Apple and Wal-Mart to bury the hatchet over movie downloads?

According to a recent article in Variety, Apple is in early talks with Wal-Mart over a way to get iTunes downloads to finally play nice with the commercial giant. Apple wants to team up with Wal-Mart to get access to the retailer's massive title selection, while Wal-Mart is attempting to gain a foothold (or at least a revenue stream) in the downloadable movie sector; at this point, though, it's unclear how these tense negotiations will affect Wal-Mart's plans to roll its own digital video options. The Hollywood publication also reported that 40 percent of studio DVD sales go through Wal-Mart, which means that both movie studios and the gargantuan retailer need to quickly figure out how to adapt to this whole internet thing (we hear it's getting big nowadays).

[boy1der @ Sep 29th 2006 5:46PM]

I think I will lose all respect for apple if they firm a joint venture with Wal-mart

[shon @ Sep 29th 2006 6:21PM]

yeah if they strike any kind of deal, apple best keep it quiet if they want to maintain their current brand value. Steve just needs to go in and tell them to stfu.

[MikeWatt @ Sep 29th 2006 6:28PM]

Agreed!

[Bruno @ Sep 29th 2006 8:26PM]

I smell some BS in this story. Why does Apple need Walmart for movies exactly? Walmart holds rights to no properties. At most they holld only a position of leverage with the distributors. A position that if used to sway studios away from Apple would land them in some legal troubles of an anti-competitive nature.

If on the other hand it's Walmart approaching Apple, I can see merit in that. Apple's online movie sales will eventually affect Walmart's DVD business.

Of course I still don't know why people buy DVDs at Walmart unless there's absolutely no other alternative in a 50mi radius.

[Matt @ Sep 29th 2006 8:57PM]

The original Cringely frog
mascot, circa 1998. September 14, 2006
Swimming With Sharks
The success of Apple's movie download business right now depends mainly on not alienating Wal-Mart.
By Robert X. Cringely

Apparently I'm not a dope after all.

As anticipated in last week's column, Apple's special event came and went this Tuesday and with the exception of the two HDTV models I predicted, it went the way I said it would. And those big screens are likely still coming before the Christmas season, just as Apple launched three new iMacs last week without putting Steve Jobs onstage.

But now let's put this week's Apple event in some context and understand what it is and isn't, because there is a lot happening here. It generally comes down to a word we used to use all the time but haven't much since the Internet crash of 2001 -- disintermediation.

The 1990s Super Bowl-advertising dot-coms were all about disintermediation, which meant cutting out the middlemen and splitting with the consumer what would otherwise have been the revenue of those disintermediated sales organizations. It worked fine in some industries, like travel, where traditional travel agents died en masse. It worked for Amazon.com. But it didn't work at all in cases where the deliverable was in the form of electrons (that was the ideal, remember, a non-physical sale). So many transactions required too many electrons that the miniscule bandwidth of that era bandwidth made the experience unsatisfying for all parties. (Remember the Victoria's Secret Internet fashion show on Broadcast.com?) Only recently has there been consistently enough bandwidth to make media delivery practical, for example, which is what this Apple announcement was all about and part of why it took so long to happen.

What I want to do here is to compare Apple's position with Microsoft's and Google's or Yahoo's. Microsoft, with its Media Center PC, isn't "disintermediating" anyone. Now in its third unsuccessful generation, the Media Center PC is a $1,000 TiVo box intended mainly to capture, store, and replay broadcast and cable TV. Microsoft has been unwilling to take the side of either the producer or distributor, and that very unwillingness has been its undoing.

Notice that the Apple announcement said nothing, really, about broadcast or cable TV. iTunes carries 220 TV series from 40 networks, Steve Jobs said repeatedly, but the actual television experience -- commercials and all -- isn't replicated in any sense by the shows that are downloaded from Apple. It is a strictly retail experience: you pays your money and you takes your choice. We're not bending the cable operators to our will, we are simply ignoring them. But what might have been the cable company's piece of the action can now be shared between the producer and the viewer, with a cut for Apple of course. Apple has taken a side and that's the side of the producers, not the historic distributors.

