Although Steve Jobs announced in his keynote at the Macworld 2008 expo that 1,000 movies would be available for rental from the iTunes Store by the end of February, it didn’t happen.

In fact, the number of movies you can rent from iTunes is well below half that number. A check by Chris Breen of Macworld found less than 400. An Associated Press story yesterday said the number fell between 400 and 500.

Just minutes ago I checked the “all rentals” box on the iTunes Store and got just 287 items, although a power search with the “Search movies available for rental” box checked turned up 436 films.

Many in the blogosphere have hammered Apple for what some are calling a broken promise. Paul Thurrott, who has an ugly reputation in the Mac community for his frequent knocks on Apple, actually called the mid-January announcement a “lie,” as if Jobs knew then the company wouldn’t make the 1,000-movie goal.

Yesterday Jobs told those gathered at the annual Apple shareholders meeting that he is “not happy” about coming up short. According to the San Jose Mercury News, Jobs “blamed the delay on the time it has taken movie studios to get the necessary approvals from various rights holders of particular films to distribute the movies via iTunes.”

One would think Apple had a high degree of confidence in having 1,000 movies for rent on iTunes by the end of February or Jobs would not have said it. Apple had little to gain by lying about it, though it may have sold a few extra Apple TVs. Even that would hardly have been worth it, as the Apple TV has an uncharacteristically small (for Apple, anyway) profit margin.

If Apple thought it would have 500 rentals by March 1 and 1,000 by May 1, Jobs just as easily could have said that. I think most customers realize that a major new service such as this will build inventory slowly. Remember, the music version of the iTunes Store had only 200,000 songs at launch in 2003, compared with 6 million today.

With Jobs himself on the hot seat, you can be sure Apple will resolve whatever issues are holding up the addition of more movies to the rental store. A few years from now, when Apple dominates the online movie rental business with Apple TV and the iTunes Store, this red-faced moment will be long forgotten. (OK, I’m going out on a limb here, but I think it’s a likely scenario.)

I also have to question the timing of the problems the movie studios are having. They didn’t know how long it would take to get approval from the rights holders? Please.

It’s not like the iTunes Store is the first entity to rent movies online. Amazon’s Unbox service has been doing it for over a year and boasts 10,000 titles. NetFlix rolled out its streamed-over-the Internet service last year; “Watch Instantly” has 7,000 movies in its catalog. Just last fall a company called Vudu Inc. began offering movie rentals over an Internet-enabled set-top box and now offers 5,000 films. All three have deals with all, or nearly all, of the major studios.

I’m wondering if the major film studios, fearing Apple’s ability to replicate its success in the music download arena, purposely dragged their collective feet to embarrass Apple and slow its entry into the market.

In any case, the studios have -- intentionally or not -- seriously annoyed Steve Jobs. And that, my friends, is never a good idea.

Posted by David Zeiler at 4:14 AM | Permalink | Comments (1)
                    

Apple CEO Steve Jobs delivered no huge surprises in his keynote address this morning in San Francisco, but still hit home runs with the new Macbook Air laptop and the iTunes Movie Rental Service.

Both had been rumored in recent weeks, but one can never be sure what’s going to happen in a Macworld keynote.

Though he saved the MacBook Air for last, the iTunes Movie Rental Store announcement was probably more significant in terms of what it will mean to Apple in the long term. This move should position Apple to dominate the realm of video downloads.

Jobs said that all the major film studios were on board, a major coup for Apple. The rental service will offer new films 30 days after their release on DVD as well as a library of older films. New films will cost $3.99 to rent, older titles $2.99. The iTunes Store also will continue to sell movies and TV shows at their current prices.

Customers will be able to watch the movies instantly, and can view a film as often as they like within 24 hours of starting the stream. If a user wants to finish watching their movie on their iPod or iPhone, they can do that, too. Users have 30 days to launch the stream before the rental expires.

The iTunes Movie Rental Store service launches today, Jobs said, with 100 titles, but will have 1,000 by the end of February. At first the service will be available only in the United States, but Jobs said it will be available internationally “later this year.”

Just as significant as the announcement of the iTunes rental service is the vehicle with which many customers are likely to access it: a much-improved Apple TV.

No longer does the Apple TV need to be tethered to a computer for functionality. As I had hoped, the device can access the Internet directly through a wireless connection, allowing it to link to the iTunes Store directly. Customers can browse movies, TV shows and music on their TV screen right from the snazzy Apple TV interface. You can buy or rent.

After you’ve made your choice you can watch the content on your TV or your computer – or your iPod or iPhone. The Apple TV still syncs with your computer, but now it also syncs backwards. So stuff you obtain via Apple TV will be available on your computer, too.

Apple didn’t stop there. The new Apple TV can access photos from Flickr or a .Mac site as well as YouTube videos. Apple has vastly improved Apple TV by allowing a variety of ways to access digital content (though digital rights management was never mentioned … hmmm). And on top of all that, the company dropped the price of Apple TV from $299 to $229. The few who bought an Apple TV last year will get a free software upgrade to enable these features. I think Apple will sell a lot more Apple TVs in 2008 than it did in 2007.

The MacBook Air gave Jobs some sexy new Mac hardware to show off. The 3-pound notebook is wedge-shaped, just .76 inches thin at its thickest point and an astonishing .16 inch thin at its slimmest. It sports a 13.3-inch LED display and a full-sized backlit keyboard (the keys are black). The trackpad is oversized to allow the use of iPhone-like gestures, such as twisting your fingers to rotate an image in iPhoto.

