Starting a New Revenue

By Daniel Drew Turner  |  Posted 2006-09-12 Print this article Print

Stream"> This is perhaps why Jobs chose, as he has been loathe to do, to talk about an upcoming product.

If he had shown a full-screen video iPod that would not be on the market for six months, this could impact current iPod sales. But by showing the iTV, which will give new value to any movies, TV shows or music you buy today through Apple, he has increased the value of those purchases.
"You buy a movie or a TV show today," said Ted Schadler, an analyst at Forrester Research in Cambridge, Mass., "and have a new experience with it when you have an iTV."
Schadler also said that pre-announcing the product is "something that companies in a dominant position do." He added that this strengthens Apples bargaining position when dealing with potential content partners. "It says to studios, heres how were going to do it. Heres how were going to be the winner in the living room." Michael Gartenberg, vice president and research director at New York-based JupiterResearch, was also intrigued by the announcement of the iTV player and the fact that Apple, known for trying to maintain the secrecy of product launches to heighten the market buzz, unveiled it well in advance of its launch. "Apple is providing a solution for the digital home, and thats a pretty big deal at this point," Gartenberg said. "They are offering a means to play video, but move it beyond a PC and onto a television set. They have set a big challenge for themselves and we will have to see what they deliver in 2007." Van Baker, the vice president of research for media at Gartner, based in San Jose, Calif., said that by offering iTV next, but announcing its presence before the holiday shopping season, Apple has essentially frozen the market, forced its competitors to respond and left consumers with an option. "People might want to wait and get a look at this before they make a purchase," Baker said. As for the movie sales, Baker believes that Apple may have wanted to have all the movies sell for $9.99 to keep in line with the music on iTunes. Under the current scheme, the $9.99 price will be limited to older movies. But in the end, the pricing will help keep a constant revenue stream flowing to the company and studios. "Its pretty good marketing and the preorders create a purchasing incentive," Baker said. "You can move a whole bunch of preorders and its a cash flow for Apple and for the studios." Schadler said that Apples pricing system, which is $12.99 for pre-ordering and ordering within the first week of a new release, with the price rising to $14.99 thereafter is a "promotional pricing" scheme. Click here to read why Apple is warning that users need to install an update to their QuickTime media players. But, what was most significant, he said, was that Apple negotiated the "availability window," winning the ability to sell a movie online the same week of its DVD release. "This says that the movie industry is willing to cannibalize DVD sales," said Schadler. He noted that DVD sales have usually been a "cash cow" for the movie industry. Though Jobs also debuted a new generation of iPods, he couched their updates in terms of movies. He noted that the new video iPods, though sharing the same form factor as the previous generation, had 60 percent brighter screens and could play 3.5 or 6.5 hours of video, depending on the model. And even more telling, perhaps, was the introduction of an iPod Games channel in iTMS. Jobs demonstrated a variety of games designed for the iPod from game companies Electronic Arts and Pop Cap. At $4.99 each, they are cheap compared to their desktop versions, but as mobile phone companies have shown with ring tones, its the content that can be the most profitable revenue stream of all. Editors note: Staff Writer Scott Ferguson contributed to this story. Check out eWEEK.coms for the latest news, reviews and analysis on Apple in the enterprise.


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