Cringely: How Apple plans to own your living room

“As anticipated in last week’s column, Apple’s special event came and went this Tuesday and with the exception of the two HDTV models I predicted, it went the way I said it would. And those big screens are likely still coming before the Christmas season, just as Apple launched three new iMacs last week without putting Steve Jobs onstage,” Robert X. Cringely writes for PBS.

“But now let’s put this week’s Apple event in some context and understand what it is and isn’t, because there is a lot happening here. It generally comes down to a word we used to use all the time but haven’t much since the Internet crash of 2001 — disintermediation … [which means] cutting out the middlemen and splitting with the consumer what would otherwise have been the revenue of those disintermediated sales organizations,” Cringely writes.

“What I want to do here is to compare Apple’s position with Microsoft’s and Google’s or Yahoo’s. Microsoft, with its Media Center PC, isn’t ‘disintermediating’ anyone. Now in its third unsuccessful generation, the Media Center PC is a $1,000 TiVo box intended mainly to capture, store, and replay broadcast and cable TV. Microsoft has been unwilling to take the side of either the producer or distributor, and that very unwillingness has been its undoing,” Cringely writes.

Cringely writes, “Notice that the Apple announcement said nothing, really, about broadcast or cable TV. iTunes carries 220 TV series from 40 networks, Steve Jobs said repeatedly, but the actual television experience — commercials and all — isn’t replicated in any sense by the shows that are downloaded from Apple. It is a strictly retail experience: you pays your money and you takes your choice. We’re not bending the cable operators to our will, we are simply ignoring them. But what might have been the cable company’s piece of the action can now be shared between the producer and the viewer, with a cut for Apple of course. Apple has taken a side and that’s the side of the producers, not the historic distributors.”

“Contrast this with Google or Yahoo and even with Microsoft in recent years when everything seemed to be moving to being ad-supported. Where is advertising in Apple’s strategy? It is nowhere to be found,” Cringely writes. “By selling outright, Apple doesn’t need ad sales to succeed, reducing its risk. It also reduces downloads, I am sure, but that’s not all bad… Just as Apple isn’t Microsoft relying on working with the TV networks and cable channels, Apple isn’t dependent on advertising, either. PVR (personal video recorder) functionality and advertising can easily be added at a later date if that is justified by market conditions or revenue expectations. Yet for Microsoft or Google going the other way — from free with ads to paid — it is that much harder a task… When Apple needs more revenue from its hardware products, it can always sell a PVR upgrade for $99. The ongoing profit potential is immense”

Cringely writes, “Whatever happened to the Year of HD that Apple declared at MacWorld in January 2005? In reviewing this week’s webcast, I don’t recall once hearing the terms ‘HDTV’ or ‘High Definition.’ What changed? Apple deliberately repositioned its movie offerings to be better than broadcast quality but less than DVD quality and quite a bit less than HD-quality. Doing so saves on bandwidth (though less than you’d guess — moving NerdTV from 320-by-240 MPEG-4 to 720-by-480 H.264 increases the required bandwidth by only about a factor of two, the new codec is so much more efficient), but it is also politically expedient when thinking about Wal-Mart, Best Buy, and Target — the three largest sellers of DVDs and, not at all coincidentally, the three largest sellers of iPods, too.”

“It is a brilliant and finely honed strategy that first targets the cable companies everyone loves to hate, identifies with the studios and calms them, calms Wal-Mart and Target, too, then eventually offers in the iPod an ultimate video container that can be filled over the Net or at a store,” Cringely writes. And what about the iTV? “Apple will sell a ton of these and then will build this functionality into their HDTVs, which will be what differentiates them from the other guys.”

Full article with much more – highly recommended – here.

Related articles:
LA Times: With iTV+iTunes Movies, Steve Jobs stumbles over the last 100 feet – September 14, 2006
BusinessWeek: If anyone can make bridge the great divide, Apple can with ‘iTV’ – September 14, 2006
The Beeb asks: Would you buy the Apple iTV? – September 14, 2006
Three markets that are different today after Apple’s ‘It’s Showtime’ event – September 13, 2006
Cramer: Apple’s ‘iTV’ all about ease-of-use; Apple shares are going higher – September 13, 2006
Apple + Living Room = Logical Marriage + Boon for Stockholders – September 13, 2006
The Register: Apple event more like ‘No Show’ than ‘Showtime’ – September 13, 2006
The Telegraph: Steve Jobs’ genius making people desire gadgets for which they have absolutely no use – September 13, 2006
The Guardian: Steve Jobs needs ‘a charisma download, Apple risks being left behind’ – September 13, 2006
Mark Cuban: Things that are special about Apple’s announcements – September 13, 2006
Apple’s ‘iTV’ strategy – September 13, 2006
How will Apple’s ‘iTV’ work? – September 13, 2006
The Observer’s iPod FUD: Apple iPod is ‘wilting away before our eyes’ – September 10, 2006
Apple eyes living room market with device codenamed ‘iTV’ – September 12, 2006
Analyst: Apple ‘s iTunes+iPod+iTV model ‘the gold standard for the digital home of the future’ – September 12, 2006
Analyst: Apple ‘s iTunes+iPod+iTV ‘will be hard for other players to match’ – September 12, 2006
Apple gives sneak peek of ‘iTV’ set-top box to debut Q1 2007 (with images) – September 12, 2006
Apple’s QuickTime stream of Steve Jobs special event now live – September 12, 2006
NFL and Apple team up to offer 2006 NFL game highlights via iTunes Store – September 12, 2006