The MacBook Air uses a tiny 80-gigabyte hard drive like the one found in the iPod Classic, and comes standard with a generous 2 GB of memory, the same as the MacBook Pro. The price: $1,799.

But the MacBook Pro’s most distinguishing feature is what it doesn’t have – an optical drive. One can buy an external SuperDrive that connects via USB for $99, but Jobs argued that people won’t bother. “We don’t think most users will miss the optical drive or need the optical drive,” Jobs said. As an alternative Jobs said the MacBook Air will be able to access the optical drives of other Macs or PCs over a wireless network.

The omission of an optical drive recalls Jobs’ introduction of the first iMac in 1997, which omitted a floppy disk drive (though external ones could be purchased as an option). Clearly Jobs foresees optical media – CDs and DVDs – suffering the same fate as floppies.

Jobs also introduced new software features for the iPhone and iPod Touch, as well as a new wireless hardware backup device, Time Capsule. Designed to work with Mac OS X 10.5 Leopard’s Time Machine automatic backup feature, Time Capsule uses the fast 802.11n wireless protocol and comes in two sizes: a 500 GB version for $299 and a 1 terabyte version for $499. I wish I had known about this before I bought a Buffalo LinkStation a few months ago. (sigh.)

I may have more thoughts on the keynote later.

Posted by David Zeiler at 2:40 PM | Permalink | Comments (0)
                    

Last night I received an e-mail from Apple notifying me that all seasons of the great sci-fi series “Stargate SG-1” can now be purchased at the iTunes Store. Upon visiting the store, I noticed that all the episodes of its spin-off, “Stargate Atlantis” also appear to be available.

Although many Sci-Fi Network shows (like “Battlestar Galactica”) were pulled from the iTunes store in early December as a result of the Apple-NBC Universal squabble, the Stargate series is produced by MGM Television Entertainment, which is owned by Sony and thus outside of NBC Universal’s control.

I’d still prefer that Apple and Universal kiss and make up. I believe that eventually they will, despite the existence of Hulu and other alternatives. If Apple succeeds in becoming the premier provider of video downloads over the next year or so, the pressure will be on Universal to bring its content back to iTunes.

Stargate Atlantis Programming Note: Do you think Dr. Elizabeth Weir is now leading an evil collection of Super Replicators?

Posted by David Zeiler at 7:33 AM | Permalink | Comments (2)
                    

One week before Steve Jobs takes the stage in San Francisco for his annual Macworld keynote, the Mac universe is abuzz with the usual rumors and speculation.

Regulations governing Apple pundits require that I contribute to the collective cacophony or forfeit my license to blog on Apple. In that spirit, here’s my take on what might be coming – or not – on Jan. 15:

Mac Pro update – Apple completely shocked me by announcing new pro towers (and server models) this morning. I don't recall Apple ever making such a major product announcement just one week before a Stevenote. So these rumors panned out early. The twin quad core CPUs (giving this Mac 8 cores of processing power) are standard as expected, but there is no mention of Blu-ray DVD support. Steve will mention this, but not spend much time on it.

Retail stats – Steve will probably open the keynote with a rundown of assorted statistics demonstrating Apple’s prodigious business successes. We will hear about how many millions of people visited Apple’s retail stores, and that half of them were “new to the platform.” Steve will tell us how many new stores opened in 2007, and may announce new stores in such countries as China, Brazil and Mexico.

He should gloat about yesterday’s Bernstein Research report that showed Apple’s annual sales per square foot of retail space light years ahead of other retailers. At $4,491 per square foot, Apple not only clobbered Best Buy at $991/sq. ft. but also handily outshone other upscale retailers such as Saks ($388/sq. ft.), Coach ($1648/sq. ft.) and Tiffany and Co. ($2,746/sq. ft.).

Leopard stats – Steve will tell us how many copies of Mac OS X 10.5 have been sold since its launch at the end of October. Whatever the number, it will be the best operating system launch in Apple history. Leopard also will have had the fastest adoption rate of any Mac operating system version.

Office for the Mac 2008 – Craig Eisler, the new general manager of Microsoft’s Mac Business Unit, will join Steve onstage to introduce Office for Mac 2008. There will be a tedious demo.

Other software – Since iWork and iLife both were released in August, we won’t hear of them in the keynote. In fact, it’s hard to say what other software might get mentioned, since Apple got most of its upgrades out over the summer. He might spend a few moments on the prosumer video editing program Final Cut Express, which was updated in mid-November.

Video – The other week I predicted some major video-related announcements at the Stevenote. We will hear about the new iTunes movie rental service, heretofore unannounced by Apple but widely reported in the mainstream media. Various news reports over the past few weeks have said Apple is on the verge of making deals with almost all the major film studios, including 20th Century Fox, Walt Disney, Warner Bros., Paramount and Sony, MGM and Lionsgate. Availability is the major question here; if the deals aren’t final, the service may not launch for a few more months.

Apple TV – Going hand-in-hand with the iTunes Store movie rental news should be an announcement of a new, improved version of the Apple TV. This is not a shoo-in, but it would make a lot of sense for Apple to fix this product by adding the ability to record TV shows (like a TiVo) and access the Internet independently of a computer. The pièce de résistance will be integration with the iTunes Store, so that music, videos and movies could be ordered directly from the user’s sofa with the included remote control.

