Realtosh

http://realtosh.blogspot.com/2008/10/battle-for-digital-music-service-brand.html

10 Comments

    • Amazon, Rhapsody Gain in Digital Music Market ; iTunes Still Top Dog [view article]
      Check out Realtosh analysis on the Ipsos digital music service surveys at realtosh.com. Oct 10 07:53 PM
    • Jonathan Ive: More Valuable to Apple than Steve Jobs? [view article]
      "Jonathan Ive should be the next CEO of Apple."

      Jon would be the worst CEO for Apple. Jon is a designer, not a chief executive. Jon wouldn't want to waste his time managing people and operations, apart from his design teams. Taking Jon out of design would be the worst thing Apple could do.

      Apple would run better with Jon heading design and with me as CEO, and I've never run anything bigger than $50m.

      Jon loves what he does. i can't imagine he would ever leave Apple. He has the best designer's job in the world. I can't imagine he woulf ever give that up, even o run the shop. That wold just be o below his skill set.       Sep 24 12:04 PM
    • Apple's New iPhone Applications No Threat to RIM's BlackBerry [view article]
      RIM unit growth will continue for a while. But the rate of growth will slow over time. Most large corporations that are going to get Blackberry systems already have them. The cost of the BES systems make them accessible only to the largest of corporations. Any other business, that must watch the bottom line, installing a BlackBerry server is just out of the question. Those other individuals and companies that have gotten their BlackBerry service from cellular providers are easier targets for the iPhone.

      On the consumer and small business fronts, the iPhone is just a better solution and will continue to make inroads in those markets faster and sooner. The iPhone will choke off much of RIM's growth in the consumer space, that the Pearl was designed for.

      With the support of ActiveSync, the iPhone will consolidate the smartphone/email space in a way that Mobile Windows devices have been unable to do. Further the iPhone will prevent RIM from consolidating the push email space. RIM will now have to battle Apple in that space. That is a threat in anyone's book; so what is the author of this blog smoking anyway?

      Notice that this article was unsigned. At best it was just link-bait, and at worst troll-bait, which is less than I would have expected from Seeing Alpha. I guess they're just after the clicks like every other site out there. Oh well. So much for thinking that SA was any better than any other site. Very very weak analysis.       Mar 13 02:27 PM
    • Will Netflix Survive iTunes Movies? [view article]
      Your analysis is spot on. It is essential that Netflix rethink their business model this year.

      Netflix' greatest asset is also its' greatest weakness. Netflix has an impressive collection of DVDs accumulated over the years. As the party moves away from DVDs and onto the net, they will lose their built-in advantage. As iTunes, and possibly other online competitors, fills in their catalog, there will be shift to online distribution. Netflix’ titles will be in an older static non-HD technology, where on line downloads can adapt more easily.

      iTunes will have 2 competitive advantages. These are at both ends of the movie demand curve. First, when a movie first comes out, everyone with an AppleTV can download it the very first day. No running down to Blockbuster and having all copies checked out already or waiting for Netflix to get around to sending you a copy weeks later once the new release demand for that particular title has died down.

      Second, online distribution is also ideally suited to fulfill the long tail of demand for low-volume niche movies in many genres. Netflix was able to exploit this advantage against Blockbuster and other bricks and mortar DVD rental shops, who were unable to stock as many titles as Netflix’ central distribution. iTunes can use the online advantage to outflank Netflix, as can any other online distributor with the resources and resolve to assemble a collection to rival Netflix’ DVD collection. The beauty of online distribution is that as soon as a digital copy of a title is catalogued, you have unlimited copies of that title to rent or sell forever. No lost disks, no damaged disks.

      I agree that the cost of set-top boxes is a barrier to consumer adoption of online services. The advantage that the AppleTV has in this overcoming this barrier is that AppleTV also ties into the iTunes/Mac ecosystem. It not only allows movies-on-demand, it does so without the $50 a month or so cable/ satellite bill. $600 a year buys or rents a lot of content.

      AppleTV deals with your ease of use concern. Not only will you be able to push a virtual button and watch a movie in minutes as you suggest is important, but you’ll also have easy access to the Apple/ iTunes ecosystem. The AppleTV functions as the iPod connection for the home stereo and TV for their iTunes collection of music, music videos, TV shows, movies, podcasts, and for their photos in iPhoto and flickr, plus access to YouTube and other internet services that will be added over time.

      I disagree that the entire movie needs to download in minutes. I do believe that for the movie-on-demand consumer, the movie needs to start playing in minutes and be able to play uninterrupted until end, except for any user-initiated potty break or snack run. Constant interruptions to allow for movie downloading and buffering will adversely impact the quality of the experience, and therefore reduce uptake of the service. With the increasing penetration of broadband, including fiber direct to consumer, this concern will diminish over time.

