Mac Musings

iPods, More Costly iTunes, TiVo, Getting Out the Message, and the Future of Apple

Daniel Knight - 2005.03.01

We live in interesting times.

The iPod is a runaway success. The Mac mini is back ordered. Apple stock is at an all-time high.

The record labels want to raise the price of iTMS tracks from 99¢. Digital video recorders are hot, but Apple has no offering and TiVo is losing ground. And most Windows users don't have a clue there's an affordable Mac.

iPods

Apple can't make iPods shuffle's fast enough to meet demand. The iPod mini is more affordable than ever - and with double the battery life to boot. The new 30 GB iPod photo is Apple's most affordable color iPod yet, and the "new" 60 GB model sells for US$150 less than the one it replaces.

To cut costs, Apple has reduced what it includes with the new iPods. No more FireWire cable. No AC adapter with the mini. No dock or AV cable with the photo.

You can buy a 4 GB iPod mini for US$199 now - the same price Hitachi charges for the 4 GB drive alone - yet the Mac Web is up in arms because the FireWire cable is now a US$19 option. From the hype on some sites, you'd think that Apple had completely abandoned FireWire support or was turning its back on the FireWire technology it invented.

Nothing could be further from the truth. All current Macs, most recent ones, and all modern Windows PCs have USB 2.0 ports. More iPod owners use PCs than Macs, and a lot of Mac users with iPods have fairly recent hardware. So instead of including a $4-5 cable (Apple cost), Apple can cut $20 from the retail price of the iPod mini.

Ditto for the AC adapter. Presto, a 4 GB iPod mini for US$199. And for those who want or need a FireWire cable, AC adapter, or iPod mini Dock, they're available for $19, $29, and $39 respectively. But only those who want or need them have to pay for them, so everyone gets to buy the mini for less.

Likewise, the new iPod photo packages don't include a FireWire cable, an AV cable, or a Dock. Apple is repositioning the iPod photo as a color iPod that can optionally display photos on your TV. And all you need to connect it to your Mac or PC is a cable.

By selling the FireWire cable for $19, the AV cable for $19, and the Dock for $39, Apple can slash about $80 from the retail price. In the end, the 30 GB iPod photo sells for $50 less than the regular 40 GB iPod it replaces - and $150 less than the 40 GB iPod photo used to. The 60 GB iPod photo also sells for $150 less than its predecessor thanks to "stripped" packaging.

Nobody loses. The cost of a new iPod - any model - plus the accessories comes out to less than the cost of the old iPod (same model) that was bundled with things you might never need.

Everybody wins, so why the whining?

iMusic

CDs were overpriced at US$18. The "right" price is probably somewhere in the US$12-15 range. For that price you get a CD, a case, album art, possibly some liner notes, and some very annoying packaging. And usually 12-16 tracks.

Tracks from the iTunes Music Store sell for 99¢ here in the States. That's about the same cost per track as buying a CD - but you don't have to pay for tracks you don't want. And the record companies don't have to press CDs, package them, warehouse them, and ship them to distributors.

If you pay $11.88 for 12 tracks from iTMS, you don't get a CD, a case, preprinted album art, or liner notes. You get music that you can use on a limited number of computers, on your iPod(s), and on CDs.

You'd think the record companies would be happy. There's virtually no cost to them once Apple puts the song on their server, so profits have got to be a lot higher than from CDs. (And there's no surplus inventory to blow out when an album doesn't sell as well as expected, so their risk is greatly reduced.)

It seems like a win-win-win situation. We only pay for the music we want. Apple and the artists make their percentage. And the record companies make a profit with virtually no overhead or risk.

So what do they do? They ask for more!

Steve Jobs is angry - and you should be, too. If anything, tracks should sell for less than 99¢ because of the reduced overhead and risk. Still, the market seems to feel it's a fair price, and I've bought my fair share.

If the record companies get greedy and follow through with their dream of raising prices, I think they're going to see one huge boycott. I know I won't pay more than 99¢ for a track. I hope you won't either.

Apple and TiVo

Digital video recording is hot. Over the holidays, it became possible to buy a freestanding DVD recorder for US$150. Almost every dish and cable company seems to be offering a free DVR with digital service. And TiVo is blowing out TiVos for as little as US$99 after mail-in rebate.

Still, TiVo is hurting. Companies that once contracted with TiVo to provide TiVos with digital cable or satellite service are turning elsewhere. TiVo is growing and has 3 million subscribers, but their future looks bleak.

Apple has become the darling of the consumer electronics world thanks to the iPod, the hottest digital music player in the US$99-599 range. And a lot of people think an Apple-TiVo would be the hottest thing since, well, the iPod.

They may be right. They may be wrong. If Steve Jobs wanted to, Apple could acquire TiVo for a song. That's 3 million customers paying a one-time US$299 fee or US$12.95 monthly fee to use their TiVos. And when a TiVo owner buys a new TiVo box, they can't transfer their one-time license to the new hardware.

Of course, Apple couldn't just buy TiVo and not make any changes. If Apple were to buy TiVo, expect to see future hardware with USB 2.0 for connecting an iPod plus ethernet and an AirPort Extreme slot for networking at the very least. And then add hooks to iMovie so Mac users could capture and edit video from their TiVos on their Macs.

If Apple owned TiVo - or created their own digital video recorder - you can bet they'd follow with an iMovie Video Store or TiVo Video Store.

There is some magic to the TiVo name. It would be a great brand for Apple to acquire - TiVo is synonymous with digital video recorder just as iPod is synonymous with digital music player. A good name, an installed base, and a growth plan - Apple could do very well if they choose to.

Whether they choose to is the question, and Steve Jobs' disdain for television - odd for a man who makes so much from movies and DVDs - makes that seem unlikely.

Then again, who would have anticipated Apple making the iPod?

Marketing the mini

Like the iPod, the Mac mini is a runaway success - but not because Apple's promoting it. It's word of mouth. It's online coverage. It's not due to the kind of advertising that's going to let Windows users know that Apple now sells a US$499 Macintosh.

If they don't know about it, they're not going to buy it. They'll upgrade to WinXP SP2 and finally have a Windows PC that's about as secure as the Mac - well, the best Redmond can come up with. And when they find out about the mini a few months later, they may kick themselves, but they aren't going to switch if they've just bought a new PC or paid for the latest version of WinXP.

If Apple wants their Macintosh division to succeed like their iPod division, they need to reach out to the masses. Run ads on popular TV shows, popular radio stations, and in popular (non-tech) magazines.

As Eric Schwarz suggests, the message should be something like "The new Mac Mini - for $500, say good-bye to adware, spyware, and viruses and say hello to an improved experience with your home movies, pictures, and music."

That's bound to sell more computers than those silly "blown away by G5 power" ads from 2003.

Apple is in the perfect position to expand the Mac market and expand into digital video, but if they don't promote the hardware they already have, only those who already know about Macs will benefit and Apple will remain a niche player.