Lots of interesting stuff in this year's Apple product launch event - iPhones, an iPad 'Pro' and a new version of the Apple TV.Read More
1990: Newspapers will win on the information superhighway
2000: Mobile operators will own the customer
2015: Car companies, TV companies...
Apple's Beats deal is a Rorschach Blot: people's reactions slot into their existing view of whether Apple still has 'it'. If you think Apple's lost it, the Beats deal is confirmation. If you don't, it's… perplexing. This is a very out-of character move for Apple (though having everyone puzzled is in character). I've seen plenty of suggestions, but few really convincing rationales that make this company worth $3bn to Apple.
That said, one thing that is clear is that Apple doesn't rule digital music anymore. Streaming and YouTube ended that, along with smartphones. Instead of a library of tracks you’ve bought and paid for, locked to a single platform by proprietary DRM, you can now listen to any track you want on any device you want, and can switch between different music services with little friction. And the iPhone’s multi-touch screen itself broke the iPod’s monopoly on good user experience - now anyone can make a decent music player experience on any device, in code.
Hence, the iPod was a lovely business but it's now pretty much over. Apple has sold 392m iPods since launch (including something over 100m iPod Touches, though) for around $66.6bn, (plus of course the revenue from selling music, which is a more complex issue). There's not much more to come.
This reflects a broader change: content isn't king anymore.
Music has gone from being a key strategic lever in the tech industry to an afterthought. The same applies to movie and TV libraries - media has gone from being a choke-point to a check-box, commodity feature than every platform has to offer but where none has any particular advantage. Books have evolved slightly differently, but with Kindle on any device you might possibly want to read on, books are not a platform lock-in either (except possible for Amazon, but that remains to be seen). So for a platform owner or device maker, the content you can offer is no longer a strategic asset. Content doesn't sell devices, because they all have the same content.
In parallel, of course, the actual value of content - music in particular - is dwarfed by the value of the smartphone explosion. The iPhone alone generated $26bn in revenue last quarter - the entire recorded music industry brought in about $17bn in 2013, and the last three quarters of iPhone sales brought in more hardware revenue than the iPod in its entire history. And though 391m iPods have been sold since 2001, there are over 1.5bn smartphones on earth right now, and close to 300m are sold every quarter.
The amount of money involved, never that large in the context of the consumer technology industry, is such now a small percentage of Apple or Google's revenues that they might almost offer it at cost, just to have the feature. This was one reason why, before the iPhone even launched, Jeff Zucker, then CEO at NBCU, suggested that he should get a cut of iPod hardware revenue. He was mocked in the tech industry but was making a perfectly legitimate point: the money in digital video was in the devices, not the video. At that point the content he was putting on iTunes still gave Apple leverage - not anymore. This is what the people behind Beats Music may have caught on to - the money is in headphones, not the tracks they play.
The one remaining place where content is king, of course, is TV, at least in the key US market. If someone tells you they’re going to disrupt mobile, ask them ‘with what spectrum?’, and if they say they’re going to disrupt TV then ask ‘with what content?’ Here, again, there's no differentiation: every device has the same music, movies and books and doesn't have the same TV.
Hence, the one remaining place for Apple to work its magic is in the TV market. I wrote a post here talking about all the reasons why the US TV market in particular is rigid and also so brittle: there is still scope here for a technology company or other to put together a totally unique offer, with content as the key leverage point. But I'm not sure there's any such scope in music.
One of the reasons it's difficult to talk about the future of TV is there are really several separate sets of issues that are in play, which are pretty much self-contained, and depend on quite different factors, and all of which need to move before things can change.
The US problem
First, the USA is a massively over-served Pay TV market. Pay penetration is very high (90%+), ARPUs are very high by international standards, bundling is very rigid, and so there are lots of people who feel obliged to buy much more than they really want.
Hence, there is a lot of pent-up demand for some sort of unbundled approach - to be able to get just the channels that you want and pay less. But the bundling model is very deeply embedded in the structure of the US TV market, at multiple levels of the value chain, and there are some very strong incentives for a lot of industry participants to continue with the status quo. In other words, everyone hates the way the US TV industry works, except for the US TV industry. This makes the current model very rigid, but also of course potentially very brittle.
Tech industry attacks on this model have tended to come from the distribution side - they put together a new distribution platform and then go and ask content owners to give them the content to offer an unbundled service. But they very quickly discover that coming to Hollywood with a distribution platform doesn't get you a cup of coffee - you need to propose a more profitable economic model, and back that up with cash on the nail. A physical distribution platform itself is not where the value is - it's the possession of a huge audience or valuable content that gives you power. And it's tough for a platform with no customers to offer better economics than a platform with tens of millions.
