Apple 2.0

What iTunes Looks Like Without NBC (UPDATED)

UPDATE: A lot of bluster under the bridge since this was posted early Friday morning. A couple hours later, Apple (AAPL) issued a press release calling NBC Universal's bluff (see Apple to NBC: Drop Dead). Later that day, NBC issued its own thumb-in-the-eye statement, letting Steve Jobs know that GE's (GE) lawyers intend to hold Apple to the terms of the contract that NBC has decided not to renew. Staci D. Kramer at paidContent has that scoop. Negotiations are going to be tough with so much face to lose on both sides, which makes this post's premise -- a future iTunes without NBC (or should that be an NBC without iTunes?) -- seem even more relevant today.

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Almost as shocking to Apple watchers as the news that NBC Universal is not renewing its iTunes contract is the news that the network's content, according to the New York Times, represents 30% to 40% of digital video downloads on Apple's site.

When did that happen?

NBC is hardly the Must See TV powerhouse it was in the days of Friends and Seinfeld. It routinely runs fourth in the Nielsen broadcast TV ratings, and on iTunes it has to compete with not just ABC, CBS and FOX, but with 63 other networks, including youth-oriented powerhouses like Comedy Central, MTV and Nickelodeon. Comedy Central alone offers the Daily Show with John Stewart, the Colbert Report, South Park and the Sarah Silverman Show, just to name their top sellers.

NBC's top sellers on iTunes, as many commentators have noted, are The Office (currently the  No. 2 season download on the site, after Showtime's Weeds) and Heroes.  But scroll down the page and you start to get a sense of how NBC could be racking up all those $1.99 charges. The network has a strong bench. Number 3, 4 and 5 downloads are Scrubs, 30 Rock and Studio 60. Below them you'll find series like Friday Night Lights, My Name is Earl and the Law and Order franchises.

And unlike Comedy Central, which offers only the last dozen or so episodes of the Daily Show, NBC has gone for the Long Tail play, digging deep into its archives to repackage old Saturday Night Live episodes, Gen-X nostalgia like the A-Team, Xena and Saved by the Bell and Baby Boomer classics like Dragnet, Rod Sterling's Night Gallery and Alfred Hitchcock Presents. All told, it has put some 1,500 hours of programming on iTunes, all of which could disappear in December when the two-year contract with Apple runs its course.

Viewed with the benefit of hindsight, it's almost as if Jeff Zucker's NBC were using the iTunes Music Store as a proving ground to test the format and audience appetite before striking out on its own -- or rather with Rupert Murdoch's News Corp. -- on Hulu.com, scheduled to launch in October.

Could Apple have made a strategic blunder, letting NBC slip through its fingers? As the Times points out, NBC's defiance, following Universal Music's rebellion earlier this year, could embolden other networks, whose contracts will presumably come up for renewal in the months ahead.

"No The Office, no Battlestar Galactica, no Heroes?," writes MG Siegler at ParisLemon. "Suddenly I'm starting to rethink video on iTunes. No Universal Music Group tracks, no Fox movies? Suddenly I'm starting to rethink iTunes in general. Apple is still in an utterly dominant position even without NBC -- its the music sales, not the video sales that drive the service -- but it could all come crumbling down rather quickly." (link)

Steve Jobs, asked recently what he most admired about Bill Gates, answered that he envied Microsoft's ability to work with its partners (link). Both men bargain hard, but Gates seemed to be better than Jobs at keeping his frenemies inside the tent. Has Jobs learned that lesson? We may see next Wednesday, when we find out how he responds to Zucker's challenge, and what he plans to do next with iTunes, the iPods and Apple TV.

Picturing the iCar

A brief report in the German magazine Capital that Apple (AAPL) CEO Steve Jobs and Volkswagen chief Martin Winterkorn met in California recently to share ideas about a so-called iCar has Apple watchers scratching their heads once again about what such a car would look like.