There is something simple and sweet about such a commercial relationship, which is at the center of the Net Neutrality issues we've discussed from time to time, except that by embracing downloading, Apple has effectively neutered the effects of Net Neutrality proponents. It simply doesn't matter.

Contrast this with Google or Yahoo and even with Microsoft in recent years when everything seemed to be moving to being ad-supported. Where is advertising in Apple's strategy? It is nowhere to be found.

By selling outright, Apple doesn't need ad sales to succeed, reducing its risk. It also reduces downloads, I am sure, but that's not all bad. Even if the system were heroically successful right from the start, it might have technical problems. By ramping slowly with retail sales only, Apple can hope to keep ahead of the demand curve.

Just as Apple isn't Microsoft relying on working with the TV networks and cable channels, Apple isn't dependent on advertising, either. PVR (personal video recorder) functionality and advertising can easily be added at a later date if that is justified by market conditions or revenue expectations. Yet for Microsoft or Google going the other way -- from free with ads to paid -- it is that much harder a task.

When Apple needs more revenue from its movie business it can always add commercials. When Apple needs more revenue from its hardware products, it can always sell a PVR upgrade for $99. The ongoing profit potential is immense.

But what's the chicken here and what's the egg? Is Apple selling iPods to sell music, for example, or selling music to sell iPods? It is most decidedly the latter. Based on a claimed 1.5 billion song sales at $0.99 each, Apple has made gross revenue from music sales of just under $1.5 billion since 2001. Yet in the same time period the company claims to have sold 60 million iPods, which represent (at an average $200 price) $12 BILLION, or EIGHT TIMES as much revenue. So the game is about selling razors, not blades, at least not yet.

Keep that in mind for a moment.

Whatever happened to the Year of HD that Apple declared at MacWorld in January 2005? In reviewing this week's webcast, I don't recall once hearing the terms "HDTV" or "High Definition." What changed?

Apple deliberately repositioned its movie offerings to be better than broadcast quality but less than DVD quality and quite a bit less than HD-quality. Doing so saves on bandwidth (though less than you'd guess -- moving NerdTV from 320-by-240 MPEG-4 to 720-by-480 H.264 increases the required bandwidth by only about a factor of two, the new codec is so much more efficient), but it is also politically expedient when thinking about Wal-Mart, Best Buy, and Target -- the three largest sellers of DVDs and, not at all coincidentally, the three largest sellers of iPods, too.

[Matt @ Sep 29th 2006 8:57PM]

The original Cringely frog
mascot, circa 1998. September 14, 2006
Swimming With Sharks
The success of Apple's movie download business right now depends mainly on not alienating Wal-Mart.
By Robert X. Cringely

Apparently I'm not a dope after all.

As anticipated in last week's column, Apple's special event came and went this Tuesday and with the exception of the two HDTV models I predicted, it went the way I said it would. And those big screens are likely still coming before the Christmas season, just as Apple launched three new iMacs last week without putting Steve Jobs onstage.

But now let's put this week's Apple event in some context and understand what it is and isn't, because there is a lot happening here. It generally comes down to a word we used to use all the time but haven't much since the Internet crash of 2001 -- disintermediation.

The 1990s Super Bowl-advertising dot-coms were all about disintermediation, which meant cutting out the middlemen and splitting with the consumer what would otherwise have been the revenue of those disintermediated sales organizations. It worked fine in some industries, like travel, where traditional travel agents died en masse. It worked for Amazon.com. But it didn't work at all in cases where the deliverable was in the form of electrons (that was the ideal, remember, a non-physical sale). So many transactions required too many electrons that the miniscule bandwidth of that era bandwidth made the experience unsatisfying for all parties. (Remember the Victoria's Secret Internet fashion show on Broadcast.com?) Only recently has there been consistently enough bandwidth to make media delivery practical, for example, which is what this Apple announcement was all about and part of why it took so long to happen.

