Long but interesting excerpts of IRA interview with Michael Whalen. Full interview here.
Michael Whalen, an award winning composer and new media observer, talks about the outlook for the business of creating and delivering content. Michael is IRA co-founder Chris Whalen’s younger brother. Ten years ago, Michael saw that Apple was getting ready to take a monumental step by shifting its business away from just computers and software towards mobile devices. In 2001, concepts such as iTunes and the iPod made it look like Steve Jobs and the management at AAPL were crazy or at least losing “confidence” in their core business. Now 10 years later, their gamble looks like genius.
The IRA: How do you view the AAPL strategy going forward, especially with the apparent decision to let Droid handset take overall share? Is AAPL still well advised to keep proprietary control over the hardware and not allow third-party produces to make handsets that run the AAPL OS?
I think handicapping the handset/mobile device market with just a hardware conversation is short-sighted, frankly. In my opinion, the near-term future is all about content streaming. The profit margins in these handset devices is so small that staying in the game will be very tough if you are not already in it and buying your way into the market may not pay off because the margins might not cover the cost of entry unless you are hugely successful. For investors interested in AAPL, watch what they do with their huge new cloud-computing center in North Carolina. As already reported in the media, this facility is going to go far beyond simply turning iTunes into a streaming subscription service. AAPL is going to start to be very visibly aggressive with all that cash they have and this location is but a bell weather of other centers and a very interesting future that is unfolding.
(To read about Apple’s cash, see CASHING IN WITH CASH)
So, to ask the same question from a different perspective, will AAPL push all content to all devices or just the iPhone/pod/pad? Maybe layers? Your reply suggests that the hardware origin no longer matters, even for AAPL.
Hardware only matters as a platform for content streaming and customized applications. The future is here right now: the iPad, iPhone and even the new Macbook Air have no hard drives…. they have flash drives which suggests that the data you need to operate the device can live on a flash drive or the data will be usable at the other end of a network someplace. AAPL has aggressively inserted “data pushing” into nearly every app now. So, from now – – look 24 months into the future when the mobile phone companies finally have their networks together here in the USA and we are talking about something ever more huge on the horizon: imagine making broadcast television and radio totally irrelevant – – even to captive audiences like commuters, which has been the life blood of radio. People will be able to stream any kind of content in any definition in real time -everywhere in the United States. Countries like Korea and Japan are years ahead of us in this technology. However, the USA is “entertainment thirsty” and on the move. The real question is how much will this new streaming content cost and where will the market balk when it is so used to getting so much content for free now.
So are we talking about the end of proprietary channels and exclusivity, even for companies like AAPL? The Google (GOOG) sponsorship of Droid looks to us like a very smart way to essentially abscond with the relationships of the carriers. AAPL has pushed content onto PCs via iTunes. Will they also attempt to push content to ALL handsets or is their opportunity defined by the AAPL hardware and OS?
No, I think AAPL’s days of dreaming that they will be the only hardware game in town are over…. They are crushing people with design and marketing now. However, in the last 12 months you can feel a change in the wind. Their stance in the media and in their marketing has shifted as well. They have learned that Droid is real and that iPhone will not dominate the market in terms of total share. They have blown open the tablet computing market with the iPad – but so many other devices are out and coming to market. So, yes, we’re talking about delivering content across all platforms.
If the handset is the means of receiving content, what happens to TV or even cable? Our friend Joe Costello on the firstname.lastname@example.org thread reminded us over the weekend of the comment by Level Three to the Bloomberg News report that Comcast (CCS) is going to charge Netflix more for movies. Hello? Was the Comcast/NBC deal an astute way for General Electric (GE) to run away from a declining business?
Yes. GE was brilliant in getting out of traditional television now. CCS doesn’t yet see that they were wooed by the memory of how profitable television once was. Those days are dwindling quickly. However, I seen many TV execs puffing their chests saying how great the upfronts were in the Fall and how the shows they’re making are retaining market share. This is simply not true. Have you checked-in with those advertisers lately? The rush of eyeballs leaving TV is amazing. The data hasn’t yet caught-up to where the market is sprinting. You’ll see in the next 12 – 18 months very popular new content streaming directly from the servers of the people who made the show onto devices – – maybe they’ll use iTunes, FaceBook or even GOOG for aggregation and this new show will completely circumvent the traditional television structure for production, marketing and broadcast.