New iPods – You got ‘em in September. Let’s not be greedy.

iPhone updates – Some think Steve will announce a 3G iPhone next Tuesday; my gut feeling is that it’s too soon. Even if he does announce it, you won’t be able to buy one for several months. One thing we will get at some point during the keynote: stats on how many iPhones have been sold, and a recap of the product’s launch in the U.K., France and Germany. Steve might announce the next nation(s) set to get the iPhone (Spain? Italy? Japan?), but I haven’t read any rumors that further deals are near.

Steve will definitely mention the software development kit that will allow third-party developers to write programs to run on the iPhone. Although Steve has said the SDK would be available in February, he might wow the crowd by announcing its immediate availability.

One more thing ... One product the rumor sites have convinced themselves is coming at Macworld is some sort of Mac subnotebook, something smaller and lighter than a MacBook. This device could incorporate the same touch screen technology used in the iPod Touch. It could use flash memory in place of a hard drive, or at the very least will use flash memory to speed boot times. It will use a LED display (Apple has committed to using the more environmentally friendly LED technology in all its displays.) Despite the prevalence of rumors about this, no one is quite sure what such a beast will look like. But the odds are high we will see some incarnation of a MacBook Mini.

For anyone who’d like to follow the keynote live (it starts at 9 a.m. PST, or noon Baltimore time), several Web sites will be posting updates during the event. I prefer Engadget, but a full list of sites offering coverage will appear on MacSurfer the day of the event.

Posted by David Zeiler at 7:55 AM | Permalink | Comments (1)
                    

I have been ruminating for days over the antitrust lawsuit filed in California Dec. 31 charging Apple with monopolistic behavior in the digital music market. While the case looks weak, it also draws attention to some questionable Apple policies.

This suit came to light late Thursday when Information Week broke the story.

The suit accuses Apple of using its dominant position in the digital music market to stifle the competition in several ways. One way is the iPod’s lack of support for Microsoft’s Windows Media Audio format (and by extension its accompanying digital rights management), employed by almost all other digital music players and online download stores.

Another way Apple “locks out” rivals is its refusal to license the FairPlay DRM it uses in the AAC-formatted songs sold from the iTunes Store, so competitors don’t have the option of offering FairPlay-compatible devices or music.

After reading through the lawsuit myself, I must say I was astounded at the misinformation and exaggeration it contained. A few examples:

The suit on several occasions refers to how Apple’s behavior has restrained “what little competition remains in the digital music markets.” Although some digital music operations (both hardware makers and online stores) have scaled back or withdrawn, that sort of shaking out happens in every industry.

Furthermore, the struggles of a few have not discouraged new entrants on both sides of the market: Microsoft with its Zune player in 2006 and Amazon.com with its MP3 download store this past fall. If Apple had monopolistic control of the digital music market, new challengers would not dare enter it.

Apple in fact has plenty of competition. Consumers can easily avoid Apple’s products and services if they so choose. It’s been obvious for years that most choose Apple’s products because they like them better, not because they feel they have no choice.

The suit talks a lot about how iPod owners are “forced” to buy online music from iTunes, and that purchasing FairPlay AAC songs from iTunes “locks” that the buyer to the iPod, as the songs cannot be played on any other music player.

First of all, the aforementioned Amazon.com store sells MP3s with no DRM that can play on any player made by any vendor. For that matter, the iPod can play unprotected MP3s obtained from any source (including illegally).

Second, Steve Jobs said in his “Thoughts on Music” essay last year that only 3 percent of the music on the average iPod is purchased from the iTunes Store. Most iPods are filled with music ripped from the owner’s CD collection. Even the FairPlay stuff bought from iTunes can be burned to a CD and re-ripped back to a computer in a DRM-free format.

While the link between the iPod and the FairPlay music sold on iTunes does exert some pull in keeping customers inside the Apple ecosystem, it’s not as ironclad as the lawsuit claims. There’s a fence, but the gate is unlocked.

The suit further alleges that Apple’s monopoly control over the market allows it to “sell the iPod at prices far above those that would prevail in a competitive market.” If the iPod is so overpriced, it should be easy for rivals to undercut it by large margins on price in an effort to lure bargain-conscious buyers. But for the most part, Apple’s competitors sell their music players for about the same price as comparable iPods.

Yet as preposterous as this lawsuit is, it raises persistent troubling issues with the iTunes-iPod ecosystem. Apple may not be in violation of antitrust law, but its refusal to license FairPlay or make iPods compatible with Microsoft’s WMA format will continue to irk some consumers.

The most valid part of the lawsuit notes that many consumers, unaware of the competing DRM formats, could reasonably believe that all online music would be compatible with any digital music player, in much the same way they expect all CDs to play in any CD players.

Now I can’t blame Apple for not wanting to license WMA from Microsoft. Why would Apple want to pay its historic rival an annual licensing fee for a second DRM format (in addition to FairPlay)? There’s no benefit in it for Apple. Not to mention the irony of licensing a format for the iPod that no longer works in Mac OS X – that’s right, DRM-laden Windows Media files won’t play on a Mac. (The excellent Flip4Mac utility only works with unprotected WMA files.)

But why not license FairPlay? In his “Thoughts on Music” Jobs explained Apple did not want to license its FairPlay DRM because it feared that giving the code to other companies would increase the chances of it being leaked on the Internet and cracked by hackers.

That argument feels flimsy; Microsoft has licensed its WMA DRM for years. While it is breached from time to time, a patch has always followed fairly quickly. For that matter, Apple’s refusal to license FairPlay has not prevented it from being breached and requiring occasional patches.

