Now that the Blu-ray/HD DVD war is long over, customers have been waiting eagerly for Apple to replace the aging DVD optical drives in new Macs with the modern Blu-ray drive. At first, cost seemed a show-stopper. However, in time it has become clear that Apple just doesnit want to go there. If Robert X. Cringely is right about Appleis next major step, heis also right about why Apple will never ship Macs with Blu-ray drives.

In a recent editorial, Mr. Cringely weighed in with his interpretation of the comment Peter Oppenheimer made at Appleis last earnings report on July 21:

"We expect gross margin to be about 31.5%, reflecting approximately 23 million related to stock-based compensation expense, down from 34.8% in the June quarter. This sequential decline is expected due to three primary factors. First, the full quarter impact of the back-to-school promotion; second, a future product transition, which I canit discuss today; and third, the one-time true-up of our contract manufacturer deferred margin that we realized in the June quarter."

Itis that sentence in emphasis that has all the analysts in a tizzy trying to figure out what Mr. Oppenheimer meant.

The thing to note is that the wording referred to a product transition, and that had Mr. Cringely thinking that Apple is going to add something to new Macs that canit be replaced by something cheaper -- hence the reduced gross margins. That hardware, according to Mr. Cringely, is an advanced H.264 encoder from NHK in Japan that will cost Apple US$50.

"The fun part is figuring how this all fits into Appleis strategy as not just a maker of computers but also as a seller and distributor of entertainment content.

"The NTT chip is not just an H.264 decoder, it encodes, too, which is what makes it so special. The last I heard NHK was claiming the chip could compress a 1080p video and audio stream into four megabits per second, down from the 20 megabits normally required. If we assume Apple will apply the same kind of wink-wink, nudge-nudge transcoding to 1080p that theyive already applied to 720p in the Apple TV, then it is within reason to expect theyill claim to distribute 1080p over iTunes in two megabits per second."

The implications are fairly straightforward for the competition against, say, Netflix, since Apple may well be able to get a solid 1080p jump on all the other companies that deliver streaming video. The 2 to 4 Mbps bandwidth requirements are more in line with what the average U.S. household has.

What Mr. Cringely didnit mention however, is that Apple has to have a license and contract from the movie studio to deliver that HD video stream for each movie. If Apple were to put a high performance H.264 decoder and encoder into every new Mac and Apple TV, and someone were able to figure out how to permanently break the encryption on every Blu-ray movie disc, then there would be millions of potential Mac users burning perfect 1080p digital copies of theatrical releases.

Hollywood canit allow that.

The only way Apple can retain its rights to stream HD video to iTunes customers and put this phenomenal H.264 encoder/decoder chip into every Mac is to delay, for the forseeable future, the availability of Blu-ray recordable drives in Macs.

Of course, thereis nothing to keep various vendors from selling these drives as an add-on, external drive for people who need convenient, durable, portable off-site archival storage. And because those recordable drives are so expensive right now, it isnit a big issue for Apple.

That is why we wonit see Apple going down the Blu-ray road. Itis all about the Hollywood agreements, the Internet, Time Capsule, and ever increasing broadband speeds. The MacBook Air is Appleis direction. Anyway, plastic discs are so yesterday.