Who Will Win the Home Entertainment Battle? 22 comments
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There has been a lot of new news lately around the idea of home entertainment and media and I wanted to write a post reflecting on recent announcements coming out of Microsoft (MSFT) on their Media Center platform in Windows 7, the new XBox 360, an increasing role for Netflix's (NFLX) "watch now" technology and Thursday's announcement regarding Netflix by TiVo (TIVO).
Put simply, the battle for your living room and the dollars associated with your living room is heating up and I believe that 24 months from now there will be clear winners and losers. The next 24 months will likely represent the biggest changes we've seen yet for mainstream America's media consumption.
First let's talk about the losers:
1. Cable and satellite providers. The economy is bad. There has never been a better time to cancel your cable and satellite service. As more and more digital media content is being made available through other sources, there becomes less and less of a reason to put up with overpriced cable and satellite TV. The service is bad, the service is expensive, and it's a high recurring fee that is just the type of thing that consumers will look to cut out of their lives as they batten down the hatches. What's more, Comcast (CMCSA) is probably especially susceptible to losing internet customers in this downturn as well as they've received a lot of negative PR over their bandwidth caps, which could increasingly hit consumers as more and more streaming video (and especially streaming HD video) comes into play.
The lone hold out will likely be the sports fanatic who simply cannot get by on network TV sports alone.
AT&T (T) may fare better than traditional cable and satellite providers because they are aggressively rolling out their high speed fiber Uverse service and requiring consumers to buy their TV service in order to get the much faster than cable/dsl internet speeds. It's kind of chump that they do this if you ask me, but hey, only the strong survive, right?
2. Apple (AAPL). Apple Computer's AppleTV has been a huge flop, just like I told you it would be over two years ago when I first dubbed AppleTV the iDongle. I followed that post up with another 10 reasons why the iDongle would fail about a year and a half ago. Apple's mistake was that they sacrificed user functionality over a desire to tightly control your content and charge you up the ying yang for it. By not including a DVD player (something cheap and easy that they could have done) with AppleTV, they force you to buy the content from them rather than more cheaply through a Netflix DVD subscription plan. By not including a DVR, they force you to either pay them to watch your network TV commercial free or watch it without them and see the commercials. Apple really missed the boat with this one and could have been well positioned had they done like they did on the iPod and focused on the hardware and giving users functionality while not worrying as much about the content. In the end they would have made more money on both hardware and content, but as it is now the box is too restrictive and will be limited to a niche Apple fanboy audience who love anything Apple makes no matter how crappy it may be.
3. Roku. A lot of fanfare was made when the Roku box first came out with people saying it was the best thing ever, blah, blah, blah, blah. While having a few month lead time on comparable streaming Netflix boxes, as Netflix broadens their streaming service to other platforms it just won't make sense to buy a Roku box when you can already get streaming Netflix on more popular and currently owned devices. More on the Roku here.
4. Movie Theaters. A lot of people say that the movie theater business will be resilient in this upcoming downturn in the economy. After all, movies thrived during the Great Depression right? True point. But back in the Great Depression there was no HDTV, no Netflix, no DVDs, no giant plasma TV screens or home theater sound systems. The movie theater has been a rip off with greater home entertainment competition for the last 3 years, but the economy has been good and people still went to the theater anyways (albeit in declining numbers). Not anymore. Watch the movie theaters go the way of the dinosaur as the consumer tightens back and chooses more economical entertainment at home vs. going out. If you've always wanted a photograph of your favorite theater's neon sign, now's the time to get it before they go out of business.
5. Blu-Ray. Blu-Ray players and discs are too expensive and a rip off. Sony (SNE) won the battle by becoming the de facto high def DVD standard after wiping HD DVD off the map, but they lost the war. With streaming high def content and free OTA HDTV there is no need to pay all that money for Blu-Ray.
Now on to the winners:
1. Netflix. Clearly Netflix has made the right move in investing so heavily in streaming technology. Netflix's DVD rental and Watch Now service are both winners. In the past week we've seen announcements that Netflix will begin streaming its service on both Microsoft XBox 360s and TiVo units. If you have either of these units there is a strong case to be made that with a three disc Netflix plan for $19.99 a month, you can have better content to watch at any given time than you can with your cable or satellite provider. If I were Netflix, I'd start pumping this message big time. Why pay Comcast or DirecTV (DTV) $80 a month when you can get better content from Netflix for $20? This is a clear value proposition for the consumer. Even in a bad economy people need something to distract them from their daily woes. And while people might not shell out $80 to take a family of 5 to the movie theater (parking, popcorn, soda, overpriced tickets, etc.) or pay $80 a month to Comcast or DirecTV for TV, they will pay $20 a month to get a very strong substitute from Netflix.