I suspect Apple will keep its iPod-iTunes-FairPlay fence intact as long as it can. Its gaps give Apple a defense against these antitrust lawsuits, but its continued existence helps maintain the business model. Still, it smells just a bit unethical and not at all consumer-friendly – a trait Apple supposedly champions.

Of course, this entire issue will go away whenever DRM-encumbered music does. Business Week reported Friday that the last of the four major labels, Sony BMG, had agreed to start selling unprotected MP3s on Amazon’s online store. So far only EMI is selling DRM-free songs on iTunes, but now that Amazon has signed the others it could only be a matter of time before they all go DRM-free on iTunes. (Well, maybe not Universal…)

With no FairPlay and no WMA DRM music to worry about, accusations of “lock-in” will crumble. Apple almost certainly will continue to dominate the digital music industry, but its foes will need to find a new attack vector.

Posted by David Zeiler at 2:10 PM | Permalink | Comments (11)
                    

The reports that Apple has signed a deal with News Corp’s 20th Century Fox studio to allow people to rent its content from the iTunes Store could be a fundamental clue as to the company’s next major product focus.

Recall that Apple’s efforts in 2007 were dominated by the iPhone, right from Steve Jobs’ Macworld keynote in January. Yes, the company kept releasing new Macs and refreshed the iPod line for Christmas, but the iPhone was the center of attention all year long. It even drew resources away from Leopard, the latest version of Mac OS X, delaying its release for several months.

I’m guessing of course, but it would make sense for Apple to set video as its theme for 2008, starting with Jobs’ Macworld keynote on Jan. 15. Video currently is Apple’s weakest link, since its other businesses – the Mac, the iPod and the iPhone – are all going gangbusters.

But Jobs, like Alexander the Great, is always looking over the horizon toward his next conquest.

Much has been said this year about the failure of Apple TV to make an impact. Jobs has described it coyly as a “hobby.” Video sales at the iTunes Store have been decent but not great. Of the major film studios, only Walt Disney has made new releases available for purchase (it could be Jobs’ membership on Disney’s board helps a tad).

The television component of the iTunes Store took a giant step backward when Apple’s running spat with NBC Universal resulted in the removal of shows from NBC, the Sci-Fi channel, the USA Network and other Universal properties.

The technical hurdles of selling video over the Internet haven’t helped, either. The large files – a typical movie on iTunes is about 1 gigabyte, or about 200 times the size of a typical pop song. Even for users with broadband Internet connections, gratification is not exactly instant.

It’s the sort of glum confluence of circumstances that can cause even large and otherwise successful companies to throw in the towel. Wal-Mart, for example, announced yesterday that it has canceled its movie download service -- less than a year after it launched.

But one thing Apple has proven in recent years is that it often can succeed where others have foundered, such as with the iPod or its chain of retail stores. Solving video over the Internet is exactly the sort of challenge Apple relishes.

Apple now can put its experience as a video vendor to use as it crafts the most user-friendly option for consuming video over the Internet.

The move to rentals makes complete sense, and probably was inevitable. In the years Apple has dabbled in offering video downloads, it has learned that fewer people want to own video than do music. If people didn’t want to rent videos there would be no Blockbuster or Netflix, not to mention the various “video-on-demand” services provided by cable companies.

The deal with Fox shows Apple is serious about getting video right. The content, according to the Financial Times of London, will be new. It will be encoded with Apple’s FairPlay digital rights management software, but it should play on Macs, iPods, iPhones and on a TV via Apple TV. In other words, users will be able to watch the rented video pretty much on a variety of devices, unlike other services that restrict the user to a single device.

Apple is even licensing FairPlay to Fox for use on its DVDs. This will allow the video to be ripped legally to a computer for transfer to a video-capable iPod or iPhone.

The millions of handheld video-capable devices Apple has sold over the past few years surely supplied a major piece of leverage in securing this deal. In the case of the iPhone and iPod Touch, one could download the content directly to the device through iTunes. What studio wouldn’t want a piece of this action?

The Financial Times article said Apple “is understood to have been in talks with Sony Pictures Entertainment, Paramount and Warner Brothers about making their new releases available on iTunes to buy or rent.”

Expect video to be the centerpiece of Jobs’ Jan. 15 keynote. He almost certainly will announce the Fox deal then and possibly deals with other studios (I can’t imagine that Disney isn’t already signed up to add rentals to its iTunes catalog).

The long-neglected Apple TV figures to get a significant upgrade and be integrated into Apple’s video strategy as one of the ways to access the rentals. If Apple TV 2.0 can connect directly to the iTunes Store and includes some TiVo-like features, it could go from flop to hit overnight.

Apple isn’t far from having a killer video strategy. It has most of the pieces in place already. It just needs to bridge the gaps and then integrate those pieces as only Apple knows how.

Then watch how fast Apple’s “hobby” disrupts the entire movie rental industry.

Posted by David Zeiler at 1:38 PM | Permalink | Comments (8)
                    

I was hoping it wouldn’t come to this.

Over the weekend Apple removed most of the remaining NBC Universal video content from the iTunes Store. No longer can fans download episodes of The Office, Heroes or Battlestar Galactica.

The falling out between the two companies has been public since August when NBC Universal announced it would not renew its contract to sell content on the iTunes Store. Apple retaliated the very next day with a biting press release announcing that iTunes would not carry new episodes of NBC programs premiering in the fall season.

Many observers (yours truly included) thought the bluster was mostly public posturing and that the two companies would resolve their differences before the December deadline.

