Saturday, March 22, 2014

Apple—Singin' & Dancin' in the Rain

I read the following article in Quartz: Why Apple should make its own TV shows, just like Netflix. It's a wrongheaded, poorly argued piece that made me angry. Here's the nutshell version:

  • Statement: Netflix, Sony, Yahoo, Amazon, and Microsoft are all acquiring and/or producing exclusive content.
  • Problem: Apple "confronts slowing growth in the sales of its devices."
  • Conclusion: "Maybe it’s something Apple should consider as well."
So says Macquarie Equities, which, according to Quartz, "became the 63rd research house to cover the world’s biggest company this week." And they show an impressive lack of expertise on the subject.

Let's restate the problem by changing one word:
Apple notes slowing growth in the sales of its devices.
It's true, Apple's sales curve is no longer growing logarithmically. The numbers for Apple's most recent quarter, reported January 27th are as follows:

  • 51 million iPhones vs 47.8 million the previous year, up 6.7% 
  • 26 million iPads vs 22.9 million the previous year, up 13.5%

Both of these figures are all-time quarterly records for Apple. Since the article speaks of devices as a single category, I'll lump Apple's iDevices together, yielding:

  • 77 million iDevices vs 70.7 million previously, up 9.1%

IF 9% growth is a problem, would 10% growth to 77.7 million units still be perceived as a problem? At what point is Apple's growth sufficient? Would 15% growth, 81.2 million units, avoid the need for problem confrontation?

This value judgement notwithstanding, the rate of growth has undoubtedly slowed, which is what one expects in any product lifecycle. At the same time, "Apple…, is being criticized for not innovating enough." To which we can only wonder, how much innovation is enough?

For the sake of argument, let's accept the assertions that slowing iDevice sales are a concern and that Apple's ability to innovate is in doubt. We must also assume that the likely introduction of an iPhone 6 in June will be a disappointment, requiring Apple to look beyond its devices for additional sources of revenue.

I know, let's make content! Macquarie says:
We believe that Apple would benefit from the deployment of some of its considerable cash balance toward securing exclusive media content. In our 15 years of covering the interactive entertainment space, we have frequently observed the value that can be generated through high-quality, desirable content that is exclusive to a platform (the original Xbox is a classic example of this, with early-stage growth driven in large part by the popularity of Halo). We think just one or two key exclusives could be very helpful in establishing new products and extending iOS’s reach.
Translation: sometimes high-quality movies, TV, and video games make money.

This is not a profound insight. Furthermore, what has this got to do with iDevice sales? The article says:
There are already reports that, as sales on iTunes dwindle, Apple is trying to convince record companies to provide it with music that only it may sell.
Except that Apple reported a 20% increase in sales on iTunes for the last quarter. So maybe there's something else?
Of course, there’s no suggestion the company is even contemplating this, but if it ever did, Apple’s ruthless obsession with quality means it would probably be worth watching.
There it is. We'd really like to see something produced with such ruthless attention to quality that only Apple could make it. If only they'd admit that they're getting clobbered in the marketplace by the likes of Google and Samsung, we could end this charade and get down to some serious entertainment!

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