to watch. Unfortunately, if the movie you want to watch isn't in that preloaded 40, XStreamHD is relegated to downloading it over the Internet, which takes around 20 minutes, since the high-quality files are so large. Compare that with the large libraries of Vudu, Amazon VOD and Netflix, which let you start streaming any movie in a matter of seconds.

3. The true cost of ownership is around $833 for the first year

When you add up all the costs, XStreamHD is very expensive. The cheapest starter package is $400. That doesn't include a satellite dish or installation, which XStreamHD says will cost about $125. Then there's a $10 monthly fee, which doesn't include any movie rentals, although XStreamHD does throw in five free rentals when you first sign up. Finally, XStreamHD says movie prices will be similar to Amazon Video On Demand and iTunes, which charge $4-$5 for HD movie rentals. If you rent one movie a week for the first year--even assuming you rent only $4 movies--this is the XStreamHD bill you can expect:

Starter kit: $400
Installation and dish: $125
Monthly free: $120
Movie rentals: $188
Total: $833

And even after the upfront cost, you'll be paying around $308 a year just to keep the service running. Most competing services are already built-in to other devices (Blu-ray players, game consoles, HDTVs, cable/satellite box) and are much cheaper overall. Unlimited Netflix streaming can be had for $9 a month; with other services you pay just for the movies you rent.

4. Diminishing returns to image quality

The jump from VHS to DVD seemed huge, but the jump from DVD to Blu-ray was less impressive. After a certain point, increases in image quality don't matter as much, and the "HD" streams from Netflix, Amazon VOD and Vudu are awfully close to "good enough," even for people who appreciate image quality. As picky as we are over image quality here at CNET, all of the editors agree that Vudu's HDX streams are very close to Blu-ray image quality at screen sizes around 50 inches. It's hard to imagine XStreamHD would offer much improvement at all but the largest screen sizes.

5. The only major studio support is from Lionsgate so far

Lionsgate is a good start, but XStreamHD will need a lot more content to make the service worthwhile. The content libraries of competitors are very large, and also include TV libraries, which we haven't seen XStreamHD mention yet. XStreamHD says more content deals are coming before launch, but its unclear whether its library will match iTunes, Vudu or Amazon VOD.

6. How long will XStreamHD be around?

At CES 2008, XStreamHD claimed the service would be launching in the fourth quarter of 2008. Two years later and the company still hasn't nailed down an official release date. The unestablished nature of XStreamHD's business model makes it harder to know that the initial investment is going to pay off--if XStreamHD goes out of business, you're basically out of luck. The same goes for any movies you purchase on the service.

What can XStreamHD do?

We're not bullish on the idea of satellite delivery for content in general (outside of the existing TV services), but there are a few ways XStreamHD can differentiate itself from the competition. One way would be on-demand 3D content, which we haven't seen from major competitors yet and would definitely be attractive for 3D early adopters, since there is so little content right now.

XStreamHD also mentioned to us the possibility of having movies on the service the day they're released in theaters. We imagine the rental cost would be expensive--and the content deals will be difficult to pull off--but it would at least be another reason why dedicated movie enthusiasts would opt for the service. Finally, we'd love to see the price come down; the $10 monthly fee just for the privilege to rent movies rubs us the wrong way, when other services are generally pay-per-view with no monthly fee (Vudu), or all-you-can-eat with a monthly fee (Netflix).

Editors' note: A few minor modifications have been made to this story, to reflect the ability to add storage to the XStreamHD media server and XStreamHD's claim that more content deals are coming. This story also originally included a statistic quoted in Dvice's hands-on preview, which stated that only 20% of viewers would notice the difference in image quality between XStreamHD and other sources. XStreamHD claims the statistic was taken out of context.