But when NBC CEO Jeff Zucker launched another verbal tirade against Apple and iTunes a month ago, any prospects for a deal evaporated. “Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

That statement made it clear Zucker had declared Apple the enemy and had no interest in further negotiations. Apple has claimed NBC wanted to raise prices too high and objected to variable pricing, which contradicts the general iTunes Store policy of uniform pricing.

Now that this game of corporate chicken has ended in a head-on collision, pundits have tried to sort out who has suffered the most damage.

According to Forrester analyst James McQuivey, it’s Apple. In a report released Monday, he wrote: “Don’t let the Macgeeks posting angry blogs against NBC fool you [DZ: should I be insulted?]. The loser here is Apple, which relies on NBC Universal to deliver 30 (percent) of video download sales. Any supposed backlash against NBC will not materialize because NBC has made its content available, for free, on NBC.com and six other major portal sites.”

Maybe so. But without iTunes, viewers have no option for downloading shows to watch them on an iPod or other video device. I won’t go so far as to predict a “backlash,” but if you don’t give the customer what they want, they’ll seek it elsewhere. And when I say elsewhere, I’m talking pirate sites. And it’s unlikely the pirate sites will be sending NBC Universal millions of dollars – as did Apple -- when its users download NBC shows.

I’m not saying losing NBC’s content won’t hurt the video arm of the iTunes Store. It obviously will. But it won’t have that much impact on Apple’s bottom line, either. Video is Apple’s least successful venture so far (see: Apple TV). As long as the Mac, iPod/iTunes music combo and iPhone businesses are thriving, video is not critical.

The situation as it stands leaves both companies worse off. NBC Universal, for all its trash talk, will lose money while angering viewers. Apple will lose money in addition to some of its stature as a provider of video content.

But by far the biggest losers are the fans of the TV shows who would rather legally download their favorite programs from iTunes as opposed to the inferior options NBC is giving us.

That’s you and me, dear reader. And sadly, there’s not much we can do about it.

Posted by David Zeiler at 8:22 AM | Permalink | Comments (12)
                    

You never can tell where an obsession with Apple will lead.

Last week I saw the new iPod Touch ad on television numerous times. It’s clever ad that shows off the multi-touch technology while a very catchy song plays in the background. A very catchy song.

In fact, I couldn’t get the song out of my head. I went to Apple’s Web site to watch the ad. At the bottom of the Web page I noticed Apple had thoughtfully noted the song’s name, “Music is My Hot, Hot Sex;” the band that made it, CSS; and that it was available on iTunes.

So off to the iTunes Store I went, where I found CSS’s Cansei De Ser Sexy album in its entirety. Reading the bio blurb I learned the band hails from Sao Paolo, Brazil, where it began to craft its quirky sound in dance clubs. Intrigued by the album’s song samples, I downloaded it.

As an aging rock aficionado who spent most of the 1980s listening to endless oddball alternative acts, I can say CSS is the best new group I’ve heard in years. I can hear the club music influences along with a lot of echoes from such eclectic bands as Sonic Youth, Duran Duran, B-52s, and Orchestral Manoeuvres in the Dark. Most notably, however, CSS is a band having fun, something all too rare in alt/rock today.

Anyway, hats off to Nick Haley, the 18-year-old U.K. student who created the original iPod Touch ad, as well as Apple for noticing it on YouTube and enlisting TBWA/Chiat/Day to polish it into a professional commercial.

I thank you, and my iPod thanks you.

Posted by David Zeiler at 6:29 AM | Permalink | Comments (6)
                    

In the corporate world, it’s usually bad strategy for a CEO to pick fights with other large companies. It makes that CEO look petty and desperate. Worse, it makes any issues between the companies harder to resolve, leaving everyone a loser.

Which is why I’m still scratching my head over NBC Universal CEO Jeff Zucker’s incendiary remarks about Apple and the iTunes Store he uttered on Monday.

First Zucker said that NBC wanted to “experiment” by charging $2.99 for a hit show rather than Apple’s standard $1.99. “We made that offer for months and they [Apple] said no,” Zucker told the New Yorker’s Ken Auletta at a benefit for Syracuse University’s Newhouse School.

OK, fine, we already knew NBC U resented Apple’s ironclad rules on pricing. But then Zucker dropped his bomb: “Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money. They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

Zucker actually asked Apple for a cut of iPod sales, which explains Apple’s unusually harsh public response when negotiations broke down in August. (Apple announced it would not sell new NBC shows the day after NBC U said it would not renew their contract in December.) NBC U apparently was inspired by last year’s Zune deal: Microsoft shares $1 with Universal for each Zune sold.

Zucker had to know how much such a request would infuriate Steve Jobs. It’s clear now that he wanted a public war with Apple. But what did Zucker hope to achieve?

He had to know that Apple would not bow to the pressure and suddenly cave to his demands. Judging from NBC U’s maneuvers over the past six months or so, it appears Zucker’s goal is to rally all the other content providers – both of music and video – to abandon the iTunes Store.

Universal has led the way in promoting alternatives to iTunes. Over the summer Universal announced that it would start selling DRM-free music at just about every other music retail download site except iTunes.

This week it launched the beta phase of Hulu.com, a Web site that will offer ad-embedded NBC shows for free. While Hulu will appeal to some users, the content will be tied to the user’s PC. You won’t be able to watch it on your TV or download it to your iPod. Anyone who prefers the iTunes way of paying for the download to watch it where they want it is out of luck.

You’d think NBC U would want as many types of distribution as possible. Cutting off iTunes to spite Apple will have the undesired side effect of angering a lot of fans of NBC U programs. It’s bad business.