2. Microsoft XBox 360. The new Microsoft XBox 360 is out just in time for Christmas and may be the most tempting thing for people to try and buy even in this bad economy. Microsoft and Netflix announced this week that they will begin streaming high def content to this new box. They are going to start with only 300 high def titles, but watch for this to rapidly expand in the near future.
Microsoft's going to try and get a pound of flesh out of you of course by requiring an XBox live "gold" membership which is also kind of chump in my opinion, but this new box is clearly a winner.
3. Microsoft Media Center. Microsoft's Media Center technology is getting better and better. Charlie Owen, from the Media Center team over at Microsoft, put out a great post earlier this week highlighting some of the things that we have to look forward to with Windows 7.
Many of Media Center's changes are cosmetic -- a cleaner better designed layout and interface. But there are some substantive content changes as well. Probably most significant, the next version of Media Center will support the H.264 high def video format. This means that high def H.264 video files can now be consumed on your television through a Media Center PC or Media Center extender. The significance of this is that the H.264 compatibility opens up the Media Center to a very popular format used for cheap pirated video content. Now I'm not advocating video piracy with this post, but the fact of the matter is that millions of people watch pirated H.264 format video on their computers every year. Now instead of having to watch the latest pirated episode of Dexter on your computer alone, you can now actually watch it from the comfort of your couch with your XBox 360 Media Center extender.
The power of Media Center plays in perfect concert with the power of the XBox 360.
All XBox 360s act as Media Center extenders. This means that if you have a Vista PC in your home (and more and more people do/will every day) you can stream your photos, music, home videos, and TV complete with a DVR if you have a TV tuner in your PC.
Could be a winner / could be a loser:
1. TiVo. TiVo is certainly a consumer favorite. People that own them are very, very passionate about them. In addition to a new DirecTV service coming out next year and current offerings on the cable company platforms, TiVo Thursday announced their own partnership with Netflix in what has been a much talked about on again / off again sort of relationship over the past four years or so. Being broadly rolled out in December, the new service will put more than 12,000 titles on the TiVo platform coming from Netflix. The service won't be available on all TiVo units (it will work on Series3, TiVo HD, and TiVo HD XL units) but makes a TiVo a much more compelling option for consumers.
TiVo already has one of the best DVRs in the business and this new Netflix streaming option makes it even more attractive. Still, TiVo is an expensive option. Consumers either have to pay a $12.95 per month annual fee with TiVo or they have to pay an additional $400 charge for lifetime service. These high fees may keep some consumers away from TiVo as an option. Also there is no confirmation yet from TiVo that they will be offering the HD streaming option that the new XBox 360 will.
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This article has 22 comments:
I believe the next release will include the same integrated nVidia GPU we find in the MacBook line. (They might even include a DVD, but not BD.)
And then, their own 'Tivo' functionality.
Apple TV 3 (my guess here) would support downloaded content, Walmart content, DVR content, reliability, security, ease of use, and
GAMES as in the Wii genere.
If Apple delivers this, we'll have a whole new ball game. Why?
They'll deliver with brilliant marketing.
Putting a DVD player in an Apple TV would be a very lame move, something more like what MSFT would try to pass off as innovation. The box ties your TV to your computer, where there is already a DVD player. And, there is nothing preventing you from streaming your DVD content to your Apple TV, unless you are too busy fawning over toy game consoles, and pretending non-nerds will actually want an Xbox in their living room.
Weak article. I'd say there have been no winners yet.
If anybody is poised to conquer the living room with regards to convergence, Apple is really the only possible choice at this point. Apple TV needs work though, so we'll see.
While MSFT just might have some winners and AAPL might have missed the boat a bit, the only sure winner I see is NFLX. They have a service that works now and is evolving into whatever consumers want it to become - as far as video (no games). The customer determines how much they want to pay/month, how franticly they want to watch/return the DVD's, and they still have the "Watch Now" going for them. It's almost like NFLX is anxious for the day when nobody gets any DVD's in the mail - everything is streamed. Me, too!
Disclosure: Long NFLX
1. Connects your home entertainment center to iTunes. Now you can stream over the air or by wire your entire iTunes library to your tv/surround system. Do people still have stereos?
2. Allows for all of your photo libraries to be used as a screen saver while music is playing. Everyone that has ever seen this asks how we do it.