Apple, of course, has been working with automakers since at least January 2005, when the first iPod-ready Mercedes-Benz rolled off the line. Since then, according to Macworld, Toyota, Citroen and Lamborghini have all announced iPod integration in new model cars.

Apple's relationship with Jaguar goes deeper than that. "We have been working with Apple on control interfaces," Ian Callum, designer of the new Jaguar XF, told Car Magazine recently. Like the keypad-free iPhone, the new Jag does without a gearshift, opting instead for a "drive selector." As Callum describes it, the car boots up like a Mac:

Step inside and the starter button starts to pulsate like a heartbeat. Press it and the car comes to life. The air vents rise up and the JaguarDrive Selector pops up. (link)

But judging from earlier reports, the Apple-VW collaboration is something else again. In July, AppleScoop posted a fuzzy screenshot of a concept car the two companies were said to be working on and shared what they'd heard about it:

Rumor has it that the vehicle will sport Apple's AirPort networking system along with a touch-screen,  modified version of the popular iMac. Not many specifics were given on the design or it's potential features, but my source says the iCar will do to other luxury vehicles what the iPhone did to other smart phones. (link)

That got the staff at Engadget thinking. They dug up the old Chris O'Riley illustration at the top of this page and brainstormed about what an Apple iCar could do:

Ryan: "Can hit 100Mph, can't hit 100Kbps."
Evan: "The scroll wheel would be hard to steer in sharp turns."
Paul: "Give it a few weeks and you should be breaking 25Mph no sweat."
Nilay: "It only uses one kid of gas!"
Josh: "I hear it doesn't have 3G either."
Chris: "Internal combustion engines were stupid until we decided to use them."
Dante: "White." (link)

[iCar illustration © 1999 Chris O'Riley www.chris3d.com]

Anatomy of a Rumor: Google To Buy Apple?

My friend and colleague John Heilemann should be flattered.

A blind quote buried deep in his eight-page cover story on Steve Jobs in this week's New York Magazine has launched a cottage industry of journalistic speculation about whether Google (GOOG) might actually buy Apple (AAPL).

It started with this:

Some of his friends say these close calls have mellowed [Steve Jobs]. "I see him around the neighborhood," says one. "He looks different than he did a few years ago. I think he may want to do something else."

Say what? "I think that Google is going to buy Apple," this person says. "It would be a victory for Apple; they’d get major-league partners, money, and engineers. And it would be a victory for Steve—a huge win that lets him leave the stage." (link)

Not exactly something that would pass muster at the Wall Street Journal as a solid quote. In fact, the New York Times won't let reporters file a graph like this without a phrase explaining the source's motivation for remaining anonymous.

But that hasn't stopped a half dozen bloggers and journalists who should know better than to take the hypothetical ball and run with it.

"Apple Buyout Rumors Circulate as iPhone Launch Nears" screams Guy Kewney's headline in the British Channel Register. "Buyout Rumor Wednesday" is the teaser on Veronica Belmont's podcast on CNET News.

"First there was Google Maps on iPhone, then Apple announced that YouTube on AppleTV and now YouTube being an iPhone feature," writes Googlefied. "I wonder if they will merger (sic). [with link to New York Magazine]"

Matthew Siegler at ParisLemon actually gets out his calculator.

Google's market cap currently stands at $158 billion. Apple's is at $105 billion - but is almost for sure going to go up significantly starting in about 8 days from now... I mean for Google to make a run at Apple what would they do, mortgage AdSense?

Fake Steve Jobs, however, seems to like the notion:

So the idea I guess would be that we'd bring Squirrel Boy [Google CEO Eric Schmidt] onto the board for a while, let him learn all about the company and develop a comfort level, and then at some point Apple becomes the consumer-facing side of the Google cloud operation. The combined company controls search, and controls the utility computing data centers that Google is still secretly building, a virtual supercomputer girding the globe, in effect the world's most powerful single machine which in ten years will be delivering not just email and word processing but also television programming, movies, games and phone calls. Basically, everything. Cable companies? Phone companies? Our kids won't know what they were, unless they look them up on Wikipedia, using GoogleNet. (link)

OK. But at least Fake Steve Jobs knows he's fake.

