February 9th, 2007
The source of Steve Jobs' paranoia: Cooperation
Although it was a day late and it left enough time to include the record industry's response, I posted some thoughts yesterday on Apple CEO Steve Jobs' Thoughts on Music open letter to the world and to the record industry (see Jobs drowning in his own Kupertino Kool-Aid). In the third paragraph of my post, I wrote:
What's interesting to me is that Steve Jobs was apparently feeling enough heat over Apple's DRM to come up with the herring that he did in the first place. Why come out now, of all times, to plea Apple's innocence on the issue and ask the world to rid itself of DRM? Public pressure? Pressure from the Europeans? Microsoft's Zune? Is he feeling paranoid over some of the other rights management technologies that are in-play — for example the DRM associated with the CableCard specification — a specification associated with a pipeline into people's homes (the cable guy) that's far more prominent than Apple's iTunes Music Store (iTMS) pipeline? It's hard to tell.
Whether he knows it or not, I think John Falcone over on CNET's Crave blog has part of the answer:
Cooperation.
Speaking of the news from TiVo and Amazon that owners of Series 2 an Series 3 TiVo boxes will be able to purchase or lease movies from Amazon's UnBox service and have them show up in the TiVo's now playing list (just as though it was traditionally TiVo-recorded content), Falcone writes:
How well the Amazon/TiVo partnership will take on Apple TV (coming later in February) and Microsoft's Xbox 360 (which already offers HD movie and TV downloads for TV viewing without any PC intervention) is anyone's guess. But toss in additional competition from Netflix, CinemaNow, Google/YouTube, BitTorrent, and Sony–just to name a few–and one thing's for sure: the battle for on-demand digital content has the potential to make the Blu-ray/HD DVD competition look like a minor skirmish in a much larger war.
Bingo.
Architecturally speaking, PC intervention (as is required by Apple TV) is a prehistoric approach to caching digital content and it was surprising to me when Apple TV first shipped that it didn't have the capacity to interface directly with Apple's iTunes Music Store (iTMS) the way TiVo and other PVRs like it basically interface directly with a network and some source of content on the other end. But the real operative word in what Falcone wrote is "partnership."
The home entertainment mission control pie is big enough that no single player needs to do it all while trying to use a proprietary anti-piracy scheme to keep others from participating. In a press release dated earlier this year, Jobs may have sized up Apple's success in the video content business as "the largest online video store in the world" (claiming the sales of 50 million TV shows and over 1.3 million movies). But, in aggregate, partnerships like the one just minted between TiVo and Amazon (and there are no doubt many others in the works) are going to flick Apple off that perceived throne on very short order.
I say "perceived" because anyone can use language to create perceptions that have no bearing on reality. For example, the majority of video consumption isn't done by way of "selling video." It's sort of like someone saying no one has a bigger engine on their dingy when the only other boats around are cruise ships. Sales of video pale in comparison to video that's watched via broadcast, on-demand, and rental. Apple may have sold 1.3 million movies, but Netflix for example has 6.5 million subscribers. Blockbuster, which is gunning for Netflix has 1.5 million subscribers. That's 8 million subscribers consuming from just two sources some bigger number movies on an annual basis that surely makes Apple's 1.3 million movies look paltry in comparison. Not to mention we haven't even bothered to consider the on-demand and broadcast video being consumed in real-time or on a time-shifted basis through all the cable networks. Or the video being served up to handsets by mobile operators like Verizon Wireless and services like Vongo.
Since Apple first introduced the iTunes Music Store, the idea of protected content, and a closed ecosystem, the company has been on a long calculated march that first started with audio and then moved to video and eventually, if Jobs had gotten his way, might have ended with the company's dominance in the installed base of DRM'd content (Apple's anti-piracy tech is called FairPlay) being used to nudge the existing home entertainment regime out of our living rooms. That's the Holy Grail. Had it taken a few more years for those incumbents to get their act together, Apple's odds of finding that Grail would have been significantly higher.
Unfortunately, FairPlay's stronghold still remains in music. Meanwhile, as evidenced by the Amazon/TiVo deal, Apple's competitors are not only in the market with more sensible and frictionless offerings, they're working together and sharing content protection schemes that are incompatible with FairPlay. By the way, one of the incredibly cool features of the Amazon/Tivo partnership has to do with how customers can't lose access to purchased video. Wrote Falcone:
To avoid hard-drive overcrowding, purchased videos can be erased from the TiVo and re-downloaded again at any time.
One of the biggest complaints of iPod users is how this ability to re-retrieve purchased content doesn't exist with iTunes. In fact, while Kay, one of my Dead Finger Technology interviewees, can't do without her iPod, she made it clear that she could do without that limitation.
In Apple's race against the clock, FairPlay has failed to deliver the Grail. An even worse nightmare for Jobs is the one where the incumbents coming from their relative positions of strength not just in terms of video, but also in terms of the pipeline into the living room and handsets (the cable and mobile operators), attempt to leverage their assets for a piece of the music pie. In fact, that's already happening. Perhaps this explains why Jobs would just as soon see DRM go the way of the dinosaurs.