Technology has caught up and the game has changed for TV. Said another way, the TV and film businesses are changing as radically now as the music business did (and continues to change) ten years ago. Consumers had to wait for the network bandwidth to catch up before the change in video & film product became feasible. Now it is… As for other TV outlets, you are going to see MUCH MORE leasing of broadcast space – a la “American Idol” or “Survivor”. Networks will be leasing the time (space) in “primetime” with certain financial overrides if a show is wildly popular, etc.(…). Imagine a now future where broadcast TV is only truly valuable for live events, captive live programming like “Idol” and sports. The networks don’t want to tell you that this future is here NOW. The research data will be here soon – but investors waiting for the eyeballs to be counted before making decisions will be late to the next party.
In terms of content delivery, is this just taking our TVs with us in a mobile sense or is it more transformative? Look at Twitter as the extension of AIM on a global scale, but is there a global peer-to-peer network here?
There are two ways to look at the end of television as we have known it for 70 years…. The first is that mobile devices killed television because Americans are dealing with life on the run.(…) Television producers are scrambling to change EVERY part of how television is created for an audience whose life is literally on the run.
Here’s two examples: cameramen are changing shots to work for a 3″ screen by reframing distant shots that might look weird on a portable device to use more close-up and medium shots and sound is being adjusted to work for the dynamic limitation of headphones. We have already started seeing two versions of shows – one for TV and one for your handset. This combined with shrinking dollars for production and almost ridiculous competition – it’s true that the pipe that is now a lake that is turning into a ocean – very, very fast.
Secondly, the TV at home and the home computer are merging – literally. The new GOOG TV product is a pretty good structure for managing the expectations and simplicity needed for a broad-audience. As a music professional, I like the Sony (SNE) Internet TV. It’s pretty slick for hardware but it’s just a stop on the way to a device that must transform itself from regular TV, high def, a gaming device, straight internet and wirelessly interface with all our mobile stuff at once. I have found it very interesting that AAPL hasn’t jumped into this fray given their “digital home” strategy. I think Steve Jobs is waiting for the market to sort itself out before he brings something to market or perhaps I am right and the game on the hardware war is over…
(…) OS is no longer a marketplace “battlefield” how it was 5 or 10 years ago and the whole notion of what operating system your computer is running has been pushed to the background just as handsets have just been pushed to the background as we discussed before…
It is interesting to see the way that the service providers, Verizon for example, and the handset maker, Motorola (MOT) and HTC, in the case of the Droids, are losing leverage to the GOOG’s of the world. The entire Droid 2 is GOOG enabled. You don’t even need to install the Moto drivers. And VZ pathetically tries to recapture eyeballs via a media player that is also irrelevant. How does AAPL avoid marginalization? Or is that the wrong question?
It’s a great question and it’s a clue to AAPL’s strategy in the near term. iTunes is but a platform and you can see that its already outgrown itself and will transform into something new soon… So, the next step in our “digital ocean” conversation is either the savvy investor interested in media will be controlling content or they will try owning the content. So, we’ve already discussed that owning copyrights is probably irrelevant in the long term – therefore, the future is all about owning the rivers that feed the “ocean” of content. Said another way, Wall Street really needs to get that the future of media is not about hardware or even the proprietary OS… I know we all get enamored of gadgets and thingies. The market is about to make all of that history.
You can assert that AAPL’s strategy and that spooky HUGE building in North Carolina has something to do with controlling tracts of copyrights without the need of OWNING them. This of course begs the question: how? What if iTunes or whatever AAPL calls their new streaming service is broken into TWO parts – the actual delivery and streaming of the programs, etc. and on the other side – – the administration of the copyrights in the digital realm including collecting fees and licenses from OTHER PLATFORMS. This would be HUGE…. revolutionary and it hasn’t happened on this scale since Edison tried to own the whole content “jungle” himself at the turn of the 20th century. Mr. Edison didn’t have to deal with 17 companies who will be screaming “antitrust, antitrust” when AAPL wheels this out… In this possible future, the fusion will be complete and unlike any paradigm that we have ever seen.