What I want to do here is to compare Apple's position with Microsoft's and Google's or Yahoo's. Microsoft, with its Media Center PC, isn't "disintermediating" anyone. Now in its third unsuccessful generation, the Media Center PC is a $1,000 TiVo box intended mainly to capture, store, and replay broadcast and cable TV. Microsoft has been unwilling to take the side of either the producer or distributor, and that very unwillingness has been its undoing.

Notice that the Apple announcement said nothing, really, about broadcast or cable TV. iTunes carries 220 TV series from 40 networks, Steve Jobs said repeatedly, but the actual television experience -- commercials and all -- isn't replicated in any sense by the shows that are downloaded from Apple. It is a strictly retail experience: you pays your money and you takes your choice. We're not bending the cable operators to our will, we are simply ignoring them. But what might have been the cable company's piece of the action can now be shared between the producer and the viewer, with a cut for Apple of course. Apple has taken a side and that's the side of the producers, not the historic distributors.

There is something simple and sweet about such a commercial relationship, which is at the center of the Net Neutrality issues we've discussed from time to time, except that by embracing downloading, Apple has effectively neutered the effects of Net Neutrality proponents. It simply doesn't matter.

Contrast this with Google or Yahoo and even with Microsoft in recent years when everything seemed to be moving to being ad-supported. Where is advertising in Apple's strategy? It is nowhere to be found.

By selling outright, Apple doesn't need ad sales to succeed, reducing its risk. It also reduces downloads, I am sure, but that's not all bad. Even if the system were heroically successful right from the start, it might have technical problems. By ramping slowly with retail sales only, Apple can hope to keep ahead of the demand curve.

Just as Apple isn't Microsoft relying on working with the TV networks and cable channels, Apple isn't dependent on advertising, either. PVR (personal video recorder) functionality and advertising can easily be added at a later date if that is justified by market conditions or revenue expectations. Yet for Microsoft or Google going the other way -- from free with ads to paid -- it is that much harder a task.

When Apple needs more revenue from its movie business it can always add commercials. When Apple needs more revenue from its hardware products, it can always sell a PVR upgrade for $99. The ongoing profit potential is immense.

But what's the chicken here and what's the egg? Is Apple selling iPods to sell music, for example, or selling music to sell iPods? It is most decidedly the latter. Based on a claimed 1.5 billion song sales at $0.99 each, Apple has made gross revenue from music sales of just under $1.5 billion since 2001. Yet in the same time period the company claims to have sold 60 million iPods, which represent (at an average $200 price) $12 BILLION, or EIGHT TIMES as much revenue. So the game is about selling razors, not blades, at least not yet.

Keep that in mind for a moment.

Whatever happened to the Year of HD that Apple declared at MacWorld in January 2005? In reviewing this week's webcast, I don't recall once hearing the terms "HDTV" or "High Definition." What changed?

Apple deliberately repositioned its movie offerings to be better than broadcast quality but less than DVD quality and quite a bit less than HD-quality. Doing so saves on bandwidth (though less than you'd guess -- moving NerdTV from 320-by-240 MPEG-4 to 720-by-480 H.264 increases the required bandwidth by only about a factor of two, the new codec is so much more efficient), but it is also politically expedient when thinking about Wal-Mart, Best Buy, and Target -- the three largest sellers of DVDs and, not at all coincidentally, the three largest sellers of iPods, too.

[crescentdave @ Sep 29th 2006 11:20PM]

The initial offering of 70 Disney owned titles is pathetic and Apple is rightly doing what it can to increase the number of movies it can offer for download. As far as Apple bonding with Walmart as being distasteful- it's only Apple's marketing prowess which obfuscates the fact that the iPod is the Toyota Camry of mp3 players. It makes alliances with corporations like Walmart inevitable. It's a good match.

[Rick Lyon @ Oct 1st 2006 8:38AM]

Walmart sells ipods, so what's the big deal? Walmart wants money and Apple wants Walmart to play nice so it can add to it's movie collection and dominate that arena, not sure how that affects Apple's brand??

[mike persechino @ Mar 16th 2007 4:55PM]

do you think that itunes will have to give in to sam walton's puritannical view that makes all of the cd's in their store edited and do the same with their mp3's?