Eisner says Blame Apple. He's Wrong.

Leave it to Michael Eisner to prove exactly what's wrong with the studio mindset regarding video digital distribution:

The studios "make deals with Steve Jobs, who takes them to the cleaners.
They make all these kinds of things, and who's making money? Apple!
They should get a piece of Apple. If I was a union, I'd be striking up
wherever he is."

Ugh.  As I have noted before the mindset that Apple is to blame for the supposed lack of profits on video digital distribution is simply hog wash. 

First of all, the studios haven't seriously taken a shot yet at digital distribution.  Apple's only got around 1000 videos for sale on the iTunes store.  Moreover, I am convinced that video sales of films are just not what people want - rentals are where the volume (and money) is (and I am not the only one who thinks this).

More importantly, the movie and TV studios are just irrationally wedded to an advertising model.  They think that ads will make them money, the same way it makes them money on TV.  But it will not work in the digital world.  They have to offer their products digitally in a manner that is convenient, simple to use and, can be accessed anywhere.  For many reasons, an ad based model doesn't fit that bill (not to mention the fact that it is very easy to eliminate ads in digital distribution - and that absolutely drives the studios nuts).  And they have to offer the content at a price that is reasonable ($9.99 for a movie download - without the DVD extras - and $1.99 a TV episode is pushing the upper limits here.  And yet, they want higher prices!).  And of course, they continue to insist on restrictive DRM. 

Not only is Eisner an idiot for his Apple comment, he's just plain wrong on the writer's strike:

For a writer to give up today's money for a nonexistent piece of
the future -- they should do it in three years, shouldn't be doing
it now -- they are misguided they should not have gone on the
strike. I've seen stupid strikes, I've seen less stupid strikes,
and this strike is just a stupid strike.

Now, I admit I don't know all the details about the writer's strike, but I do know that the whole reason there is a strike is because the writer's forgot to deal for DVD's the last time.  Seems reasonable to me that the writers don't want to let several years of digital revenue pass without them having a deal to getting a share of it.

So, after all this BS, where does Eisner think the of video distribution future is?   Yup, you got it - the internet.  Thats where is putting his own money.  What a clown. 

Odds & Ends: Today's Interesting Reads

Here are today's interesting reads, mac and non-mac:

2 Million Cats on the Loose

Leopard is Apple if His Eye

Why it was Called the Manhattan Project

What is a Hulu anyway?

Apple needs an actual TV

How to Save Apple TV

Apple-NBC War Continues

Jeff Zucker, head of NBC Universal, wanted a piece of Apple's iPod sales in return for a deal to sell NBC's programming on iTunes: 

"Apple sold millions of dollars worth of hardware off the back of our content and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing."

“We don’t want to replace the dollars we were making in the analog world with pennies on the digital side,” he said.

So, let me get this straight Jeff.

You want Apple to pay you a percentage of each iPod sale for the right to sell, for $1.99, an episode of the Office on iTunes.

Now, this is the same content that you give away for free every week. 

The same stuff that anybody with a TiVo can record and then skip all those commercials when they watch it later.  

Are you the dumbest guy on the planet? 

Good luck with hoho or whatever you call it. HoHo is not exactly burning with buzz but I'm sure it's just what everyone wants - the ability to watch streaming TV and movies with commercials on their PC. 

Oh yeah, and another thing Jeff. Apple didn't sell iPods off the back of your content (which you already give away for free). Apple sold iPods off the back of the Big 5 music label's content (LOL). 

Seriously, Zucker's thinking is the problem here. He believes that his viewers will just watch where and when and how he says they will. It is a pre-digital mindset. The problem is that as DVD's, TiVo and iPods and iPhones have become common place, viewers have realized that they like the ability to choose the time and place and medium to watch TV shows and movies. That's why the movie theaters are slowly dying. Its why TV ratings are steadily declining. Its why DVD, iPods and TiVo sales are increasing.

Zuckers mindset conveniently forgets that iTunes sales saved his bacon:

"I'm not sure that we'd still have the show on the air" without the iTunes boost, says Angela Bromstead, president of NBC Universal Television Studio, which owns and produces "The Office." "The network had only ordered so many episodes, but when it went on iTunes and really started taking off, that gave us another way to see the true potential other than just Nielsen. It just kind of happened at a great time."

I think Apple should do one of two things - either seriously look into buying NBC Universal from General Electric or, drop the H-Bomb and release a version of iTunes that will rip DVDs in the "it just works" Apple way. I'm sure either move would get the movie studios and networks to play ball.

iTunes Needs Movie Rentals

With the exception of the iPod Shuffle, all of Apple's iPods and the iPhone support video playback. Yet, the movie and TV sections of the iTunes store have become stagnant with little new content. While iTunes has millions of songs for sale, it has less than 1,000 movies. The Apple TV, Apple's "hobby", appears to be going nowhere. Apple needs to do something soon to step up its video content market. But what? 

Well one of the things Apple seems to be doing is to go after short films. But this is not a viable long-term solution. Apple needs video content soon to help fill up all of those iPods and iPhones that will end up in stockings this Christmas. Many of those iPods are going to be replacing ones that can't play video. Come the end of January, unless Apple has something up its sleeve, people are going to start asking why there's no content. 

Apple's position seems to be that the iTunes movie and TV sections are still young:

“We’re really at the beginning stage in the movie space,” said Eddy Cue, Apple’s vice president for iTunes, adding that iTunes had sold more than four million movie downloads...but still had fewer than 1,000 titles for sale.

But this is simply not a reasonable argument when all of your products support video playback.

To further put the heat on Apple, the infamous NBC-Apple feud has apparently ended badly for Apple as talks between NBC-Universal have broken down. Thus, come December 1, all NBC shows, many of which are iTunes top sellers, will be pulled from iTunes.

Unlike the music business, Movie and TV producers seem to have Apple's number:

NBC Universal spokesman Cory Shields said his company's programs help drive the sales of iPods. "The iPod is only as good as the content on it," he said.

I suspect NBC's challenge to iTunes will eventually fail. Although (unlike the music business), NBC does not get any significant portion of its revenue from iTunes sales, it does get buzz among the people it most wants to attract with its shows. Not to offer it on the iTunes store is just foolish. But, the fact that NBC can even think it is possible to challenge Apple and the reason Apple's movie selection is so meager can probably be pinned on one person: David Porter of Wal-Mart. 

It seems Mr. Porter has clubbed the movie studios into submission in order to protect Wal-Mart's multi-billion dollars in DVD sales. As a result, digital movie sales are stuck in the mud with limited selection and insistence by the studios on high prices and ridiculous digital rights management (DRM) restrictions. 

But there may be a way out for Apple: Movie Rentals.

Apparently studios that had been reluctant to make their digital content available for sale through Apple are considerably more enthusiastic about video-on-demand (VOD) rentals because they wouldn't compete directly with Hollywood's own DVD sales operations.

There has been some speculation that Apple will soon be ready to roll out movie rentals. If true, then expect Movie rentals to be the main attraction at January's Macworld.

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.