Is the AAPL path a fully integrated model? Does Jobs have to have exclusive control over content to monetize his audience? For example, to subscribe to my friend Tom Keene at Bloomberg, you must use iTunes… Do you like the AAPL path or Goog? Or is it too soon to tell? Does Facebook triumph? We have friends who think Facebook eats everyone’s traffic.
(…) In the end, I see the directions of these companies being very different. They have crossover now…. The mobile ad marketplace is particularly interesting area of crossover. But these two companies will have less and less crossover over the next few years. In this new “jungle”, some of old players must be removed (bought) or merged and sold off.
Isn’t it amazing what is happening to MSFT? They are now a gaming company and they are specializing in mobile Internet products for cars. Wow. MSFT didn’t play the whole OS thing or software thing very cleverly – did they? But I really do think it’s too soon to tell. Facebook is valuable now to people – – I think the next 6 months will be very telling. Facebook is still a new “toy” to many. They will have to figure out how to keep the page relevant as the river of content that we’ve been discussing steals eyeballs… Maybe the river flows through Facebook? AAPL and Facebook have been talking and they NEED each other. AAPL’s Ping social network is a non-starter and Facebook has no real access to content. We’ll see..
So where does this leave Ruppert Murdoch and NewsCorp (NWS)? And you mentioned the impending changes at the New York Times web site to a paywall model.
I think Ruppert has to make a major move soon. Hulu is not the move. NWS is OK – now, say the next 12 – 24 months. However, so much of their content is delivered on old formats (TV, newspapers, magazines, Film Studio). He doesn’t have his own platform now that will be attracting the audience that would feed on this content. NWS might have more time in some foreign markets – but in the US, Europe and Japan – the content river or lake as you suggested is getting ready to wash his old proprietary distribution empire away.
Mr. Murdock might need to sell pieces to concentrate on his “core” – but the real players have been getting ready for this game for 3 – 5 years. Unless he’s about to unveil some secret strategy which would have been leaked by now – he will have to pay a premium to be at this table with GOOG and AAPL.
That said, the NYT is about to try to MAKE their digital content a tiered paid subscription model with some free views. They must find a way to monetize their sinking ship. But frankly, I think the idea is going to crater. No one wants to PAY for text – and a little video. Even from the New York Times. (…)
Also, in the “fusion” model I outlined before – news will be delivered in a completely new way. It no longer needs to be “presented” by a credible looking news figure. Instead, news will be raw and the “commentary” will be generated by the audience themselves. Imagine the kind of stuff that people write as comments on video clips on YouTube or Facebook now but taken to the 10th power. The audience of the near future doesn’t want to be walked through their news. (…)
So, neither AAPL nor GOOG wants to own content. Fox has been spending a lot of $$ to create general, business content focused on the web, but they are competing for eyeballs with all of the other “islands” of content. Is NewsCorp, NYT essentially in the same boat as the artists your described?
That’s an interesting comparison. I think the big adjustment for these massive media companies is that I as a content provider will be EQUAL to them in this new paradigm. Already, my content can draw as many eyeballs as theirs. Regular people have videos on YouTube now that have tens of millions of views. I have a concept that I call “bendable content”. In the new “ocean” of content that we will all swim in soon – all content will be “bendable”. Bendable means that all media can be played on any device, anywhere, anytime. It also means that the material can be reordered, edited, manipulated and re-contextualized. (…) How do you monetize this? We’ll see. Investors may have to stop asking that question like there will always be a transaction out there that can be tracked. In the new media ocean – part of the service that you are pay for monthly will be reconstructing content.
All of this kind of talk scares the crap of the TV networks and Film studios who have lasted so long by keeping their grip on content. In the new future – that conversation is OVER because the audience is demanding now that it be over. The future will simply be created by the people for the people – it’s nice, isn’t it? (…)
What I like about the possible future we are talking about is how it’s a VALUE conversation versus a captive one or a proprietary one. The Internet “attitude” has changed the rules for all these players by making content king and choice the other important metric. That said, the digital administration fence that Steve Jobs (or someone able to capture the digital ocean) might throw around “lake” of content may have us move from one kind on controlled experience to another… Will there be a toll taker in this future? Probably… It might even have an AAPL logo on it. We’ll find out very soon