The time when this doesn't apply is when you're currently losing a noticeable about of video quality to keep file sizes down. Say that you're a movie streaming service, and you want to stream a fairly new movie. You have it at very high resolution, but if you wanted to stream it at Blu-Ray quality, that would really eat up your bandwidth, so you decrease the file size to something you're comfortable with, and get as much quality as you can within those limits. Better compression, in that case, would mean either better quality at the same file size, or bandwidth savings at the same quality, or some combination of the two.
So: I would expect this to make pirated TV rips smaller, pirated Blu-Ray rips larger or smaller (depending on what the encoding is optimized for), and streaming video either higher quality or smaller, depending on your connection speed and how much bandwidth they're willing to pay for.
Of course, there's a class of users who will just always find the largest video file possible, reasoning that it much be higher quality.
However:
- tablets and phones are unlikely to be able to take advantage of H.265 until the requisite GPU support arrives. This may hold up widespread adoption for a year or two.
- for how long will the video arena remain at 1080p? I hear Sky (UK satellite broadcasting arm of the Murdoch empire) is trying to nudge toward 4K broadcasting.
It's a somewhat backwards way of thinking about it. They chose the filesize and then set the dials for the encoding. They could have chosen the 720p to be smaller larger or the same size compared to 1080p.