Thursday, January 03, 2008

Dumb Lawsuit of the week... er... day... Well, it's the US so who can tell

Information Week reports that Apple is being sued (again) for monopolistic practices such as (a) not playing WMA audio files on iPods even though the chips in the iPods support it (thus hurting competitors, one assumes) and (b) charging for more for a 4GB iPod than a 1GB given the difference in cost between the memory chips (thus hurting consumers, one assume).

It's our poor users who need WMA

Now, you can easily convert any music in your iTunes library into a CD. You can then play that music anywhere you can play music from a CD, which is to say anywhere. You can also easily export music from WMA format into ... oh wait, you can't. And you can't because Microsoft makes it hard. But if I'm in business selling digital music, I can't export music for iPods easily, because AAC is really proprietary, unlike WMA... Er, no wait. AAC isn't proprietary, WMA is. The only reason I would want to export music in WMA format is to restrict what my customers can do with it, and Apple is unfairly preventing me from doing that. Bastards.

This is a special deal, just for you

One of the principles in law is that if everyone does something for long enough and no-one objects to it, then it's pretty much legal. This is part of the English common law which is the framework within which US laws (and the US constitution) operate. There's no question that it's perfectly legal to sell the same product to different people for different prices. Academic licenses anyone? Barnes & Noble membership cards anyone? It's also perfectly legal to paint different names on the same product and sell it for different prices. (If not, Audis would be VWs.)

But is it moral?

Back in the day, IBM sold mainframes with 2MB of memory in them but, unless you paid for the full monty, they only switched on 1MB. When I was in school, the only difference between the cheap and expensive Casio calculators we were required to buy was that the expensive ones had more of the functions marked on them -- inside they were identical, and if you knew where the functions were you could use them on the cheaper calculators. Heck, Intel's 486SX CPUs were 486DX CPUs with the floating point unit burned off. Single-sided 3.5 inch floppy disks were double-sided disks with a hole punched in the plasic case.

The entire computer "overclocking" fad is a consequence of the fact different "speed" CPUs generally come off a single assembly line, and are simply tested at different speeds. Pass a test at 2GHz, and you're a 2GHz chip. Pass a test at 2.16GHz and you're a 2.16GHz chip. But if we don't have enough orders for 2.16GHz chips, we might sell chips that could have passed 2.16GHz tests as 2GHz chips, and in fact we generally do.

In all of these cases, companies -- for perfectly good reasons -- sold physically identical products for different prices, and this was -- oddly enough -- actually good for consumers. (It's cheaper to make large quantities of one thing than smaller quantities of two things -- so the companies generally made more money and the customers generally got cheaper products.)

Shouldn't law suits need to pass some kind of minimum sanity check? Criminal cases have grand jury hearings where, presumably, at least some cases get rejected out of hand.

Monday, December 31, 2007

The Future of DVDs

There's an interesting article on Seeking Alpha today about Apple and the future of the DVD player. Unfortunately, it is based on some extremely poor assumptions; in particular, they wrongly assert that it's cheaper to distribute physical DVDs, or HD-DVDs, than bits.

Um... no. Not even close.

It may be slower (downloading a 5GB DVD will take you a little over five and a half hours at 2Mbps) but that's not comparing apples to apples. Apple is selling near-DVD quality video that takes about 20% of the space of a DVD. They could probably sell you DVD-or-better quality video in about 30% of the space.

Yes, an iTunes movie doesn't include the director's commentary and other crap*, but it doesn't force you to watch ads, redundant anti-piracy messages, and you can actually jump to any spot in a movie effortlessly. And a director's commentary is just an audio track anyway.

How much does 1.5GB cost Apple? A darn sight less than the cost of a physical DVD, packaging, inventory, distribution, anti-theft devices, etc. etc. etc. Heck it costs the consumer almost nothing (one 480th of the month's broadband bill) and that's retail. If Apple is paying $0.10 to serve 1.5GB I'd be shocked, and that's way cheaper than the wholesale cost of DVD replication. And the marginal cost (if you already have broadband) is zero. To put it another way, that's a lot less than you're paying for shipping (even if it's "free"). And Apple doesn't end up with random quantities of unsold inventory that need to be discounted or turned into landfill.

I think that the writer confusing cost with bandwidth (a semi-trailer load of DVDs represents a ridiculous amount of bandwidth).


NBC and a number of partners are giving their content away free online. (More evidence that the idea that physical distribution is cheaper than network is ridiculous.) You can watch very high quality video of new TV shows with fewer ads on than on NBC itself. Admittedly, this is part of NBC's bizarre** "anything but Apple" distribution strategy... It's simply implausible that NBC will make more money off a TV show by giving it away free with 2.5 minutes of unoptimized ads than by taking a cut of the $2 Apple would sell it for, but it must be a cheap enough strategy that NBC isn't bleeding money out its eyes testing it.

DVD Player Sales Down. Widescreen TV Sales Up.

Also today I read an article about the impending demise of Circuit City. The article discussed consumer electronics sales trends, and the most interesting one to me was that TV sales overall are down (flat panels up, projection and CRTs down) as are sales of DVD players. Computer sales (in dollars) are going down with prices (not volume).

Make no mistake, the US TV market is supersaturated. Most homes have more TVs than they know what to do with, so most TV sales are pure replacement/upgrades. It seems to me that people want bigger, better displays, but they aren't buying devices to push content through them (or perhaps they are -- in the shape of XBox 360s and PCs).

* I used to love directors' commentaries, but they seem to have stopped being about "how we ended up telling the story this way" and instead become a bunch of pointless trivia about who did the work behind this obscure aspect of the scene padded out with the usual attaboy backslapping everyone in Hollywood is a genius marketing BS. In essence, I think that because movie-making has become so demystified (in large part because of directors' commentaries) the proportion of interesting information in directors' commentaries has started to approach zero. You still need to listen to Big Trouble In Little China's commentary.

** OK it's not that bizarre. NBC has been in Microsoft's pocket for a long time now, and the original venture with the iTunes Music Store was probably an aberration driven by fear of being left out. Since iTMS isn't making bajillions of dollars, NBC can now safely spurn it... Who knows, maybe giving away content paid for by untargeted and repetitive ads really will pay dividends. I know I'm buying a ton of Cisco routers having seen the same damn Cisco ad 50x on Hulu.