Posts tagged ‘Apple’

Lawyers and TVs and Tubes, Oh My!

The business models surrounding video delivery to consumers are sure evolving rapidly, aren’t they?  And in sometimes surprising ways.

Time Warner Cable (TWC) has been sued by Viacom (VIA) over an iPad app it recently released.  The app allows TWC subscribers to watch live TV on their iPads within their own home, effectively turning the iPad into a TV.  It streams channels wirelessly to the iPad, typically from a router attached to the subscribers’ internet cable modem.

Cablevision (CVC) has released a similar app, although because it streams directly from the cable box (plus wireless adapter add-on), this one does not require cable subscribers also to be internet customers.

Broadcasters such as Viacom are claiming that TWC and Cablevision have “no iPad video streaming rights.”  Time Warner Cable, for its part, insists it can send TV to any device in the home.

Meanwhile, ESPN (DIS) has taken another tack, releasing their own app that lets properly identified subscribers from Time Warner Cable, Verizon (VZ), or Bright House, to stream its live content to an iPad from any location.  This is an example of the “TV Anywhere” initiative envisioned by the likes of TWC and Comcast (CMCSA) among many others.

And on another front, startup company Zediva is being sued by all 6 major movie studios over its service that “rents” DVDs to consumers and then streams them over the internet.  Each customer has exclusive use of a DVD disc and a DVD player.  Again, the studios are claiming copyright infringement, calling Zediva’s business model a “gimmick”.  All Zediva is really doing is putting a DVD into a player, pressing play, and then sending the customer the output signal directly.  They just happen to be using the internet instead of a wire.

[Next, I imagine, it will be illegal for me to stand outside my neighbor’s house and watch a DVD on his TV through the window.]

Logically, Zediva and the cable providers seem to be on reasonably solid ground.  Legally, who knows?

Regardless, the notion that this has anything to do with distribution or copyrights is beside the point.  What’s really being fought over is the ability to make money in new ways by using the Internet.  Or as the late Senator Ted Stevens of Alaska laughingly called it, “a series of Tubes.”   Time Warner Cable’s app does in fact use IP to move video around, though it is exclusively on its own cables.  And while Zediva uses the open internet, there is precedent in the form of virtual circuits to think of that transmission channel as being private and dedicated.

In a way, these links are functionally no different than wires.  Perhaps Senator Stevens was more right than his detractors thought.  Companies are using the internet just as if it was a series of private pipes, or tubes.  So why wouldn’t these distributors have the right to send video this way?

Because it interferes with the content owners and networks from getting two things they dearly want:  (1) unfettered control over using the internet to sell content directly to consumers, and (2) ownership of customer information for marketing (read: monetization) purposes.

Every movie Zediva rents and shows is one that a studio can’t derive its own rental income from.  When people watch Mad Men or Survivor from the dining room on an iPad, that’s one more episode that can’t be monetized through iTunes or Netflix (NFLX), or viewed on ad-supported Hulu.

What’s worse, when an iPad,  smartphone, or netbook is used to view video streamed through a cable or satellite provider, the content sellers have no information about the end user.  If they could sell or rent directly, they’d gain valuable demographic and other information that could be used for marketing purposes or monetized via ad networks.

They know that content is not king; the customer is king.  Networks and studios would love to be able to eliminate the middle man if they could.  And they don’t want to be beholden to Apple (AAPL), the way music publishers are now and magazine publishers are quickly becoming.

To own the customer is to be prepared for the day when consumers “cut the cord” on cable.  And when they use tablets and smartphones instead of a TV.

In 1993, Nicholas Negroponte (the founder of MIT’s Media Lab) made a prediction that became known as the “Negroponte Flip.”  He said, in essence, that what was wired would become wireless, and vice-versa.  When you consider that our phones are becoming wireless, and over-the-air TV is increasingly via cable or fiber, Negroponte seems to have nailed it.  We have a similar flip occurring with centralized mainframe computing moving to distributed (PCs) and then back to centralized (the “Cloud”).

Could it be that just as we’ve reached the point where most TVs are flat, and no longer have tubes, we are moving to a time  when the “tubes” are what’s important, and video is no longer watched on TVs?

