A good question, one I ask myself every time I purchase one...I just don't get that good ol' fuzzy feeling that I got when I purchased DVDs.
Something ain't right about it.
The picture and sound are amazing, and now that HD-DVD has been defeated, there is the lone format so when you go to the gas pump you can get unleaded or premier gas in a sense.
To answer your questions you pose, Carson:
I see this format coinciding with DVD, not replacing it. It will not envelop the market for viewers at home like DVDs did to VHS (for many reasons).
It's a niche option, but mostly because of cost...usually $10 more for the movie super nerd to see ID4 with more pixels explode from the White House. Not worth the monetary jump for Joe Moviebuyer. Pure home theater enthusiasts (at least the ones I know) still go after the actual film stock and/or laserdiscs for the rare and collectible appeal, plus the obvious-film always looks better anyway. Comes down to the title, of course. I would rather have a celluloid print of Lawrence of Arabia than a Blu-ray copy, for example.
The answer to your last question is yes, no doubt about it. Both formats will go once there is a cost effective, consistent, and fast way to download movies. Itunes and Netflix are just the beginning.