3. You can play all of your movies and tv shows that are in itunes.
4. You can watch content that you load into iTunes such as DVD's, tivo recordings, etc.
5. You tube on the Tv. Kids love this.
6. You iPhone becomes your remote.
Call it a flop if you want but it is a neat device for certain uses, just like a tivo is a great dvr if you want a dvr. A dvd would be nice but why buy a dvd when you can buy the movie in Itunes. Lastly, why buy dvd's period unless they are kid movies. Are you really going to watch Superbad 10 times on a dvd when you could tape it to your dvr or computer for free.
So, if what you write is wholly nonsense, not a clear vision of trends at all, why do you bother? Don't you have any useful hobbies to occupy your time .... like finding and labelling each of the several voids in your brain?
I believe, upon reading this drivel, that the only way to sum you up is as follows (and you heard it here first).
If you had an intelligent thought in your head, it would die of loneliness.
Write with integrity or don't bother. Shill.
What more do you want?
Apple needs work, yes. And it will get it over time that will keep it ahead of other options.
The use of a gaming console most often found lying on the living room carpet or in the kid's bedroom next to a towering DVD/CD cabinet cabled across the floor to the TV that must have a TV-tuner equipped PC - everyone has one of those - right? - is hugely chump.
Also, what value does using the 'fanboy' term provide? None at all. If you have legitimate complaints about an Apple product, fine, but keep your insults out of it. I just re-read your stupid article about why not to upgrade to 3G and it's insultingly biased. Apparently 6.9 million people in the last quarter disagreed.
Long AAPL.
No one can match the simple lifestyle integration Apple is already starting to offer. Within 5 years or so, I predict Apple will provide a seamlessly synchronized personal network for consumers. Everyone will have three simple and powerful devices: an iphone (or whatever it evolves into), a macbook (or future equivalent...think macbook air, but several times more powerful than the current macbook pro), and an Apple home server that is constantly backed up in "the cloud" (Time Machine meets MobileMe). Here's the key: they will be beautiful, well-built, and idiot-proof...somethin... MicroSoft, Sony, and others seem unable to pull off nearly as well.
Overview
I know many folks come on these boards claiming wildly higher prices with no justification other than plain speculation. I want to be clear that I will make some claims here that will seem incredulous, however I will humbly submit that I’ve done hours of homework and intend to justify my position with clear technical analysis. As a (mostly) technical trader (I prefer options), I make no real fundamental claims as to why these projections will be realized (I’ll leave that to others here), I only track the price action and momentum believing that the market will find ways to justify the inevitable outcome (e.g. “Good stocks find reasons to go higher, bad stocks find reasons to go lower”). I’ll also state that you should invest at your own risk and to make your own decisions as to how much risk you can afford. My final disclosure is that I am (very) long APPL calls (option positions set for positive price movement) and have a very bullish sentiment on this stock. With that aside, here is my opinion of APPL in the upcoming months.
Company Overview
Apple is a unique equity opportunity as the company has a significant cash reserve and consistent growth with a dedicated following in the consumer base. The beta being 2.62 implies that it’s volatility to market conditions is very high and thus it reacts to the overall market price movement in an exponential fashion. The market having recently bottomed (IMHO October 10th), is now looking for upward price momentum opportunities to recoup losses taken in the recent decline. Apple having a stable war-chest of cash and significant growth (26% this Q) presents a stable growth opportunity for investors in a market that has been relatively unstable. Apple (IMHO) also has a rather “cultish” following of investors as many high-net worth individuals can identify with the company and its ability to package and deliver products to market with such quality that they justify a premium price. Additionally, the recent release of the iPhone (IMHO) completely changes the landscape of mobile computing. With other companies releasing smaller cheaper notebooks (e.g. “Netbooks”) to offer a lower price point for consumers, they fail to realize that Apple offers the same capabilities (and a cell phone) for less than $200. I feel this revolution in mobile computing will be realized over the next year and then used for justification as to why the stock moved higher (for all you fundamentalists out there). Overall Apple is a very stable company with considerable cash-flows, and a significant cash reserve. This offers both immediate stability during uncertainty and the possibility of heavy growth in future earnings.
