Previously we covered:
|So what is all the fuss about?|
|making more money faster and-Previously we covered:- European Commission striving to reduce prices for digitized music|
|This is about the huge number of users and who owns the distribution channels to them.|
|And while it may have started as a partnership, Microsoft, like Apple with iTunes, might just end up locking the movie companies into selling content in its proprietary formats.|
In 1998, Club Nokia website began offering games, ringtones, etc. But it was forced to keep a low profile because mobile operators such as Vodafone intended to launch their own music services. But these dasy, it no longer matters, see here:
- 2 – protecting the ecosystem – Nokia launched music siteBesides Nokia relaunching N-Gage, Apple has shown with iTunes it managed to control about three-quarters of the online music market. Its latest success with striking exclusive distribution deals with Europe’s mobile operators is an example why trying to control customer interactions in areas like mobile gaming and music downloads is so important.
|Why Apple is doing great for the bottom line with the iPhone10 simple steps to use your event logs to achieve better security quicker|
|Revenue Split||O2 – exclusive Apple iPhone distributor for the UK – will pay a commission to Apple for any revenue generated by iPhone users. This includes subscription fees, voice charges, SMS costs and music downloads||10 % of generated user revenue goes to Apple|
|iPhones sold in Europe||Conservatively we can estimate that in the UK possibly 250,000 iPhones will be sold within the first year for sure. Calculating across about 30 states across Europe (numer taken for simplicity’s sake) we estimate||3m users – conservative figure could be over 5m|
|User generate revenues for Apple||Monthly subscription of about 10 Euro (contract for 2-years) and another 20 Euro spent each month (again conservative number) = 30 Euro per month for average user||3 Euro per user each month = 9m, about 100m of additional revenues for for Apple every year|
|Profit each phone||Estimates vary greatly but for simplicit’y sake it could be put at Euro 100 for each phone sold. 3m users the first year this means||300m compared to 100m the firm gets annually on top of that thanks to the revenue sharing deal|
Apple’s profit margin with the 10% revenue share deal is over 94 % of each Euro of additional revenue secured
Telco providers enjoy the same high profit margin with SMS messaging.
Getting control over parts of the complicated mobile phone ecosystem means more money flows into the coffers of those that control:- 1 – protecting the ecosystem – Apple secures Europe iPhone revenue deals
It is obvious that for Apple the above numbers are nothing than outstanding. It can actually just about double the profit it makes on each iPhone sold. Moreover, the costs for this additional revenue are minimal leaving Apple with a profit margin most firms can only dream about.
SO WHAT ABOUT MICROSOFT AND WINDOWS VISTA
|So what is all the fuss about – Peter Gutmann, Jon Brodkin, Ken Fisher, George Ou, Ed Bott|
|A while back we reported about Peter Gutmann, who issued his criticisms several months ago with a paper titled:|
|A Cost Analysis of Windows Vista Content Protection|
|Now some people are beginning to ask about these claims Peter Gutmann put forward for which he has so far not provided any data that would confirm or disconfirm some of his claims — a basic requirement that distinguishes journalism from scientific work.|
We discussed this issue and pointed out that these claims have neither been disconfirmed based on research nor was Gutmann’s paper more than a great opinion piece.However, what is important in all the DRM or digital rights management discussions is that possibly the same will happen as happened with iTunes and the music studies. In fact, the music industry is no longer able to dictate its preferred pricing model. Instead, iTunes pretty much dictates what it wants from the industry. EMI as well as Universal Music have decided to offer music without DRM protection probably for two resons:. Why, because DRM simply annoys users and whatever technique is being used, DRM protection can and will be broken.- Is digital rights management (DRM) dead? EMI must think so
SO WHY IS MICROSOFT USING DRM AND appears to COLLABORATE WITH Hollywood
With Windows Vista users can no longer install non-signed drivers. Hence, manufacturer whose product is not certified by Microsof cannot be used by 90% of users around the world. What can you do as a manufacturer if Microsoft refuses to certify your product – maybe the EC has to go on the antitrust trail again with this one, better yesterday than tomorrow.
For example, Microsoft says:
- Associating usage policies with commercial content is not new to Windows Vista, or to the industry. In fact, much of the functionality discussed in the paper has been part of previous versions of Windows, and hasn’t resulted in significant consumer problems – as evidenced by the widespread consumer use of digital media in Windows XP. For example:
- * Standard definition DVD playback has required selective use of Macrovision ACP on analog television outputs since it was introduced in the 1990s. DVD playback on and in Windows has always supported this.
* The ability to restrict audio outputs (e.g., S/PDIF) for certain types of content has been available since Windows Millennium Edition (ME) and has been available in all subsequent versions of Windows.
* The Certified Output Protection Protocol (COPP) was released over 2 years ago for Windows XP, and provides applications with the ability to detect output types and enable certain protections on video outputs such as HDCP, CGMS-A, and Macrovision ACP.
