Is Apple Gonna have A Bad Fiscal Quarter?

The news sounds onerous as Apple has reported that it is cutting orders for parts for its iPhone 5.  "Rumor of Apple's iPhone order cuts have been circulating for a month. Interestingly, analysts have been raising their iPhone estimates lately. Many of them are anticipating Apple's March quarter is a mess."  So what is the problem?  For me, the challenge across the board is the frequency of hardware updates on a faster and faster basis.  With consumers on a 2 year phone subscription, phones can only be replace so often without paying a greater share for the latest toy.  As a consumer, if the current phone works fine, why keep replacing it, especially if the next hardware update is only  6 months  away.  The same holds true for Apple's other products.  Many have bought the iPad Mini over the holidays.  So to hear that the next generation model is less than a year away makes the consumer a bit frustrated.  Apple needs to rethink the timing of these hardware releases.

On the other hand, tweaking the software should happen frequently.  Adding more value to the product only keeps us loyal to the brand.  And for Apple to rebound, it means it needs another new product that adds value to the line.  The iPhone wristwatch, an Apple subscription service, an Apple TV; it is time to expand the line.   For now, the market sentiment may be negative, but I still believe that Apple has opportunity in front of them.

US Cable Subscriber Base Shrinking

According to reports, cable household subscribers may have finally hit the tipping point and will begin to decline.  "The number of Americans who pay for cable-like TV products is declining, says a research forecast that claims subscriptions peaked at nearly 101 million in 2011 but will decline to less than 95 million by 2017."  Blame the high cost of cable, blame the internet for bringing competition to the cable model, call it cord cutting, but subscriber numbers are declining.

But not to worry because cable companies are not about to go belly up.  For one thing, the decline is a long way from serious economic jeopardy. And second, these same companies are operating in a multi-platform world where they are finding revenue from content spread across the market.  And as the Paid Content article directly exclaims, "The first cable decline is a tipping point, not a revolution."

Internet Connectivity Everywhere At A Cost

For almost all of us, we are on the grid.  Wherever we go, we are found.  We can track our iPhone, but our iPhone also tracks us.  We can drive anywhere we want, but our EZ Pass tells others which check points where passed and how much to charge us.  And we can be constantly connected to the internet, whether through our TVs, phones, laptops, and yes, our cars.

Sirius has had a pretty exclusive connection to us in our cars with satellite coverage and a wide assortment of music, news, sports, and more to entertain us.  But the rise in internet connectivity has enabled competitors to enter this space as well.  "But Pandora is making a huge push to get into the car, a move that dovetails with ubiquitous wireless access that makes it easier to listen to its service.
'Internet-enabled radio in the car has already begun,' Pandora Chief Executive Officer Joe Kennedy said in an interview. 'It will grow as a snowball, initially small but growing exponentially.'"  And ultimately, more competition means lower prices to consumers.

Interestingly, according to the article, Sirius and Pandora each face different cost structures with Pandora paying out far greater royalty payments.  And to complicate the cost issue even more..."Traditional radio pays nothing at all to SoundExchange, although it pays composers to air their music."  

Wireless connectivity is big business these days and the above growth is just one indication why Dish Network wants to buy Clearwire and compete in the space.  Because at the end of the day, to be connected, we as consumers must also pay for access to wireless along with the services themselves.  And with more desire to be "always on and connected", wireless connectivity is moving more and more away from an all you can eat model toward a usage fee, with heavy users paying more to be connected. 

Cheaper iPhone, All About iTunes

Apple has dominated the "luxury" side of the mobile marketplace with high priced smartphones and tablets.  And while Apple leads market share on the tablet side at the moment, the iPhone is losing share to the lower cost market, especially in the international arena.  Sure older model iPhones have come with lower prices, but Apple sees the need to offer cheaper models "in a bid to grab more customers in developing countries". 

Some have argued that lowering prices on iPhones and Mini iPad tablets are resulting in a lower profit margin for Apple, but I believe that they are negating the value of further increasing the subscriber base to the infrastructure, namely the iTunes and App Store.  Others, like Amazon and have priced their Kindle product line with lower margins specifically to gain customers to their own store.  And they have the added advantage of the Amazon Prime subscription service to bring more value to the consumer and more revenue to the company. 

Apple's entree into cheaper products to grow the customer base should be followed by a similar approach to Amazon, a premium subscription service that brings added content at a monthly cost.  And while more customers could mean more purchases on the iTunes Store, companies and Wall Street both love to see a consistent, regular revenue line, that an iTunes subscription service offers. It is the iTunes and App Store that has the best opportunity to grow at double digit rates, bringing more and more revenue to Apple.  Cheaper iPhones may be the first step, but other lines, like the Apple TV box, and iPod, and yes iPad should definitely follow.  More products sold to more consumers means more sales on iTunes.  

3D TV Not Appealing

Back in November, 2010 I wrote a blog asking 3D or Not 3D and felt the glasses limited the value and enjoyment of a 3D set.  In other blogs I wrote, I suggested that I saw little incremental value both in the home and in the movie theater.  With rare exception on a couple of movies, 3D wasn't important to me.  And I guess others agree.

"This year at CES, very few television makers even mentioned 3D, Troy Wolverton of the Mercury News reports."  Today the push continues to build connected TV sets as well as to hype bigger screens with more pixels and better Hi Def experience.  And while my own instincts in 3D were proved right, I am sorry for those companies that invested in those products.  Would I revisit 3D; perhaps, when the experience can be created with a set of glasses to wear.  Viewers love to be immersed in the video experience, and once that can be created cleanly with a "hologram" like experience, I would be very interested.  Yes, once again, Star Trek science fiction pushing to be science fact.