More broadly (i.e. beyond just the US bundling issues) it's helpful to think about TV as a virtuous circle. Audience gives revenue, revenue lets you buy great content, and great content gets you more audience. This is self-sustaining at each level. A big TV channel is big because it's big, not because it has access to a linear distribution path.
This is a little like orbital mechanics: if you want to go to orbit you need to burn a lot of fuel, and the higher you want to go the more you need to burn - and having a better-looking rocket doesn't make much difference. Money for content is the fuel of the TV business.
Hence, the interesting thing about Netflix is not so much the physical distribution platform as the use of data to attack the cost of content - if you can make hits more reliably you can get the same audience for less money spent, since you waste less of it. To the TV industry Netflix would look like just another TV channel without the use of data.
Finally, if the US TV market is over-served, most others are not. The UK is arguably a 'goldilocks' market - half of households have pay TV and are broadly happy with it, and half don't and are broadly happy with that. Meanwhile some European markets are probably underserved for pay TV - more people might like a pay TV product than are currently being given one. So the whole US 'cord cutting is the future' discussion is not necessarily broadly applicable. But the size of the US market (and the physical location of most of the tech industry) tends to shape the debate. It may also focus attention on the wrong problems.
The user experience problem
Next, there is the user experience. It seems pretty clear we're in a 'pre-iPod' phase at the moment. That is, all of the technology is in place, more or less, but no-one has quite managed to package it up in the right way to give the right user experience. There isn't yet a totally fluid way to browse, choose and display what you want on your TV. Lots of people are poking around it (including Apple and Google) but it doesn't seem like we have that magical 'aha' moment just yet.
There are also a bunch of route-to-market problems here. Integration inside a TV is great but TVs are only replaced every 5+ years. Pay TV tech, unlike mobile, is a balkanized mess of standards, with no GSM/UMTS that you can implement and sell globally. Pay TV operators are the gatekeeper to any other equipment in the living room (at least in markets where pay has a large share) unless you can make it really cheap - a couple of weeks before the Chromecast launched I suggested that the next Apple TV should be a $50 HDMI dongle, and the tech for that is moving forward in interesting ways. And of course we also have tablets themselves, which are certainly replacing second TV sets and may take a real share of primary set viewing too.
At the moment there are a lot of rumours that Apple has a new product - but the rumours mainly focus on how it would deal with the unique US content ownership and distribution structures, not the user experience, which is actually the real question. That is, in the US a big part of the user experience gap is the simple availability of content per se, but elsewhere that is much less of an issue. In the UK, for example, all the main broadcasters put the last 7 or 30 days of content online for free, on any device, with no restrictions or messing around. iPad, iPhone, Android, Smart TV, games console - anywhere, any device, any time. And yet peak streams on the BBC's iPlayer service are 600k or so, where peak linear TV viewing is over 20m, and linear TV viewing shows no sign at all of declining.
How do people really want to watch?
This in turn points to another question, and perhaps a slightly subversive one: how do people actually want to watch 'TV' (or whatever we call it)? Hundreds of millions of normal people really do just come home, turn on the TV and watch whatever's on - if you offered something less passive, do we really know how many would do it? That is, the idea that no-one would watch linear broadcast TV if on-demand worked 'properly' (whatever that might mean) is really just an assumption.
The really big question here is how TV viewing would change if you did move from the current model of TV as a largely undirected, passive experience, to one that required (/'allowed') you to make choices. If you come home and turn on a random piece of generic light entertainment you'll watch it, but you might never choose to watch it, much less search for it. So is that a bundling problem or a recommendation problem? Should we think of TV viewing hours as propped up by filler shows in the same way that CD albums were full of filler tracks, and that if we go to a fluid on-demand environment people might just stop watching that filler? Or would the right passive programming system - 'Pandora for TV' replace one passive experience with another, more tailored and targeted one, with the greater accessibility of long-tail content taking up the slack? Of course, a lot of TV channel branding and programming is about just this - in effect a lot of TV is 'Pandora for TV'. Either way, this is really about unbundling shows from TV channels, not unbundling channels (or on-demand channel brands) from cable TV subscriptions. And (looking back to Netflix) how would that cascade back though the TV production system? How many fewer shows might be made? How would they be funded? And what would happen to the 'golden age of TV'?
Drone footage from the protests in Bangkok. Much more interesting to me than Amazon Air. (Via Next Web) All part of the question - what sorts of things become possible now that Android and ARM have collapsed the cost of connected computing?