24 Comments

  1. rasterbator- thanks for the link, good blog. We’re on the same page, and I’ll definitely check back for more of your thoughts.

    I’m also with Stephen on this one…

    “remember the “top secret” stuff Steve couldn’t show us during the Leopard preview? Hmmmmmm……….. Any bets the iTV shown this week won’t be the final product?”

    I don’t think we’re being told the full story. It’s not like Steve to demo something that won’t be released for months, and its definitely not his style to blow his whole load with out there being extra features or other products to go along with the itv and the release of Leopard and its top secret features. At this point we can only speculate and dream….which is pretty much what we’re always doing anyway.

  2. Ampar and New Addition to Apple Stores,

    Engadget ran a piece on a kiosk by a 3rd party, 22Moo, at http://www.engadget.com/2006/07/27/new-itunes-kiosk-in-development. iPodnn carried it too.

    And iTunes now allows you to upload purchased content from the iPod back to an authorized computer. So that will make it possible to buy from a kiosk, load it on an iPod, and then later load it back into your home computer.

    And earlier this week, I think it was an Apple Europe executive who mentioned listening kiosks in the stores – I can’t find it in google.

  3. Since Apple seems to be taking an evolutionary approach, laying out the building blocks of its strategy one by one, here’s a possible “first step” to the Apple TV:

    Apple has a very nice, albeit expensive, 30″ flat screen. It’s next iteration might be as a 1080p (1920×1080) 32″ HD-ready monitor, with multiple inputs (HDMI, DVI, component). Price it competitive with other premium brands (e.g. Sharp, Panasonic). Put the power supply back inside, add a built-in iTV. Done.

  4. Cringely predicts that Apple will enter the HDTV market because it’s an expanding market that fits quite nicely with Apple’s plans. An HDTV with built-in iTV, Mac mini, and iPod dock would be very popular and sell a lot of content. It doesn’t matter that the movies currently being sold through iTunes are not HDTV–Cringely shows reasons why it is necessary at this stage.

    As for beaming content in the other direction: capturing TV broadcasts and accessing them on your Mac isn’t possible with the current hardware selection because iTV has no inputs–it can’t capture anything. It might be possible in the next generation, but it would upset the Apple cart. Television content has not been purchased, so to allow users to record and distribute that content is to encourage piracy. Ripping of music CDs is different because the music has already been purchased and the user owns it.

  5. “And what about the iTV? “Apple will sell a ton of these and then will build this functionality into their HDTVs, which will be what differentiates them from the other guys.”

    I was thinking the same thing. Steve and Apple have been consistant in taking incremental steps. The market is not ready for all Apple Computer has to offer them. These signs, in my opinion, are lessons learned from the Newton.

    Over time, when the market is ready, Apple will be there with exactly what people will buy!

  6. Another thing I think may have been missed is the addition of transfering
    data on to the iPod and back into iTunes. This would allow Apple to start
    selling and/or renting HD movies over iTunes through their retail stores.

    All they would have to do is make the store locations an additional computer for every iTunes users’ content. If that was the case I could
    just go to my local Apple store load my iPod with several movies,
    come home, dock the iPod and there you go. Solves the bandwidth
    problem.

    This is not the only solution, but would be an option for HD content.

  7. Finally found the remark at http://www.macworld.co.uk/news/index.cfm?RSS&NewsID=15838 where it says “Cagni also confirmed that Apple now has plans to create iPod listening posts offering direct access to iTunes in key stores and those of certain partners.”

    If those posts allowed downloading, that would be so incredibly tempting at airport stores. When Apple introed the mini stores, Ron Johnson, VP of retailing did talk about airport stores. Maybe the time for them has finally come. If not, they can sell iPods and stick a listening post in all those airport bookstore chains.

  8. Cringely is a smart guy. Trying to judge him by past predictions is tricky. Real life is ruled by chaos and nobody can predict the future with a high batting average. And Cringely does an annual review of how his predictions panned out. He has gained a degree of humility in the process.

    I’m pleased that at the end of the article, Cringely predicted what I have been posting; once Disney shows good profits from iTunes movie downloads, the other studios will come on board.

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