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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April 17, 2011 at 8:24 am Leave a comment

Kindling

Recently, blogger and journalist extraordinaire Dan Gillmor tweeted about how some publisher was selling an e-book at a higher price than the hardcover.  Dan’s comment was that the publisher (Penquin in this case) just “didn’t get it.”

I think Dan’s wrong on this one.

True, an e-book should be priced lower than the hardcover.  It’s certainly cheaper to produce.  But cost doesn’t drive price, demand does.  Cost simply determines how much profit there will be, if any.

People buy e-books (and e-book readers–more on that in a minute) for a lot of reasons.  But most of them are related to convenience.  The ability to download books, a large and growing selection, the ability to carry an entire library with you, low weight, getting a new book the day it debuts without fears it will be sold out.   And yes, they’re almost always cheaper.

Consumers have always been willing to pay for convenience.

If people really like e-books, why wouldn’t they pay more for the convenience?  Now that they’ve shelled out good money for their Kindle (or Nook, or whatever) they’re sort of stuck, aren’t they?  Are they really going to go back to buying hardcovers–and trashing their e-readers–just because the book price went up?

Let me get a show of hands.  How many of you walked back into the bank to use a real teller once they started charging a few bucks to withdraw money from an ATM?  Not many, I bet.  Remember when there were hardly any commercials on cable TV, because you paid a subscriber fee for it?  Did you cut the cord because ads started showing up?  Nope.

Publishers aren’t stupid.  They’re going to charge as much as the market will bear for an e-book.  But they have to be deliberate in how they go about it.  For this to work they need two things:

  1. Enough separate e-book outlets so they maintain a measure of pricing control (no iBook store to monopolize distribution), and
  2. Enough e-book readers on the market so they have a critical mass of customers.

It’ll happen gradually, but e-book prices will drift up.  They may never exceed hardcover prices–perhaps they’ll end up somewhere between that point and retail paperbacks.  Whatever the level, it’s clear publishers will be raising prices on more titles in the future–particularly popular authors and hot books.

Which brings me to my second point.  If publishers and sellers require lots of e-book devices in the market to maximize profits from e-book sales, what do you think will happen to the price of e-readers?

If you answered “they’ll drop like a stone”, go to the head of the class.  When you expect to make most of your money from the blades, why in the world would you charge people for razors?

Sure, e-readers might not actually become “free”.  Perhaps they’ll be subsidized like cell phones by the operators whose networks are used to download the e-books.  Sign up for AT&T service (NYSE:T) for 2 years, get a starter cell phone, and we’ll even throw in a Kindle.  Or agree to buy 2 e-books a month from Barnes and Noble (NYSE:BKS) over the next year, and your Nook costs you nothing.

Consider this:

  • The number of available e-readers has grown significantly
  • You can already read e-books on other (multi-purpose) platforms like PCs or tablets
  • Apple (NASDAQ: APPL) has sold more than 8 million iPads already, while Kindle sales are at best less than half that
  • Entry-level e-readers have dropped dramatically in price since they premiered (though new ones with more features still command a premium).

E-reader prices will trend downward to the point where they’ll be as cheap as, well, firewood.   And as that happens, e-book prices start to rise.

This all maximizes publisher profit .  It also increases revenue for distributors like Amazon (NASDAQ: AMZN) and Barnes & Noble who provide the devices.  They will more than make up the cost of e-readers with increased profit on e-book sales.

The real beauty of this strategy is that it effectively takes the cannibalization of physical book sales completely off the table.

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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March 10, 2011 at 11:55 am 1 comment

Escape from Alcatraz

prison-escapeIn a recent Wall Street Journal there was an interesting article on jailbreaking iPhones.  It seems many people–more than I originally thought–may be using software to “break” the restrictions on an iPhone, allowing the installation of applications that have not been purchased through the App Store, or certified by Apple (NASDAQ: AAPL).

The article quoted Jay Freeman, developer of Cydia, as saying 1.7M have downloaded it–implying a like number of jailbroken iPhones.  Even if he’s exaggerating, it’s probably fair to say the total worldwide number of jailbroken iPhones could be in the millions now.