The situation reminds me a bit of the struggle between Pixar Animation Studios and Disney a few years ago, which was more a war of wills between then-Pixar CEO Steve Jobs and then-Disney CEO Michael Eisner. Pixar needed Disney’s distribution system and Disney needed Pixar’s box office successes. That conflict was only resolved because Eisner resigned, and was replaced by Robert Iger. Jobs got along so well with the new Disney chief that he elected to sell Pixar to Disney outright.

Apple won’t be buying NBC Universal or vice versa, but the principal is similar: feuding with a partner with whom you have a mutually beneficial relationship is costly and stupid. The longer the battle goes on, the more both companies stand to lose, financially and in terms of public opinion. Customers care less about who’s right than having a system that serves their needs.

Jeff Zucker thinks he’s working in the interest of NBC U and for that matter, the entire entertainment industry by fighting Apple. Somehow he’s forgotten that the iTunes Store was the pioneer in offering legal paid music downloads, providing a legal alternative to the rampant peer-to-peer file sharing that was undermining their business model. The contribution of the iTunes Store to the video world has not been as dramatic, but even NBC credited the support of fans using iTunes with saving “The Office” from early cancellation.

True, Steve Jobs isn’t the easiest CEO to deal with, but others have shown it can be done. If Zucker wants to show us leadership worthy of a CEO, he’ll try treating Apple as an ally rather than an enemy.

Posted by David Zeiler at 4:00 PM | Permalink | Comments (8)
                    

Led Zeppelin is coming to the iTunes Store, and it’s coming in a big way.

Apple today announced it will make the entire Led Zeppelin catalog available on iTunes as of Nov. 13. Though representatives of the legendary rock group announced this several weeks ago, they did not tell us about “The Complete Led Zeppelin,” a digital box set of all the band’s albums that includes 165 songs for $99. The iTunes Store will offer this item exclusively.

As of today Zep fans can pre-order the box set as well as “Mothership,” the previously announced 24-track compilation album consisting of songs selected by the three surviving band members.

Anyone who pre-orders either of the new releases will automatically be entered in a contest to win tickets to see the band’s reunion show Nov. 26 in London, along with round-trip airfare and hotel accommodations.

Since Apple’s press release fails to mention whether the tracks will be available DRM-free via iTunes Plus, we’ll have to assume it won’t. That’s too bad.

And I’m also wondering whether the digital box set is a good deal. True, you get 165 songs for $99, making it 60 cents per song rather than the usual 99 cents. But as far as I know Led Zeppelin produced less than 100 original songs, which means there will be a lot of duplication in this collection. Even if you consider live versions as distinct songs, you’re going to end up with more than one copy of quite a few songs.

Meanwhile, the Beatles-on-iTunes vigil goes on…

Posted by David Zeiler at 6:18 PM | Permalink | Comments (1)
                    

I didn’t get the chance to write about several key developments in Apple’s always busy world last week, so I’m catching up today:

Poisons in the iPhone: On Monday Greenpeace released a report criticizing Apple’s iPhone for containing environmentally hazardous chemicals. “Steve Jobs has missed the call on making the iPhone his first step toward greening Apple’s products. It seems Apple is far from leading the way for a green electronics industry as competitors like Nokia already sell phones free of PVC,” said Zeina Alhajj, identified on Greenpeace’s Web site as the organization’s “toxics campaigner.”

To compound matters, the Greenpeace report inspired the Center for Environmental Health to initiate legal action against Apple under California’s Proposition 65 law, which says products containing toxins must carry a warning label.

Apple issued a statement back on May 2 outlining its policy for phasing out various toxic chemicals from its products. On the PVC chemicals cited by Greenpeace, the policy states: “Apple plans to completely eliminate the use of PVC and BFRs [brominated flame retardants] in its products by the end of 2008. As I glance at the calendar, I see we’re still in 2007. The iPhone that went on sale in June was actually completed before January, when Jobs revealed it to the public. You’d think Greenpeace would have given Apple until next year before excoriating the iPhone.

And while today’s iPhone does contain some traces of hazardous chemicals, even the Greenpeace report concedes that the product complies with the European Union’s tough RoHS (Restriction of Hazardous Substances) Directive.

So why pick on Apple?

Reporting for the U.K.’s Register news site, Tony Smith submits: “We'd guess it's because Apple is an easy target, and Greenpeace knows iPhone related commentary gains press coverage.” Dozens of comments posted on Web sites that reported the news agreed, overwhelmingly blasting Greenpeace. But if generating publicity by going after Apple was Greenpeace’s primary aim, it succeeded. Unfortunately it gave Apple a black eye it didn’t deserve.

iPhone in France: A month after the announcement of iPhone deals for the U.K. and Germany, Apple on Tuesday announced its delayed agreement with Orange of France. The iPhone will debut Nov. 29, just in time for the holiday shopping season, and will cost €399 ($560). This much was expected.

But the interesting bit, reported in the International Herald Tribune, is that an unlocked version of the iPhone will be available for a higher, though undisclosed price. Apple was hog-tied by a French law that prohibits “bundling the sale of a mobile phone and a mobile operator,” according to the Tribune report.

The existence of legitimately unlocked iPhones in France raises the likelihood that entrepreneurs will buy them up there to export to customers in other countries who will pay a premium to have them. Apple already might have built in a way to prevent this, but any such mechanism couldn’t be as hard to crack as the original iPhone lock. In any case, the existence of an unlocked version of the iPhone will give those incensed over this issue fresh ammunition.