Greenpeace Takes Credit For Apple's Green Policies

Greenpeace wasted no time responding to Apple (AAPL) CEO Steve Jobs' "A Greener Apple" message (see Jobs Takes on Greenpeace).

Nor did it waste any time patting itself on the back. Although Jobs spent most of the piece talking about what Apple had already done -- and wasn't getting recognized for -- Greenpeace promptly took credit for it:

And to all the Apple fans who have contributed their thoughts and blogs and creativity to this campaign, reach over your shoulder and pat yourself on the back. Put a happy tune on your ipod and do a happy dance. You've proven you can make a real difference. You convinced one of the world's most cutting edge companies to cut the toxic ingredients out of the products they sell. (link here)

Lessig on Viacom v. Google

Today's Sunday NY Times Op-Ed page has a piece by Larry Lessig on Viacom's (VIA) $1 billion lawsuit against Google (GOOG) that's interesting on several levels.

Most analysts assume that the suit is a ploy to give Viacom leverage as it negotiates the fees Google will  ultimately agree pay to run Jon Stewart clips on YouTube. (See, for example, Joe Nocera here.) I suspect that's probably right, although the suit makes larger claims:

“YouTube,” the complaint alleges, “has harnessed technology to willfully infringe copyrights on a huge scale,” threatening not just Viacom, but “the economic underpinnings of one of the most important sectors of the United States economy.”

The first thing that's interesting about Lessig's take is that he places it in the broader context of the Copyright Act. For most of the Act's history, it was up to Congress to set the rules and courts to enforce them. As Lessig points out, Justice Hugo Black argued long ago that it was not up to the Supreme Court to keep the Constitution “in tune with the times.” That changed 20 months ago, Lessig argues, when ...

... the court expanded the Copyright Act in the Grokster case to cover a form of liability it had never before recognized in the context of copyright — the wrong of providing technology that induces copyright infringement. 

The effect, says Lessig, is that it ...

... has created an incentive for companies like Viacom, no longer satisfied with a statute, to turn to the courts to get the law updated. Congress, of course, is perfectly capable of changing or removing the safe harbor provision to meet Viacom’s liking. But Viacom recognizes there’s no political support for the change it wants. It thus turns to a policy maker that doesn’t need political support — the Supreme Court. (full piece here)

Lessig is clearly on Google's side in this dog fight, which leads to the second thing that's interesting about his piece.  Lessig, for whom I have great respect, is a Stanford Law professor and founding director of the Law School's Center for Internet and Society (CIS). But nowhere on the NY Times Op-Ed page, or in fact on the CIS's website, does it mention that Google last summer pledged $2 million to support Lessig's center. (see Stanford Press release here.)

The Fake Steve Jobs, who like Apple (AAPL) knows a thing or two about buying good publicity, rages at length this morning on the hypocrisy of it all.

[NYT ombudsman] Byron Calame, are you reading this? Shouldn't your Op-Ed writers disclose their conflicts of interest? Something like this: "Lawrence Lessig operates a law center that is funded by Google, the defendant in this case."

Here's the thing about the freetards. In their view, since they're on the side of the angels, there's no need to disclose their conflicts of interest. Because how dare you suggest they're motivated by something as unseemly as -- gasp -- money?