      In addition, with 30 day downloads, some people will download movies in advance for viewing later after dinner, or even download overnight in advance to have movies available for weekend viewing. No need to worry if Blockbuster will have the movie available on busy Friday and Saturday nights. Also, no need to worry about the availability of the next Netflix movie in the queue, or the timing of the postal delivery of the physical DVD.


      The rate of uptake of online service vs the Netflix delivery model will be affected by the cost of service and the availability of movies. At the moment, Netflix has the cost advantage vs iTunes for households who consume a large number of titles on a constant basis. They also have the long tail variety of title advantage at this moment. Both of these advantages can disappear when an online distributor, such as iTunes, builds their online catalog and offer a subscription service respectively.

      Blockbuster Total Access has similar characteristics to the Netflix subscription model, plus integrates with the bricks and mortar stores to adds bonuses. This battle between the two has led to a price war which gives these subscription services the price advantage but also cuts away most of the profit.

      Netflix will be around for a while, but your prediction of 5 more years of substantive growth is overly optimistic, unless as you say, they rethink their business model this year. Apple is monetizing the their community by offering additional services to their installed base. Netflix is failing to do so by not building, on top of their dead-end low-profit commodity business, a community serviced by new original content created to differentiate their brand.

      Once, Netflix and Blockbuster move to online distribution, there will be a new level playing field. Each will have little or no advantage naturally arising from a consumer’s experience with the respective entity previous distribution business model. However, users of Apple technology will have an ecosystem of which AppleTV is but one part of the whole.

      There is a lot more stickiness to Apple’s business model than that of either Netflix or Blockbuster. I would not own either stock right now. Tower Records had at least as good a customer experience as either of two. It is now a relic of the past because it failed to transition to the net. On the other hand, Apple is down about 35% from recent highs, even after having just announced a record quarter with historically high revenue, profit and cash flow, and with margins that are tending higher. Further, Apple has four businesses with lots of room for growth for at least the next 2-3 years: Macs, iPods/internet appliances, phones, AppleTV/media distribution.

      It would be interesting to see if and when Apple gets into the content creation business to serve their much larger community, as you suggest Netflix do. There have been calls for Apple to start a record label. Jobs already did Pixar. It would not be a stretch to think that he could help Apple get into content creation.

      As you can see, I agree with the market and don’t as much value in Netflix as you do unless something changes drastically. I would be looking to someone in a position to do well in the net sphere, like an Apple or an Amazon. Apple is making a lot of money, their products and business models look good, and their prospects for continued growth are solid. And as a value buyer Apple is back at a level that I can justify getting into.
       Jan 30 12:05 PM
    • Gaming, Retail and Restaurants: All Consumers Aren't in the Same Boat [view article]
      Some good food for thought. Sorry 'bout the pun. There are good examples of over-beaten stocks in many sectors. Time to look for the bargains. Warren Buffet must be so busy right now. Jan 30 09:24 AM
    • ZipRealty: Challenging Times, But [view article]
      You mention Murdock, but overlook Diller, Zip would be a good target for IAC and their realestate.com division that is building out a brokerage business. Jan 30 07:47 AM
    • ZipRealty: Challenging Times, But [view article]
      I guess you're recommending the management team, because Zip has NO PROFITS. Most supposed so-called full-service-but-reduc... real estate companies are bleeding cash. In fact they were bleeding cash during the housing boom. Right now during a housing bust, I wouldn't expect them to do any better. In fact, most are doing quite badly.

      On the East Coast, Foxtons just went bankrupt and shut down all operations recently when they were unable to find any suitors for another round of financing to the tune of tens of millions of dollars. They had burned through maybe $50million dollars to try to earn less money per transaction than other non-internet brokerage companies. Guess no one wanted to provide more money for the camp fire.

      We gave up on most unprofitable internet companies nearly a decade ago, when the internet stock bubble burst. This housing bust will shake out a lot of poorly thought through business plans in the real estate industry. Do you think ZipRealty has what it takes to become profitable?

      I see no reason to own a company without profits and without any reasonable means of reaching profitability. I agree that ZipRealty is undervalued. If there were any reasonable hope of them ever reaching profitability than now would be a great to buy them. Right now would be the time to be buying any good realty company, since they are all undervalued. However, I would want to know that the company would become profitable at some point. As far as I know neither ZipRealty nor RedFin has ever shown profitability, nor do I foresee profitability on the horizon. And at the most basic calculus, what we are buying in a company are its profits. Zip doesn't have any; never did. If they won’t be profitable, then there is no reason to own them, nor is there any reason for anyone else to. So to hope for an acquisition of a company without profits is like hoping to not get stuck with the hot potato.