The BBC puts essentially all of its content online for free in the UK. It's on every device, at every time, on every network, for anything from a week to a month after transmission. In effect, this is the nirvana that US consumers talk about - no blackouts, no device restrictions, no channel conflict, no messing about, and no extra charge.
And peak viewing in October was 540k, versus peak TV of 26m.
So next time you talk about how you never watch TV anymore, remember that you're a very small minority, if only for now.
Looking at the long-term trend is interesting - there's a clear step-up in use every Christmas as new devices come into the base. But this isn't really very dramatic growth. We'll have to see what happens in January after the surge of tablet sales at Christmas - that may lead to a real change in the growth rate, but it's far from certain.
That device-led surge means smartphones and tablets. These are now the second-largest viewing platform, taking share from PCs, while viewing on TVs is pretty much flat. (This is the chart for TV only, excluding Radio.) This may be because the navigation is better on a touch screen or because people prefer the hand-held form-factor (no word on Airplay or Chromecast use), or some combination of the two.
The puzzle in all of this, of course, is whether and when the growth changes and this sort of on-demand viewing becomes a majority behaviour. That might be about the right device and interface (as it was for, say, digital music). But it may also just conflict with how most people want to watch TV.
You can see the full PDF of data here.
Apple's iPad event was pretty unsurprising. It was obvious that the large one would be speed-bumped and get lighter. It was also obvious that the Mini would get retina at some point - the only question was whether the supply chain could deliver enough panels now (with some well-informed people suggesting it could not), and the late-November ship date and $400 price point to how close it was.
The lack of fingerprint scanning in both the new models was a surprise - it may again be a supply problem, but it means that any platform play Apple has in mind (ie payment) will have a smaller install base to launch onto.
However, the big puzzle is the price the now old Mini is discounted to: $300. This compares poorly to a new Nexus 7, with comparable resolution to the retina Mini, at $230. The Nexus 7 is of course being sold at very low margin by Google, but does the old Mini really need to be $300 rather than, say, $275 or $250? What is Apple thinking?
On a simplistic level, Apple's tablet market share is clearly shrinking. The chart below, taken from a presentation I've been giving in the Bay Area this week, shows my estimates of tablet unit sales. (They're in increasing order of certainty as you go from top to bottom. Kindle Fire is not included, since I lack the grounds to do quarterly estimates, but obviously it is not relevant outside the USA and a few other markets).
Apple's recent sales decline is largely a product cycle issue, but clearly, sales of other tablets are growing fast. And yet Apple is allowing the price window underneath the iPad to become meaningful. Why?
To me, the really interesting thing about this chart is how small Nexus sales are. Here is a good device with a nice clean Android install, sold at a very aggressive price. On Google's own numbers, almost no-one buys it. Why? Why do sales of the Nexus 10 appear to be under 1m units?
Meanwhile, every single data set shows iPad with at least three quarters of tablet use, be it app installs, web use or any other third-party engagement metric you want. Where are all those other, non-Nexus Android tablets? What's being done with them?
What seems to be happening is that if you want the post-PC vision that Apple and Steve Jobs created, you probably buy an iPad, and Apple has a large majority of that market, and hence of the use of devices for that purpose. This isn’t very surprising: the Android tablet app offer remains far behind the iPad in a way that the Android phone app offer does not.
But there's also another proposition, a $75-$150 black generic Chinese Android tablet, half the price of a Nexus 7. That proposition is also selling in huge numbers, but it appears to come with a very different type of use.
Why are people buying these? What are they being used for? They're mostly in China (that’s the pink bar above) and emerging markets and in lower income groups in the west. And it seems that they're being used for a little bit of web, and a bit of free gaming. Perhaps some book reading. And a LOT of video consumption. In fact, one might argue that for many buyers, these compete with TVs, not iPads, Nexuses and Tabs. But regardless of what they’re being used for, they’re not being used the way iPads are used. In effect, they are the featurephones of tablets.
If this theory is correct, it suggests that Apple's $300 Mini really isn't a competitive problem, because the iPad doesn't yet face a strong competitive threat (quite unlike the iPhone). Rather, there are actually two quite different markets: the post-PC vision, where Apple is dominant, and a ultra-low margin product that’s also called a tablet but which is really a totally different product.
Every time I hear people say that TV really needs a big screen, and tablets are not a substitute, I think of this.
There's a counter view too, of course, pungently expressed here by David Lynch.
Very hard to predict quite how consumer behaviour will develop. I do remember how everyone needed keyboards, though.