Fake Steve then riffs into absurdity, ending with an imitation of Google CEO Eric Schmidt calling Lessig like a dog:

"Lessig! Sit! Gimme a paw! Write me an amicus brief! Good doggie!" Then he cracks himself up again and goes, "Oh, you know, Steve, it's f___ing great to be rich, isn't it?" (link here)

UPDATE: Prof. Lessig, it seems, also reads Fake Steve, who has posted this e-mail exchange:

Professor Lawrence Lessig writes from Berlin to correct my post from earlier today:

"Hey, fake steve, so your post is funny, but really wrong. I have never -- ever -- received a dime from Google. The Center the WSJ wrote about has been around since I came to Stanford (2000). It is funded by Stanford. I get no funding from the Center; my salary doesn't depend at all on what money the Center gets. The Center has been critical of Google (w/ r/t privacy, e.g.) and supportive (w/r/t fair use). The fact that Google gave money to Stanford to support the work of the Stanford matters as much to my work as the fact that (spectrum mogul) Berkman gave money to Harvard to endow the chair I had at Harvard. You may or may not believe that, but the statement, Lessig "is on the payroll of Google" is just flatly false."

Fake Steve regrets the error. We've amended the original item. (link)

Ex ped: FYI, the Center for Internet and Society was founded in 2000, which is when Lessig joined Stanford. Lessig's official biography at Stanford lists him as the "founding director." Lessig is still the director and was so when Google made its $2 million pledge last December. I don't think it's unreasonable to expect that fact to be disclosed in an Op-Ed that relates to a lawsuit in which Google stands to lose $1 billion.

Microsoft's MP3 Problem: What Does it Mean for Apple?

In the wake of the record $1.52 billion -- repeat billion -- judgment against Microsoft (MSFT), two questions remain: how good are Microsoft's lawyers on appeal, and how solid are Apple's license agreements?

Apparently Microsoft lost the patent suit yesterday because it licensed MP3 from the wrong party. It paid $16 million to Germany's Fraunhofer Institute, but didn't pay Bell Labs, whose engineers helped develop the MP3 format with the guys at Fraunhofer nearly twenty years ago, or Lucent (now Alcatel-Lucent, ALU), which inherited Bell Labs' deep library of intellectual property when Ma Bell was broken up and has made a business of shaking down corporations that use it.

So how does this affect Apple (AAPL), the world's largest purveyor of legally downloaded music?

As I say, that depends on two questions: 1) how bullet-proof Apple's licensing agreements are and 2) whether Microsoft's lawyers are better on appeal than they were in the San Diego federal courtroom where this case was heard.

On the first question, calls into Apple have not been returned, but other sources (for example, here) report that Apple bought the industry-standard Fraunhofer license. And although readers have pointed out below that the songs Apple sells at the iTunes Music Store are not  MP3s but rather compressed in AAC format, MP3 support is included in every Mac and iPod sold and will presumably be in the iPhone as well.

As for the second question, I wouldn't bet against Redmond's sharks, who have a long record of winning in the second round cases they lost in the first (remember Stanley Sporkin?). The Wall Street Journal (registration required) today reports  that 40% to 50% of these patent verdicts are reversed on appeal. Bloomberg helpfully points out that $1.52 billion represents for Microsoft about six weeks of free cash flow.

Steve Jobs and Rush Limbaugh: Separated at Birth?

Who knew that Steve Jobs, who once dated Joan Baez, and Rush Limbaugh, who did not, would have so much in common? Apparently not Rush, who picked up on the same AP story that caught our eye earlier this week, in which Jobs blamed teacher unions for America's dysfunctional educational system. On the air today, Limbaugh singled out one Jobs quote for special attention:

The bottom line here is when he says, “I believe what's wrong with our schools in this nation is that they've become unionized in the worst possible way,” conservatives and just plain people with any common sense have been saying this for decades, but could they get put into the headlines of a story? No. Only if you're a big lib, only if you're a big Democrat, do you get applauded for this kind of talk.

I am happy and proud to be on the same page with Steve Jobs. The way to put it is, I'm happy and proud he's on the same page with me. If he finds out I agree with him, he might change his mind. But I mean this is classic. This is an AP story. Do you know how many average, ordinary American people have been saying this? Do you know how many political candidates on the Republican side have been saying this, and when they say it, they get tarred and feathered and the NEA comes after 'em? Jobs says it, “Wow, why, we must really think about this. Why, there might be something here that we haven't considered before,” blah, blah, blah, blah, blah, blah, blah.

Full transcript here.