Apple TV and Subscriptions

Apple's earnings announcement had a surprise tidbit about subscriptions:

Apple's going to account for sales and earnings from the iPhone and Apple TV on a subscription basis for 24 months after the sale of a unit... Apple said that the reason for this is because they are going to be offering new software features for free for the iPhone and Apple TV.

Now, some people had assumed that this was to take care of the accounting rules that required Apple to charge $1.99 to Mac and MacBook users for a software update to enable the computers to support the Airport 'n' wireless networking. But, as One Analyst sees it, this is really setting up Apple to offer subscriptions via iTunes. Now subscriptions and iTunes seem to be dirty words to Steve Jobs. He is dead set against a subscription based model for music. But what about TV shows and Movies?

I suspect that in the next few months Apple will update Apple TV to allow video rentals of movies and TV shows. If it does not happen this year, then expect it in January 2008. It just makes sense. I look at my own consumption of movies to justify that belief.

I would like to think my situation is one of an average consumer. Due to my family and work schedule, I almost never go to the movie theaters. Why? For most movies, I can wait until its on DVD when I can watch from the comfort of my couch (for example, the last movie I saw in the theater was Pirates of the Caribbean 2. Before that, it was the last Lord of the Rings. So, even though I see almost all of the "blockbuster" movies, 99.8% of them I watch on DVD. I am very happy to be one of the consumers causing Hollywood and the movie theaters so much consternation, but that is another post).

Thus, my consumption of movies really is an "impulse" type purchase - a few times per week I decide to watch a movie. I look for the latest DVD releases first and then I look at other films. Assuming I find something I am interested in seeing (and since much of what is produced these days is crap horror films I won't watch), I am then faced with a trade off - buy an iTunes movie for $9.99 (or more) or, buy a movie off pay per view for $3.99 or, take a 5 minute trip to the Rental Store and rent a movie for $4.29. Each has its pros and cons:

iTunes: PROS: near instant delivery, very little to do on my part except select the movie and watch it either in my computer or my TV. CONS: Expensive compared to other choices, although I will own the movie, I probably would never watch it more than 1 time. Like 95% of the population, I am not a big buyer of DVD's but I am a big consumer of DVD rentals. Also, Apple's selection is somewhat limited right now without "new" releases (i.e. movies that came out on DVD this week).

Pay Per View: PROS: instant delivery, very little to do on my part except select the movie to watch and watch it. Inexpensive. CONS: no "new" releases as Pay per view tends to be about a month behind on new releases.

Rental Store: PROS: "new' releases available (although its very rare to be able to rent a new release the first week it comes out). Inexpensive. CONS: takes some effort on my part to get to the store, rent the movie (and 7 out of 10 times they don't have anything I want to see) and return the movie after I am done watching it.

So, looking at the list, you might be able to tell that generally I'm buying movies off of pay per view and, about 2 or 3 times a month renting from the Store (sometimes more, sometimes less depending on what's out). So, 99.9% of the time, buying a movie from iTunes doesn't even cross my mind due to the cost. But...if iTunes offered new release rentals? I'd use it every time.

And that's the sweet spot Apple has to hit with movies - new release rentals and that's where I think Apple has to get to with Apple TV.

If I were to envision this feature, I would tell iTunes sometime during the week, either through my Apple TV interface or from my work or home computer, that I want to watch 2 new movie releases. Within minutes the first movie would be available for me begin to view on my TV. I should be able to stop, rewind and pause the movie. That's it. Some people might want a purchase option after they watch the movie, although that's not important to me. Others might want the "DVD extra features", although, once again, not too important to me. I want to rent, watch (once or twice), the newest movie release and it has to cost $5 or less. The company that can digitally deliver (ruling out the Rental Store and the Netflix snail mail model) that experience is going to be the one that wins.

Apple Earnings Blowout

Apple's 2nd quarter earnings numbers are amazing. No commentary or analysis can really do it justice, the numbers speak for themselves:

$ 5.26 Billion in revenue - 56% from the sale of Macs, 44% from sale of iPods and music
$ 770 Million in Profit - up 88% from 2Q2006
$ 35.1% Gross Margin - up from 29.8% from 2Q2006
1.5 Million Macs Sold - up 36% from 2Q2006
10.5 Million iPods Sold - up 34% from 2Q2006

Analysts had predicted profit of 64 cents per share. Apple annouced profit of 87 cents per share.

Some interesting tidbits:

- Mac sales growing faster than iPod sales (so much for the iPod is the only thing holding the company up).
- iTunes sales are up (no numbers offered though).
- Sales through the retail stores grew 79% (alot of Apple's profit is coming from retail sales).
- Apple's going to account for sales and earnings from the iPhone and Apple TV on a subscription basis for 24 months after the sale of a unit. This is very intersting. Apple said that the reason for this is because they are going to be offering new software features for free for the iPhone and Apple TV.
- Notebook sales up 79% from 2Q2006. Guess 2007 is the real year of the laptop.
- Apple has $12.6 Billion cash on hand. No mention as to what they are going to do with that huge war chest.