In terms of sheer volume, this doesn’t present much of a threat to App Store revenue.  Though certainly the availability of applications that are not blessed by closed Apple ecosystem will appeal to many.

apple-iphone-firmware-20-jailbreakAwhile back, I suggested that the most widespread app for the iPhone in 2009 would be a virus.  Subsequently, I was roundly flamed by the ever-sensitive Apple fanboys, who claimed that the App Store system is practically (if not completely) virus-proof.

Above all, there’s the dreaded “Kill Switch”, which lets Apple disable an application on every iPhone in the world, once its discovered to be malicious or defective in a way that allows the spread of a virus.

[The presence of that kill switch has become a lightning rod for those critical of the amount of control Apple has retained over its ecosystem.  Google’s (NASDAQ: GOOG) Android OS for mobile phones promises a great deal of freedom and diversity.  Apple provides a more limited functionality, but users get stability,  increased virus security, and a world-class user experience.  The liberty vs. security trade-off seems universal.]

I’ll admit to a bit of hyperbole in my original post.  And I certainly got more of an education in iPhone security than I ever wanted.  So perhaps a virus won’t be the MOST downloaded app.  Or happen this year.  But I stand by my original sentiment.

Imagine the following:  One day, some unexpected data finds its way into your computer.  Some time later, tens or even hundreds of copies of the data leave your machine and end up on the hard drives of other people’s PCs.  And the process repeats until hundreds of thousands of computers have been infiltrated by copies of this data.

A virus, you say?  No, just a joke email.  But I think you get my point.

get_out_of_jail

The problem with those who defend Apple is they have far too limited a definition of a virus.  No one says it has to be malicious, or take control of your hardware.  Hackers are first and foremost pranksters, who often spread mayhem but are also driven by the challenge–seeking recognition in their own way and in their own circles.

And people make mistakes.  That includes both the developers of legitimate iPhone applications, as well as Apple itself.  Perhaps an innocent error could sneak through the certification process and be exploited by a creative youth with time on his hands.  It needn’t be a malicious attack that takes over peoples’ iPhones.

On the other hand, imagine if you could claim bragging rights by forcing Steve Jobs to actually use that kill switch, disabling a popular application on every iPhone in the world.

That would make a hell of a “virus”, wouldn’t it?

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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March 16, 2009 at 9:47 am 2 comments

Viral Marketing

appstore_hero20081217Smartphone applications are one of the biggest trends going, one that will only get bigger in 2009.  Not exactly unexpected, especially for anyone who’s followed Salesforce.com’s  (NYSE: CRM)  AppExchange model.  But despite how Google’s Android (NASDAQ: GOOG) foreshadowed the market, it’s taken the brilliance of Steve Jobs to get the ball rolling.

On the one hand, the dynamics are similar to ring tones

  1. Cheap.   A few bucks each; some are free
  2. Easy.   Apple (NASDAQ: AAPL) sets the standard for ease-of-use, though with the usual drawbacks that come from its closed system.  Android’s market will be a little more “wild west”, but probably more innovative for it.
  3. Not originated by the service provider.   The best services never are, telcos are about as innovative as rocks.
  4. Customizable.   Make your phone personal, whether it’s playing apps or having different ring tones for each caller.
  5. Cachet.   Everyone wants the latest “cool” app, just like they wanted the most popular songs to sound out whenever their phone rings.

On the other hand, the mobile phone app phenomenon is also evolving  into an analogue for the gaming industry, with developers writing apps for one of only a few “platforms” (e.g. iPhone, Windows Mobile, Android, etc.).  I expect to see developers selling versions of their apps onto multiple platforms, especially for the more popular ones, just as happens with game consoles.

The last, and most ominous similarity, is with Windows.  Despite the existence of Android, there’s a chance the iPhone could become the uber platform, with most apps being written for it (at least first), creating a Microsoft-like dominance of phone applications.  All of which leads to the following prediction for the New Year:

The most widespread iPhone application in 2009 will be a virus.