DRM-free songs get cheaper: Apple said it’s dropping the price of songs without copy protection from $1.29 to the same 99¢ as songs with DRM. All “iTunes Plus” tracks will still be available in the higher 256 kbps bitrate (double the 128 kbps of regular iTunes songs). Two million songs now are available in the DRM-free format, compared with more than six million copy-protected songs.

Apple appears to be responding to the challenge of the Amazon MP3 store. With Amazon selling DRM-free MP3s for 89¢, Apple’s $1.29 per song looked awfully expensive. Though the iTunes Store still has several big advantages over its rivals – a huge catalog, a superior user experience and a better encoding format in AAC over MP3 –price is the one area competitors like Amazon and Wal-Mart can beat it on.

Apple’s advantages will allow it to keep its prices a little higher than the others, but not 40 to 50 percent higher. Apple wisely made the price cut quickly rather than wait for large numbers of price-conscious customers to abandon iTunes. Such timely reaction to the changing market will continue to be crucial in light of Universal’s aggressive strategy to partner with every possible iTunes alternative in its quest to weaken iTunes’ dominant position.

One more thing: Prepare to be impressed when Apple reports earnings after the market close Monday.

Posted by David Zeiler at 5:04 PM | Permalink | Comments (1)
                    

Still no actual Beatles albums, but as of today the solo works of all four Beatles can be purchased from the iTunes Store. Nine George Harrison albums have joined the music of Paul McCartney (added in May), John Lennon (added in mid-August) and Ringo Starr (added at the end of August).

This raises hope that the Beatles catalog (or at least a significant chunk of it) will soon follow, perhaps in time for Christmas.

If Apple really wants to make a splash when it does get around to adding the Beatles to iTunes, it could offer a special “Classic” iPod pre-loaded with the full catalog of Beatles songs as it did with the U2 iPod back in 2004.

Posted by David Zeiler at 6:30 PM | Permalink | Comments (1)
                    

Finally, the iTunes Store has a worthy opponent. When the Amazon MP3 store opened its digital doors yesterday, music consumers found a lot to like, including things superior to what iTunes offers. Amazon falls short of iTunes in other ways, so this news does not necessarily mean the iTunes Store rapidly will forfeit its dominant position in the music download market. But it is a wake-up call.

First, let’s look at where Amazon beats iTunes. By far Amazon MP3’s biggest draw is that all the songs it sells are unprotected (free of digital rights management coding) MP3s, which means they will play on any portable digital music player. This could well be the biggest nail yet in DRM’s coffin.

The iTunes Store does sell songs from EMI in an unprotected format, but they cost $1.29. Which brings us to Amazon’s next advantage: variable pricing, with many songs priced at 89 cents. Not only is that 40 cents lower than iTunes’ DRM-free offerings, it’s 10 cents less than iTunes’ regular price. And Amazon’s songs are in a higher-quality 256 kbps bitrate. DRM-encoded songs on iTunes use the lower 128 bitrate, although the DRM-free songs are 256 kbps.

Amazon also gets points for being Mac-friendly (although it requires Mac OS X 10.4 Tiger). Most music download services other than iTunes force customers to use Windows. Amazon offers a helper application that resides on your Mac and activates when you click to download music from the Amazon MP3 site. (See screenshot below).

Although I still prefer iTunes’ site design, finding and downloading music on Amazon MP3 is straightforward and easy. If you already have an Amazon account and are logged in, the download automatically is charged to the credit card registered to your account. The songs download to an “Amazon MP3” folder that the helper app creates inside your user’s Music folder, but automatically get copied into your iTunes library as well, album cover art and all. (Although I’m not sure I want two copies of every song on my hard drive.)

I’ve been reading a lot of articles in the past day that cite the above advantages and essentially declare the iTunes Store dead meat. Why wouldn’t everyone drop the iTunes Store and buy their music exclusively from Amazon from now on?

The biggest reason right now is that Amazon has a much smaller selection than iTunes – 2.3 million songs versus iTunes’ 6 million-plus. Only two of the Big Four music companies are signed up with Amazon right now, EMI and Universal. That leaves out all the artists on the Sony and Warner labels. You can’t buy a song from Amazon if they don’t offer it, no matter how many other advantages the service has.

Another reason Amazon won’t obliterate iTunes any time soon is that the service for now is available only in the United States.

It stands to reason that the Amazon service will continue to improve, and that Sony and Warner will hop on board when they see the juicy sales figures for EMI and Universal. But one would expect Apple to recognize the need to respond to bona fide competition. Customers – even Mac users – will flock to whoever offers the best service with the best prices.

That means Steve Jobs will need to reconsider his position on variable pricing. He will at some point have to upgrade the bitrate of all of iTunes’ offerings to 256 kbps. And the DRM will have to go, too.

Apple’s problem is that the record companies want the competition to succeed to break iTunes dominance – a 75 percent market share. So they may not be willing to give Apple the same terms as they have Amazon or other competitors. Jobs will need to call upon all of is formidable negotiating skills to keep iTunes in the game.

Most of what Apple needs to do should not be that big of a deal. Remember, Apple only put the DRM on its music in the first place because the record companies refused to allow Apple to sell any music without it. And iTunes already offers the DRM songs in higher bitrates.

But this much is clear: if Apple ignores the challenge posed by Amazon MP3, the iTunes Store will suffer. It figures to lose some market share to Amazon anyway, but how much is up to Apple.

All that said, music consumers will win no matter how the battle between Apple and Amazon plays out. We’ll keep getting higher quality downloads for less money and with no DRM restrictions. Hallelujah.