When is a Mac hack not a mac hack?

Answer: When it affects windows too. Apparently the hack to the MacBook at last week’s CanSecWest security conference exploits a flaw in Apple's Quicktime.

So, the take away here is two fold: (1) Mac OS X was not hacked at the conference (a minor quibble but technically true) and (2) this may be a much bigger deal than I initially thought since the installed base for Quicktime is many times larger than the installed base for Mac OS X (the reason? If you have iTunes on your Mac or PC, then you have Quicktime installed).

I suspect we will see a patch for Quicktime very soon from Apple.

The iTunes Cash Cow

Apple has maintined that the iTunes store is not profitable or breaks even. They have let the electronics and music industry assume that they make thier cash on the sale of iPods. Of course, selling iPods is a very profitable business. But a new report by Andrew Hargreaves of Pacific Crest may shed some light into Apple's iTunes revenue stream. According to the report, Apple sees $0.10 of profit per $0.99 song. Not too shabby considering Apple is selling millions of songs a week.

Get out the broom - Red Sox sweep Yanks!

In case anyone missed it last night, the Red Sox swept the Yanks, in part thanks to historic 4 consecutive home runs in one inning.



YouTube

Vista sales anemic while Mac Sales grow 30%

Robin Bloor at IT-Director.com has a interesting (and I would say accurate) take on the power of Apple :

In the US, 14,811,000 PCs were shipped, indicating only 2.9% growth in PC sales in the first quarter. In other words the impact on PC sales of Vista appears to have far lower in the US. But actually that 2.9% figure is not what it seems, because 1.15% of that growth is attributable directly to Apple. The sale of Apple Macs grew by 30% in the quarter as they have in quarter after quarter for quite a while now. In other words Vista made no competitive dent whatsoever in the sale of Macs—and that very bad news for Microsoft.

Now that's good news for Apple, but here's the really interesting analysis by Bloor:

Apple now has 5% of the US market, which may seem small, but that 5% punches well above its weight because Apple focuses on the home market—that 5% is more like 15% of the people that actually choose their PCs (in the corporations you get what you are given) and at current rates of growth that 15% will be 30% in the US in about 2 years, unless Apple's momentum slows. Now consider the fact that the US market drives PC buying trends in the rest of the world to some degree and Apple's momentum comes more into focus. Apple's momentum has not been stopped at all by Vista, and this is ahead of the release of Apple's answer to Vista—the Leopard version of OS X.

Although Bloor's analysis makes sense, some so-called "Technology Analysts" (see, for example, here ) will just fight this common sense tooth and nail. Not surprisingly many of those who deny this are paid consultants of Microsoft.

Omnivore’s Dilemma

Michael Pollan has an article in the NYT Magazine about why a person's wealth is the biggest predictor of obesity (i.e. the more your earn, the less obese you are). It is a great read, even if you have read Pollan's book, Omnivore's Dilemma (which I also recommend).

Pollan discusses current U.S. farm policy which rewards all the wrong things:

That’s because the current farm bill helps commodity farmers by cutting them a check based on how many bushels they can grow, rather than, say, by supporting prices and limiting production, as farm bills once did. The result? A food system awash in added sugars (derived from corn) and added fats (derived mainly from soy), as well as dirt-cheap meat and milk (derived from both). By comparison, the farm bill does almost nothing to support farmers growing fresh produce. A result of these policy choices is on stark display in your supermarket, where the real price of fruits and vegetables between 1985 and 2000 increased by nearly 40 percent while the real price of soft drinks (a k a liquid corn) declined by 23 percent. The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the farm bill encourages farmers to grow.

Up with Math?

Here is a post that I actually think makes sense. The Author's contention is that the U.S. teaches math wrong, substituting depth for breadth and emphasizing math for science and engineering too early in a student's career. Check it out....

Macbook: hacked or not?

There's news that a MacBook has been hacked at CanSecWest , a computer security conference. Apparently as a challege, the conference organized a contest to see if someone could hack into two MacBooks. Here were the rules :

We've announced that we will be having a contest "PWN to OWN" where two, pimp, loaded up, Apple Macbook Pro's will be set up on their own AP (with security updates but otherwise default) and attendees will be able to connect to the ethernet or WiFi. The first to exploit it (there are victory conditions, and progressive rules over the three days) gets to go home with it. (Limit one per person, Can't use the same vuln on both.) If they survive the three days in the "jungle," they become prizes for best lightning talk and best speaker. Detailed contest rules to follow shortly.