      I do think that the real estate industry is ripe for a metamorphosis. However, I have not yet seen a widespread or highly visible alternative model that can have staying power and sustainable profitability. I have some ideas, but you won’t read about them in a comment on a blog. Ideas for profitability in a $3B marketplace, where others have tried but not achieved, would be discussed in meeting for angel funds or possibly in a second round of financing. The financing for an internally profitable business model would be by definition totally unnecessary and would be considered to grow the model geographically. But internally in each geography the model would have to be profitable to be worth its’ salt. I can’t believe that we are still funding unprofitable internet companies without a plan to reach profitability, in any industry.

       Jan 29 04:42 PM
    • Apple Needs to Execute, No Longer Innovate [view article]
      And yes, the stock in now a no-brainer. On second thought, don't buy it, so that I'll have more time to accumulate greater amounts of AAPL for myself at lower price points. One thing that is nearly certain is that Apple will continue to grow revenues and profits for at least the next 2-3 years with their current businesses that they need to execute. Imagine what happens when they inevitably will innovate at least 1 more new business within the same 2-3 years. Jan 24 07:19 PM
    • Apple Needs to Execute, No Longer Innovate [view article]
      Let's see what Apple can do WITHOUT purchasing Dell. Jan 24 05:59 PM
    • Apple Needs to Execute, No Longer Innovate [view article]
      I agree that Apple needs to execute. They’ve been doing a stand up job no maker what the stock market does. I do understand your concern that Apple strengthen its’ current businesses before going and looking for new ones. They’ll never stop innovating, that’s what makes it Apple. I imagine that you’re hoping that they continue to innovate within their current business segments.

      I wonder how you feel about Apple growing and innovating in one particular area – selling to business. Don’t you think that Apple can do a lot of internal organic growth with the $18B in cash on its' balance sheets?

      Last month you mentioned the possible acquisition of Dell. It would be a game changer. After digesting Dell, Apple would change the market share game permanently in one swoop - which is probably what you're suggesting. There would be much press coverage and the IB fees involved would be out of this world.

      But does it make sense to purchase all of Dell, only to have to shut down many divisions? Even though Dell was worth 50% more 2 years ago, it was still valued at $45B this morning, and trading up all day. Apple has little need to continue producing low-end boxes that contribute nothing to earnings.

      Apple and Google are the desirable companies to work for in Silicon Valley. With so many struggling hardware and software companies, some folks likely worry about the long-term prospects of their current employer and/or of their jobs. All Apple need do is hang a Hiring Talented and Experienced Account Reps sign. Apple would get quite a number of interested individuals and possibly teams, especially if they can show they are truly committed to the Business market. Purchasing Dell would show commitment, but doing so is so costly. Surely, there must be some other way to curry favor among their future hires – experienced account reps.

      With $18B in cold cash couldn't Apple buy into the channel? There must some way to acquire and/or set up an infrastructure to sell to and service business clients. Smaller, more strategic acquisitions together with internal growth of call centers, distribution centers, and service organization makes more sense. Combined with raiding the staff of other business software and hardware vendors, Apple could create a formidable organization for a fraction of the almost $50B required to acquire Dell, with none of the baggage either.

      Spending so much in such an acquisition would have its’ benefits but seems not the most efficient use of funds. Consider that much of Dell’s market share is low-cost, low-profit sales. Dell had net income of $2.5B per year in the most recent quarterly report (3Q08). Apple has over $1.5B in net earnings and over $3B in cash flow in the Dec’07 quarter alone. Cash flow figures give us some visibility on apple’s actual performance; now that Apple hides so much of their revenue and earnings (iPhone, AppleTV) in 24 month installments.

      Dell is probably the single largest payer of fees to Microsoft, or close to it. Trying to change that overnight would incur that wrath of the very customers that the Dell acquisition would justify. Alternatively, keeping the Microsoft payment spigot on is not at all strategic for Apple either. Customers would move to Apple more willingly if it were their own decision to do so. Forcing so many customers to make the move en masse to Apple, would create opportunities for HP and others, who would not share in the cost of the Dell acquisition.

      So creating the infrastructure to sell to business will take a lot of work. It certainly wouldn’t be easy. But it is both possible and much cheaper than buying Dell. This way Apple could focus their effort on the most profitable segments of the market and cherry-pick the best products to offer and the best customer types to pursue.

      Plus growing into the business market through internal organic growth is more consistent with your concern that Apple not over-extend itself. Apple can continue to serve the business market by working up from small to mid sized businesses served out of the Apple Stores. Apple can grow this organization and handle increasingly larger businesses profitably. Apple already has experience with some quite large education contracts. let's see what they can do with purchasing Dell.
       Jan 24 05:55 PM
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