Posted by David Zeiler at 3:32 PM | Permalink | Comments (10)
                    

SpiralFrog.com, an ad-supported Web site that allows registered users to download music and videos for free, officially opened for business this morning. The ads pay for the music; SpiralFrog cuts the record companies in for a piece of the action. “We believe it will be a very powerful alternative to the pirate sites,” SpiralFrog chairman and co-founder Joe Mohen told the Associated Press.

Sorry Joe, but I disagree. This would-be iTunes Store killer will die a slow and lonely death. It’s bound and gagged by so many restrictions -- no doubt added at the request of paranoid music company executives – that no one will want to use it, free or not. (Side note: most of SpiralFrog’s content at launch is from Vivendi’s Universal Music Group, which recently tussled with Apple over pricing at the iTunes Store. Hmmm.)

In order to get permission from the record companies to offer free downloads, SpiralFrog had to agree to use Digital Rights Management, and they chose Microsoft’s Windows Media format (WMA). As Apple loyalists well know, WMA files with DRM can’t be played on Macs – or on iPods. They could afford to ignore Mac users, but iPod users comprise over 70 percent of the portable music player market. Geez, SpiralFrog’s songs won't even play on Microsoft’s pathetic Zune.

Beyond the DRM issues, SpiralFrog has chained up its content in other ways. Users not only must register to download any digital content, but also need to re-register every month or the files lock up and won’t play.

Think you can work around these problems by burning the songs to a CD? Think again. CD burning of SpiralFrog content is not allowed, either.

Very few music consumers are likely to kiss this frog. Odds are SpiralFrog will be tucked away in a jar of formaldehyde by this time next year.

Posted by David Zeiler at 2:40 PM | Permalink | Comments (18)
                    

Today Apple posted the terms for qualifying and obtaining the $100 Apple Store credit promised to early buyers of the iPhone miffed over the unexpectedly quick $200 price drop. For the most part, it’s just what you’d expect: instructions on how to confirm your eligibility and get the $100 credited to your Apple Store account.

Not everyone is eligible for the credit. For example, anyone who bought after Aug. 22 falls in the 14-day window covered by product price reductions and thus qualifies for a full $200 rebate. Also excluded are iPhones provided to Apple employees, logical since every one of Apple’s nearly18,000 employees received their iPhone free.

The curious part comes in the last paragraph of the “terms and conditions” section. In addition to such expected rules as forbidding redemption of the credit for cash, you can’t redeem the credit at any iTunes Store. Nor can you use it to purchase iTunes Store gift certificates. Nor can you use it to give iTunes Store content as gifts. Just to cover all their bases, Apple also forbids using the credit to purchase Apple Gift Cards, which you might think of using at the iTunes Store.

Let’s see. Why would Apple prevent aggrieved iPhone owners from spending their $100 credit on music from the iTunes Store? Since the iPhone is part iPod, you’d assume that many iPhone owners would want to use at least some of their credit on music or video purchases.

The only answer that makes sense is that Apple’s margins on digital content purchased from the iTunes Store are miniscule compared to almost everything else it sells. True, the company is trying to buy back customer goodwill, but each $100 credit claimed by a customer is $100 in lost profits. Allowing customers to use the credit at the iTunes Store would result in a near-total loss of that $100. Forcing them to use it on other products in the Apple Store, which carry an average profit margin of more than 30 percent, will allow Apple to retain much more of each $100 claimed and used by a disgruntled iPhone early adopter.

While this may be smart business, it’s lousy public relations. Steve Jobs apologizes and promises to “do right” by his customers and then pulls a cheesy, transparent maneuver like this? That’s not the Apple that has won the hearts and minds of millions of loyal customers.

Apple has almost $14 billion in cash and $0 in debt. It could have afforded to give its early iPhone customers a true credit they could have spent on any Apple product. I wouldn’t be surprised if this touches off another wave of discontent among iPhone owners. We’ll see what happens in the forums over the next few days, but it would be a shame if Apple has bungled what should have been a commendable gesture to some of its best customers.

UPDATE: A story appeared onBloomberg News this evening that contradicts the document on Apple's Web site. Apple spokeswoman Natalie Kerris told Bloomberg the information on the site is wrong and that the iPhone credit will indeed be applicable to iTunes Store purchases. That's one heckuva typo. As of 1:30 a.m. EDT Saturday, the original document remains unchanged on Apple's Web site. What's going on in Cupertino, anyway?

Posted by David Zeiler at 6:38 PM | Permalink | Comments (0)
                    

In his Media Biz blog, Paul LaMonica of CNNMoney.com today cites the announcement of a Led Zeppelin reunion show in London in November as cause to speculate on the addition of the Zep catalog to iTunes.

Yes, the Beatles aren’t the only holdouts. The iTunes Store is completely bereft of Led Zeppelin music. But LaMonica must have been tuned out in late July when the band announced that Mothership, a new compilation album scheduled for release in November, will be available from iTunes. According to reports, Mothership consists of tracks selected by the band members and includes such classics as “Stairway to Heaven,” “Whole Lotta Love,” and “Dazed and Confused.”

The willingness to test the waters with Mothership nurtures hope that Robert Plant, Jimmy Page and John Paul Jones are considering putting the entire Led Zeppelin catalog on iTunes. It sounds like a prime opportunity for another one of those publicity-generating Apple Events, doesn’t it, Mr. Jobs?

Posted by David Zeiler at 1:11 PM | Permalink | Comments (2)