So goodbye 3D for now.

Dish Network Wants To Be Your Broadband Provider

Dish Network has  a plan of action.  First, get FCC approval to use its wireless spectrum and second grow the business.  With that in mind, Dish has declared its intentions to move quickly by counter bidding on Clearwire to wrestle control from Sprint.  "Under the proposed deal, Dish Network would buy about 24% of Clearwire's spectrum assets for $2.2 billion, and Clearwire would build and manage a wireless network for Dish. Dish would also provide up to $800 million in additional financing to the struggling Clearwire."  So while counter-offering Sprint, a successful bid would also mean that Sprint and Dish would become partners in the ownership of the wireless entity.

What is Sprint going to do?  Given that they too are being purchased by Softbank.  And is this the best move for Dish?  Given some of the issues facing Clearwire, "Clearwire's frequencies are difficult to use", should Dish look to partner more closely with another wireless provider like Sprint itself or Nextel.

What Dish does know is that two way communication is key.  Google is building a wired market for broadband such as in Kansas City, but for Dish, the strategy is a wireless infrastructure to compete.  And ultimately for the consumer, more competition for wireless and broadband access is good news in keeping prices competitive. 

How Do You Turn On Your TV?

Such a silly question, right.  But how many remotes does it take to watch your TV.  I was recently at someone's house over the holidays and it took 3 different remotes to watch TV, one to turn on the TV, one to turn on the cable set top box, and one to turn on the receiver.  Hit a wrong button, change the wrong remote's channel button and you were SOL.  For our short time there, it was best to simply not touch the remote till all systems were on and working.

In our own house, we need one or two different remotes, and tend to leave the cable box on 24/7 to simplify the process.  Cumbersome, but eventually habit forming.  So perhaps the ultimate TV screen will be managed 100% from one device, whether a single remote, mobile app device, or physical buttons on the set.  Yes, they still exist and for one TV set we still use the set's buttons.

Want to move from a cable network to on demand to a DVD to web video, one remote.  Ahhh the simplicity.  And perhaps that is what will ultimately appeal to the consumer, the ability to control all, without fumbling with multiple remotes.  That is until, everything is 100% voice controlled: "Siri, please turn on the TV to ESPN.  Thank you, Siri."  Can I look forward to that at this year's CES?

Old TV Media Not Dying Anytime Soon

According to the David Carr article, old media, or more correctly, old video media isn't dying anytime soon.  With the stock market as an indicator of performance, "the Standard & Poor’s 500-stock index was up 13.4 percent, which was a significant advance, but legacy media giants like Comcast, News Corporation and Time Warner absolutely surpassed it in terms of share price."  Content and distribution companies have figured out how to utilize new media.  For content, it is about controlling how it is available outside TV, both in short and long form content, while protecting license fees across different distribution platforms. 

And while the cost of a cable subscription is rising at an alarming rate, subscription loss has yet to make a huge financial impact given other ways they have merchandised content.  And unlike the print and music business, the video business has not yet felt the impact of being displaced; rather, "New players have opened windows to sell content without cannibalizing the retransmission and affiliate fees that have turned into a gold mine for media companies."  And it is that additive revenue that is helping to improve the bottom line.  

And why will cable TV and old video media stay strong, by locking in content.  Need an example, just look at tonight's BCS National Football Title Game between Alabama and Notre Dame.  Not on the web, not on free TV; if you want to watch you will have to be an ESPN subscriber.  Exclusive content continues to matter and sports on TV remains a big driver for cable.  It's why DirecTv has tied up NFL coverage for all games outside the market.

B&N Next Move

Holiday numbers are coming in and while tablet sales have been brisk, Barnes and Noble has not been as lucky.  As a big B&N consumer, our family must visit their store at least once a month.  But we are also tablet users, specifically iPads, and use them extensively to play games, watch videos, and use other apps.  Yet we haven't migrated to e-books... YET.  I am sure we will, but there has always been something special about opening a book and paging through the chapters to get to the end of the book.  It is hard to replicate with a device that tells me the percentage of the book that has been read.  Still, I expect that we all will start buying e-books and the question will be from whom... Nook, Amazon, Apple?

So what can B&N do to rebound from a bad Q4.  "Sales from stores and the website sank 11 percent to $1.2 billion, the New York-based company said yesterday in a statement. Revenue at the Nook unit, which includes devices, accessories and content, fell 13 percent to $311 million."  I do not want to see B&N become another footnote, like Borders.  But tablets are invading our lives and the Nook lacks what Apple and Google possess, a real library of apps PLUS the integration of these same apps across devices like tablets, smartphones, and computers.  Not just books, but games, pictures, videos, music, too ACROSS devices.  I believe this integration is essential.

In the retail space, B&N has begun to diversify its product line, adding toys and gifts to its merchandising efforts.  But more diversification is necessary to succeed.  People still love to leave their home to shop and B&N can continue to be a destination.  What products to add, perhaps bring Game Stop into the mix.  And make Microsoft a bigger presence, selling not only Xbox but also their line of phones, tablets, and accessories too.

As to the digital side of the business, with competition fierce, an expanded partnership with Microsoft may be the solution to the issue of integration.  Tying in more closely to a Microsoft App store that gains credibility and expands the usefulness of the product line.  The Nook product line may be ranked superior for its hardware, but it is in the usefulness and ergonomics of the software with the hardware that I believe matters most to the consumer.  Getting the consumer to see that value may be most important.