Think about it.  All the elements are already there:

  • rocketing platform/device popularity with a growing market share
  • viral growth in application number and complexity, providing plenty of ready vectors for the introduction of malicious code
  • existence of a large, dedicated, developer base
  • a ready black market for both hardware and software–which means plenty of hackers.

virus_alertsDespite assurances to the contrary from its PR department, Apple software is not virus proof.  It’s largely benefited from a lack of attention given its small (though growing) share of the desktop/laptop market.  But the success of the iPhone changes those dynamics.  Already, iphone dev team has unlocked the iPhone 3G, and is even now delivering its yellowsn0w software to the masses.

True, Android will undoubtedly be more vulnerable, given its marketplace model and the lack of a central control.  But betting against hackers has always been a sucker play, and it will remain so even for the iPhone.  Just ask the Blu-ray folks.

The predators are circling.  And it’s only a matter of time.

Disclosure: The author holds no position in any of the stocks mentioned here.

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January 5, 2009 at 12:34 pm 4 comments

A One-Channel TV

Got to thinking the other day about the last 10 foot problem, i.e. getting media from either your computer or the Internet to the TV. No shortage of available or announced solutions: TiVo, AppleTV, XBox, etc. Even Nintendo is apparently trialing a service in the U.K. to get the BBC’s iPlayer to your living room via your Wii console.

I’m still a bit puzzled about the underlying strategy for this, however. There’s obviously an attempt to differentiate each box, but I just can’t see how it might drive sales by itself. XBox delivers movies, AppleTV allows YouTube access, Wii incorporates iPlayer, DLink’s DivX adapter had Stage6 (sigh). I guess for a select few this might make sense, that the service tail might wag the electronics dog.

Me, I want it all. I want YouTube, Hulu, iPlayer, Veoh, as well as any video currently on my PC. Not to mention whatever hot new thing comes out tomorrow. But since nobody offers a consumer electronics solution to provide all these, I guess I’ll just….wait.

And wait.

After all, who would want to buy a TV that only receives a few channels?

Certainly, one could always hook up a PC to their TV directly. Or use a Media Center PC of some type that provides most/all of this. But that’s likely too much trouble (and technical savvy) for joe sixpack and sally soccer-mom.

Is it any wonder that there is no surefire convergence solution? It the holy grail here simply a browser on your TV?

Until that time, perhaps the PC still needs to be in the equation somehow. After all, everything on the internet is already accessible via the PC, including not-yet-dreamed up video sites and (this is important) easy billing solutions. Maybe trying too quickly to bypass the computer is a mistake. Maybe this is a two-phase process:

  1. First, something that allows easy, format-agnostic streaming of anything on or accessible by your PC.
  2. Evolution to a pure Internet TV (or a simple internet front end to the TV).

Why would I ever buy a box that didn’t do at least one of these things, unless it had another purpose (e.g. gaming, DVR)? The problem, of course, is that the industry is trying to manage the profit stream by linking boxes to services, cutting special content joint ventures, building new advertising paradigms, etc. That approach largely ignores the consumer.

Where would the television industry have been if RCA had cut a deal to deliver ABC content and local news, while Panasonic TVs showed only CBS and the weather?  What if Sony VCRs had only played movies from Disney and Sony?

Disclosure: I hold no position in any of the stocks mentioned here.

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April 21, 2008 at 10:36 am 2 comments

Carl Icahn Channels Ed Lampert

Well that was quick. Just sitting down to my morning eggs when I get them all over my face.

The Wall St. Journal reports this morning that Blockbuster offered back in February to buy Circuit City (NYSE: CC) for $6-$8 per share, a hefty premium to current prices. Apparently there’s been no (positive) response.

Contrary to my previous post where I argued Blockbuster should be shuttering stores, it seems to be embracing retail. The game’s afoot! With what looks like a generous price (in cash, yet) I wonder why Circuit City hasn’t been cooperative? Could it be that Circuit CIty’s board has no interest in becoming part of a REIT?

This deal smells like a private equity-type play for real estate driven by Carl Icahn (Blockbuster board member and dealmaker extraordinaire). I hadn’t considered this angle before, since I was focused on the digital media point of view. But if your biggest asset is real estate, you might as well take advantage of it. Ed Lampert has done this with Sears and K-Mart, where the real estate is still probably worth more than the underlying businesses and the company’s market cap.

