Internet Outsider

Apple's (AAPL) iPhone Refund Confirms: Sales Below Plan

From Silicon Alley Insider: Whining works! Thanks to "hundreds of emails" complaining that Apple slashed the price of its high-end iPhone by $200 just two months after its launch, the company will offer early adopters (who paid up to $600 for a phone now priced at $400) a $100 store credit to make up for some of the difference. A more sincere apology wouldn't require iPhone buyers to spend their refund with Apple, but, as Jobs told USA Today, "well, that's what happens in technology."

In an open letter to consumers today, Jobs is a little more contrite. He describes the "technology road" as "bumpy," and apologizes for "disappointing some of you." Then he insists that cutting the price was correct.

The real issue isn't Jobs' PR-foul up -- a rarity for a man blessed with astonishing showmanship. The bigger issue is Jobs' obvious misjudgment of the market for a flagship product. This is a 33% price cut in 2 months -- rare for any consumer electronics manufacturer, let alone savvy Apple -- followed up by a reactive apology and partial refund. This price cut clearly wasn't planned. Meaning iPhone sales are missing Apple's internal targets. Bumpy, indeed.

See Also: iPhone: Flaky Device Overrated, Expectations Out of Hand, Analyst: iPhone Price Cut Is Good News, and Apple Snubs AT&T, Hoses Early iPhone Buyers

TiVo Provides the Missing Movie-Download Link; Threatens Cable Cos

At long last, someone has finally addressed the gaping hole in the digital-movie-downloading business. TiVo's new deal to let subscribers rent or buy Amazon.com digital movies directly from their TiVo boxes removes an awkward step in the process: customers no longer have to futz with their computers to rent or purchase a movie. Now, they can just pick up the TiVo remote.

Perhaps this will finally light a fire under the cable companies, whose resistance to unforced innovation is legendary--and whose grasp on the digital rental market continues to slip. Or perhaps it won't...

Cable giants like Time Warner Cable, Cablevision and Comcast have been trying for years to boost revenue with on-demand movie rentals. But success has been hindered by limited movie selection, short viewing windows, and the inability to for viewers to purchase downloaded movies outright.

Meanwhile, online movie services like Amazon's Unbox or Apple's iTunes have required a computer to make the transaction and download the movie file. Getting the movies to play on TV has been even more complicated and expensive, requiring either a complex computer setup or a pricey gadget like Apple TV. TiVo's deal with Amazon solves some of these problems, allowing subscribers to buy movies without leaving the couch, or rent them for 30 days, often for less money than 24-hour cable rentals.

But don't short cable yet: TiVo's impact is limited by its modest presence -- only 4.3 million total subscribers, of which only a small percentage have set-top boxes compatible with the new service. Also cheap, no-brand DVRs built into cable boxes have already reduced TiVo's market share, and now that TiVo has blazed the trail, the cable companies are presumably free to strike similar deals of their own. Because digital-download services require a high-speed Internet connection, moreover, even the TiVo box is not a total loss for the cable companies.

In any case, expect more deals like this in the near future from companies like Apple, Microsoft and Sony, all of which are eager for a place in your living room -- at your cable company's expense.

Rip-Van-Amazon Awakes, Opens Music Store

For us old-timers, it's great to see Amazon innovating intelligently again.  The company should have launched a digital music store seven years ago, of course, before Apple ran off with the market, but better late than never.

The good news (for Amazon shareholders): This isn't a Bezos pipe-dream.  Amazon's existing music store, which has always been one of the best on the web, provides a marvelous platform from which to launch music downloads.  The company is also selling only un-copy-protected music, thus maintaining its religious commitment to customer satisfaction. Lastly, since the company is a neutral third-party not about to corner the digital music business forever (like Apple), record labels and musicians should rush to embrace Amazon's new store.  Labels hate Apple's chokehold on digital music, and Amazon may finally represent a viable competitor.

 

 

Apple: Jobs Says Subscription-Music For The Birds

According to Digital Music News, Steve Jobs has little interest in offering subscription-based music .  "Never say never, but customers don't seem to be interested in it," Jobs told Reuters.  "The subscription model has failed so far." 