At one point there were detailed rules on the site, but I can't seem to find them. As I recall, they initially proposed that the first day nothing would be done to the MacBooks, you had to get access remotely. If no one was able to get access by the end of the first day then they would relax the rules to allow access from the local network that the MacBooks were connected to. And then, on the final day they would allow access to the machine via its USB port. Of course, I could be remembering this wrong. I glanced at the rules when they announced the contest.

Apparently, after the first day, no-one could get access so they relaxed the rules. They then apparently allowed folks to send emails with links to the MacBook and the conference organizers then opened the links with Safari. The Rixstep web site summarizes of what happened next:

The CanSecWest Applied Security Conference held from 18-20 April 2007 netted one exploit against a fully patched MacBook Pro after a number of false starts and initial failures. The initial contest - to 'PWN' MacBook Pros accessible on internal IANA IPs - met with no success despite the machines themselves being the prizes to the winners.
It was only when the organisers upped the ante and lightened the rules of the contest that an exploit succeeded. The new rules specified sending URLs to the organisers which they would access from the MPBs with the default Safari web browser.
'There has not been a successful attack. Time to expand your attack surface. Email links and we will visit them using Safari', read the communique. Then, two hours twenty four minutes later:
'One OS X box has been owned! At this point all we can say is there is an exploitable flaw in Safari which can be triggered within a malicious web page. Of course all of the latest security patches have been applied. This one is 0day folks. Technical details will be forthcoming as the winner works out the release. There is still one more Mac to go.'
'The first box required a flaw that allows the attacker to get a shell with user level privileges. The second box, still up for grabs, requires the same, plus the attacker needs to get root.'
No one ever got root.

The Rixstep article lays it out pretty well. No one ever got root. And I even question the hack given what I remember about the rules - the MacBook was hacked on friday which was the third day of the conference. Of course, like I said before I could remember it wrong.

So is this a big deal? I don't think so. To me, the important thing for security is for my machine to fight attacks that I, as a user, have no hand in initiating. Clearly, if the MacBook was hacked, the attack described requires a user to open an email and click on a link. That implies that the email has to spoof the user, which to me is a pretty big deal. By now everyone is so familair with span (or should be) that it would have to be a pretty convincing email for me to click on a link (even assumping that it somehow slipped by the excellent spam filer in Apple's mail. Which reminds me of another interesting question. Would the hack work via webmail e.g, gmail? I don't know, but if I had to guess I would say no).

Nevertheless, the tech web is buzzing (as usual) with Apple Hacked headlines. IDG (as usual) put out a misleading story which the Rixstep article, I think, convincingly corrects.

Even if this is indeed a real hack and, even if you buy the contrived actions you need to preform to open the MacBook up to the hack, I can think of two things that need to be considered. First, it looks to me like an input manager hack. The changes to input manger in the next version of Mac OS X (10.5) will take care of that. Second, if it is real then it looks to me like a relatively quick fix to Mac OS 10.4 to prevent it. But, like I said, I think it a contrived hack. Any responsible user would probably never have to worry about it. I know I won't.

Also, Arstechnica has a good article on the technical details

Proof Microsoft is Crazy about the iPhone

Lets see here now, xbox is hemorrhaging money and the zune is a joke so take this comment by Microsoft exec Chris Sorenson for what its worth:

It's a great music phone, and I'm sure it will be fantastic and have an interesting user interface," Microsoft's Asia-Pacific head of smartphone strategy Chris Sorenson told press during a recent visit to Australia.

"However, it's a closed device that you cannot install applications on, and there's no support for Office documents. If you're an enterprise and want to roll out line of business applications, it's just not an option. Even using it as a heavy messaging device will be a challenge."

So, support for office documents is the end all be all of a cell phone. Now, I a few years ago, I was the typical "road warier" and near abused my cell phone and PDA. And yes, I did have lots of word docs on my PDA. But let's be frank here...reading docs on a cell phone or PDA screen just sucks.

Perhaps Apple will come up with a better solution for reading documents on the iPhone . But maybe the better question is, why would you want to? Remember that the iPhone is also an iPod . I get along just fine with my documents copied to my iPod available for me where ever I have access to a PC or Mac. And, I am really beginning to like google's docs and spreadsheets alot.

Apple Earnings Contest

Well, Apple will release its quarterly earnings report next week:

Analysts surveyed by Thomson Financial estimate Apple will earn 64 cents a share on $5.17 billion in revenue for its second-fiscal quarter, while the company previously forecast a profit of between 54 cents and 56 cents a share, and sales in a range of $4.8 billion to $4.9 billion.

I have been following Apple seriously since 1998. It seems every quarter to beat the analysts (in fact I cannot recall the last quarter it failed to meet or exceed expectations).

So, to that end, I'm setting up an informal contest to see if someone can guess what earnings Apple will report. I'm going to say 65 cents a share and $5.20 billion in revenue. Anyone else?