Presumably Icahn and Blockbuster CEO Jim Keyes think they can squeeze inefficencies out of operations, shutter underperforming locations, and introduce product/service synergies. Yadda, yadda. You can take the man (Keyes) out of 7-11, but you can’t take the 7-11 out of the man.

No other motivation makes sense. Vertical integration seems a wrongheaded strategy these days. Though it would make it easier for Blockbuster to market an otherwise doomed standalone movie rental set-top box (rolling my eyes, here).

Who knows, maybe they could pull this off and end up adding value to both companies. Still, with market-savvy Apple (NASDAQ: AAPL) using content to sell boxes, I love the irony of someone thinking that buying a box retailer was going to help move the needle on film rentals.

Disclosure: I have no position in any of the stocks mentioned here.

April 14, 2008 at 6:46 am Leave a comment

Blockbuster: Driving Off A Cliff?

The Hollywood Reporter had a story last week that Blockbuster (NYSE: BBI) will soon announce a movie rental set-top box. Everyone who has written about it has noted it will compete against–among others–Apple TV (NASDAQ: AAPL).

That’s true, if you can call “eating dust” a competition.

To the extent such dedicated set-top boxes ever catch on (and I have doubts), Apple TV is Lightning McQueen to Blockbuster’s Mater. Apple is in the hardware business, you can bet it’s in this race to win. Frankly I doubt it even cares that much about the movie revenue. But those rentals are Blockbuster’s raison d’etre.

Blockbuster still seems like a deer caught in the headlights, and has been playing follow the leader with Netflix (NASDAQ: NFLX) for some time. This recent development simply copies the deal Netflix announced with LG Electronics awhile back. While I wouldn’t go so far to say it is doomed (yet), Blockbuster needs a serious strategy tune-up.

First it has to rid itself of the retail store “boot”. For too long Blockbuster has focused on driving traffic to its locations, which it naturally feels obligated to earn money on. But this is the digital age, and despite trying desperately to leverage them, Blockbuster’s locations aren’t the assets it thinks they are. Instead of trying to earn a return on real estate, Blockbuster should have been shedding stores. I understand the real estate market was pretty good last year, probably a great time to divest. Oops.

This is the same mistake Toys-R-Us made, dipping its toes into the on-line pool but afraid to jump in until it was too late.

Blockbuster does have some options left. The purchase of Movielink gives it a leg up in on-line delivery. Going to market with its own STB is a mistake, however. First, it’s not at all clear there would be much demand for the box; just look at Vudu. Second, Blockbuster doesn’t exactly present a compelling co-branding opportunity for CE manufacturers. And depending on the arrangement, the costs associated with such a move could easily outweigh any additional revenue generated.

Far better to package Blockbuster-to-the-TV as a service. True, Apple and TiVo (NASDAQ: TIVO) aren’t likely to sign on. But it could partner with multiple CE manufacturers who can build home media transfer capabilities into their DVD or Blu-ray players, using technology from the likes of DivX (NASDAQ: DIVX) or Macrovision (NASDAQ: MVSN).

These solutions (perhaps not so coincidentally called “Connected” by both firms) are licensed to CE manufacturers, vendor neutral, and built-in at the chip level. Movielink gets films to the PC, and “Connected” easily gets them to the DVD or STB, without requiring an additional box. In fact, DivX has a good relationship with LG already–wouldn’t surprise me to see Netflix go with DivX Connected on an LG box instead of with a branded version.

This makes even more sense when you consider the other advantage Movielink brings to Blockbuster: a partnership with Sonic Solutions (NASDAQ: SNIC). Sonic’s Qflix is the only legal way to burn a studio DVD remotely, which allows Blockbuster to say goodbye to much of its costly inventory. It will soon be feasible to download movies to PCs and then burn them at home. (The disc is dead, long live the disc.)

Blockbuster still has a chance in this race, but it had better get out of first gear. Fast.

Disclosure: I don’t hold positions in any the stocks mentioned in this article.

April 12, 2008 at 8:03 pm 2 comments

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