The comments come just ahead of licensing and contractual deadlines with the major labels, a group that is searching for avenues to improve online music sales.  Theoretically, subscription-based approaches have the potential to generate stronger revenue streams, though market performance has been lukewarm.  The space currently corals less than two million subscribers, in part because of a consumer preference for track ownership, instead of rental.  "People want to own their music," Jobs said.

The Jobs comments answer some questions, though the issue is far from closed.  The Apple chief executive is notorious for sending misleading smoke signals on upcoming products, a tendency that erodes credibility in discussions like these.  Still, the emphasis for Jobs may lie elsewhere, specifically in transitioning the iTunes Store into a DRM-free zone. "We've said by the end of this year, over half of the songs we offer on iTunes we believe will be in DRM-free versions," Jobs said. "I think we're going to achieve that."  That push, coupled with an expected, MP3-based push from Amazon, will intensify pressure on heavyweights like Universal Music Group to shift away from protected content.   Also adding pressure is a groundbreaking shift by EMI away from DRM, though the others majors seem locked in a wait-and-see.  In recent comments, RIAA chief executive Mitch Bainwol called for a "prudent, rational judgment on how to proceed on DRM," an assessment that leaves the door slightly ajar.

JJ:  I would like to see a subscription music service combined with MP3s for sale.  AAPL will have difficulty entering the subscription business because none of its iPods have an internal clock necessary for subscription music.

HB: The comments sound to me like a negotiating tactic: One can safely assume that anything Jobs ever says to the press is designed to accomplish something.  Also, a subscription would not have to be about music "rental."  Consumers could pay, say, $9.95 a month, to download (and own), say, 25 songs.  This model would be great for consumers, who hate to get hit on every purchase.  It probably would not be so good for Apple, however (unless the company could negotiate a sweetheart backlist/volume deal with the labels)  

Apple: Steve Jobs Saved By Rising Stock Price

Mark McQueen, CEO of Wellington Financial, a firm that manages $400 million, summed it up well on his blog: "When was the last time in recent memory that a corporate scandal led to very serious charges being brought against the CFO and General Counsel, but not against the CEO? … It's curious that a former Apple CFO pointing fingers isn't sufficient for the Securities Exchange Commission to proceed against Steve Jobs." Anderson's version of events actually makes sense, given Jobs' reputation as a control freak and his instrumental role in using options to lure in talent after he returned to Apple. But Jobs is unlikely to face any action from the SEC, even though Anderson's statement is begging for a deeper probe.

JJ: Steve Jobs = above the law.

HB:  Agreed, for now, although I haven't seen any truly damning evidence yet.  The CFO's statement merely said that Jobs knew about the backdating, not that he knew it was being accounted for improperly.  Certainly seems worthy of an investigation, though.

Apple: Think Equity Whizzes on iPod Results

Think Equity peed on iPod's results, but likes Apple because of the CPU share-gain-story.  Jason thinks the whole company's overrated.

Think Equity: It happened. iPod revenues reversed a 17-quarter trend and posted minus 1%y/y growth. With prospects and the inevitability of slowing iPod momentum, they took AAPL shares down 28% to a calendar year low of $50.67 in mid July from year-ago levels. After all, investors had become accustomed to 11 quarters of triple-digit iPod unit growth and it was difficult to fathom an Apple without them. With iPods at 'only' 32% of revenues in 2Q, the real earnings power generator stepped forward. Apple is a CPU share gain story, and this is driving margin expansion. Raising target to $130.

JJ:  Hoopes has done a great job with AAPL and was early with the call that AAPL is a CPU (and OS) play not an iPod play. I think the iPhone is overhyped (unless they subsidize enough to get the price to less than $150), I don't like their clunky interface with MSFT Office, I am not surprised that Leopard is delayed.  I also think the Jobs is walking a very fine line with the options backdating issue.  To top it off, I like the dorky guy in their commercials more than the cool guy and I want to buy a MSFT PC every time I see the commercial.