The Technical Analysis
The old saying “history repeats itself” is a mantra for technical traders. We analyze historical price movements and the technical indicators the preclude them. We then use this data to attempt to predict future price action to (hopefully) gain returns on our investments. It is clear to me that Apple is repeating a pattern seen during the last earnings season (please review AAPL from 01/08 – 05/08). The stock seems to dip significantly prior to earnings, then recover to about 85% of its prior value on the (mostly) good earnings news. Although the long term momentum is downward (consistent reduction in highs and lows forming a long term bearish triangle), the recent short term decline presents an opportunity for significant profits. We are currently at the bottom side of Apples rhythmic price action. The Fibonacci retrace indicates that the real bottom was $95 (I realize there were some short term deviations, this is insignificant noise in found in daily “panic” trading). The stock found support at this base ($95) forming a “swing point” during most of October 2008. We saw lows of $85, where critical historical resistance held up like a brick wall and highs of $110 where short term traders took profits. The recent trading range (up to earnings) established a “Bullish Triangle Reversal” pattern (minus low volume) that was simply awaiting a “breakout”. The short term low trending line (marking decreases in price movement) that started in early October was broken last week on October 28th 2008 (please refer to your charts). Although I realize this mimics a pre-earnings break out seen on October 13th, I would humbly submit that the 10/13 basing was a reaction to support levels ($85), and did not share the benefit of earnings growth confirmation. The recent rise in pricing is much different as the price has risen quite steadily (over several days) on positive volume rather than a sharp increase, then sharp decline where many traders find short term profits. The other significant difference of this recent increase is that the volatility index is reducing (rather than increasing) meaning that the price action of the stock is beginning to return to “actual” value. From October 10th to October 27th Apple was forming a triangular pattern derived from drawing a line (get a crayon) along the lows and another line along the highs. The significance of this pattern is that it indicates that investors are increasingly undecided as it swings above and below its mean value (IMHO $95). On October 28th Apple broke out of this reducing “swing pattern” at $104 and immediately rose to $112. In Technical Analysis we call this “breakout confirmation”. This fast increase in price movement combined with the bullish triangle formation and the historical price movement of 01/2008 – 05/2008, offers strong confirmation of future price action. The stock is returning to its long term mean of $125 bringing new highs in the $150 to $160 range over the next few months. Secondary confirmation of the mean can be seen on September 19th-29th as the stock found support in the $120-$130 range. Other technical indicators like the MACD, the Aroon, the RSI, the Money Flow, and the Stochastics offer strong proof that Apple has based, that the moving averages are moving upward, and that money flow is moving back into the stock. These signals combined with the recent break out lead me to offer the following predictions:
Apple Pricing Predictions:
11/15/2008 - 12/01/2008 - $122
12/15/2008 - 01/01/2009 - $150
Near Term Outlook
My feeling is that after these targets are reached, the stock will then stabilize for a few months and either resume its long term downward pattern or breakout of the pattern to find new highs. I will require more information and price action to make this determination. What is clear however is that at the current price of $107 the stock is significantly undervalued. I do see that some short term weakness (like Friday) may offer an entry point between $100 -$105, however I also see indications that the price movement Friday offered stability (a foothold) and that by Wednesday of next week we will be moving steadily higher.
The Hopeful Investor
My final commentary is that many investors that love this stock wait on the sidelines hoping for lower prices. I’m sure many of them will chime in and respond to this post negatively hoping to convince you otherwise. I would respectfully tell them that hope is not an investment strategy and that waiting for absolute lows (and highs) is sheer folly. As a Technical Investor you look to take advantage of 80% of the price action, risking 20% to short term volatility. These “hopeful investors” are the same folks that drive up the price dramatically as they panic to get in on the highs of the day and get burned by panicking and selling on the lows. Feeling disgruntled by their losses they come on these boards and trash the stock, then panic and buy in once the movement has already happened. They do eventually make money, but their short term lack of vision costs them 30% - 40% of what could have been made simply by trusting the technical indicators and ignoring the noise of short term movement. I can tell you this with full conscience as there was a time when I too was a “Hopeful Investor”. I have since learned (over 11 years) to trust what the indicators are saying, have faith in my decisions made calmly with the analysis, and not to be affected by the “drama” of daily movement.
Finally, the Conclusion
The technical signs are clear here folks. The stock is moving upward. I sincerely hope the data I have offered makes sense. I will be checking this post from time to time to answer any questions. I wish everyone the best of luck and hope you all take advantage of this opportunity to make money.
Take care,
NVS
Here's the funny part... I bought my wife one of the very first iPods... she took it to work to show her co-workers, friends, etc... they had no idea what it was or why anyone would need to carry around that much music, etc... we still laugh about it. I told her the thing was going to be hugh!! She didn't understand then. Now she does. Same with this author... he doesn't really understand the AppleTV. The current version has flaws, sure.. but Apple has only just begun... this is going to be a very very big deal before all is said and done.