…..Much of the information written above is written by lawyers, so the average college-educated person gets confused for sure. Some have even argued that the lawyer speak confirms many of Gutmann’s claims.
Notice the attempt at trying to make people think the DRM technologies in Vista do not matter. Why? Because such technologies have been in Windows ever since Windows ME.
Well this may be correct but what happens when users discover the limitations being imposed by all the content protection software. For instance, your iTunes collection for your iPod will definitely not work on the Zune player or what about Sony? In fact, the sales at Apple’s DRM infected iTunes Music Store have dropped off during 2006. In part this could be due to people’s inability of transfering the tunes to different devices.
In the online music business, however, iTunes has gotten competition from labels that have decided to sell their tunes without DRM protection via different platforms:
One reason is surely that users fail to appreciate DRM and find it a nuisance and, as importantly, Steve Job’s iTunes platform has become too powerful for music labels’ liking. Fortunately, other channels such as Rhapsody America and Wal-Mart’s own site that sells tracks from EMI and Universal Music without DRM in formats that allow their transfer to different devices.
But in the PC domain, Microsoft dominates the market much more than iTunes and can dictate what and how it wants you to deliver content to the user. How else than with Microsoft’s help can music labels or movie studies reach 90% of PC users worldwide?
WHAT IT MEANS FROM AN ECONOMIC POINT OF VIEW
What happens when the old drivers are pulled and replaced with new ones. Will your games and programs on your PC that depend on the old ones still going to work properly or will Windows Vista refuse them? Probably not if you read Nick White’s Question and Answer piece. What he fails to address is who will reimburse the consumer for these costs, Microsoft?
|Microsoft is starting to take control from Hollywood|
|1||Vista’s DRM is beginning to require driver developers to comply with all kinds of rules and be certified. If they refuse, their products fail to work with Windows Vista. When will they start to demand this from independent software vendors, such as Symantec or Sophos as well?|
|2||With about 90% or more of the operating system market, Microsoft chose not to refuse Hollywood’s desire to control media content on your PC. But why, what choice does Hollywood have but avoid DVD mechanisms if Microsoft would have refused?|
|3||Soon Microsoft will try to dictate to Hollywood how content will have to be distributed if the movie studios want to reach PC users around the globe and THEN, Microsoft will ask for a share of their revenues – WATCH|
|Microsoft’s entertainment market grab might further entrench its monopoly position AND cause damage to the entertainment industry and computer manufactuers – THE BILL will have to be paid by all of us consumers|
WHAT DOES IT MEAN FOR MICROSOFT – PROFITS AND ADDED REVENUES PER SHARE?While the music labels were unable to to dictate a pricing model to Apple, why should we believe the movie studios will manage to tell Microsoft what it must do?
We think the European commission has to start to address this ‘maarket distortion’ and force Microsoft to get in line here. The recent decision suggests that the Commission can now act pre-emtively when companies seek to bundle new products with an existing monopoly which is the case with the Windows operating system:
As we have pointed out previously, currently Microsoft makes about U.S. $ 80 on each Windows PC operating system it sells. Lifting this price by about $5 means 5 cents a share to its earnings by 2008.
Just imagine Microsoft makes also a 10% revenue share deal with some content providers. And let us estimate that about 10% of all Windows users spend 20Euro a month for content of which Microsoft gets paid a Euro 2 commission. This will most certainly add at least 10 cents a share to its earnings by about 2009. But remember, 9.8 cents of these 10 cents of additional earnings per share will surely be profit! A business person’s dream come true.
We may continue our discussions about how much CPU it takes for running Windows Vista, starting Windows Media Player and playing a random MP3 audio file. Or how many seconds it takes before Media Player actually starts playing the video after opening it on a PC running on Windows Vista.
All these things are important and indicate that thanks to Microsoft’s DRM management system that offers high quality viewing ….. system resources are being used and so on.
Yes technical issues regarding Windows Vista matter and security concerns should make you reflect for a minute (we have addressed these elsewhere). Nevertheless, two key points matter the most:
1) who controls the distribution channel – Microsoft and
2) is there any competition NO – since 90% or more of the world’s PCs run on one or the other version of Windows.
These are the main reasons why Windows Vista’s DRM system is bad for you and will cost you a lot of money for years to come. By trying to control the distribution chain, both Apple and Microsoft, as well as Nokia (see further above) are all trying to get a larger portion of the cake. As long as we can prevent an extension of monopoly power into new markets, regardless of who it might be but Microsoft is getting there with Windows Vista and distribution of new media content, we should be okay.
If we fail to assure fair competition, consumers and societies around the globe will pay the monopolists with their ecosystems unneccessarily high rents.
Deutsche Telekom has secured an agreement with Apple that allows it to sell Apple’s iPhone exclusively in:
- the Netherlands,
- Hungary, AND
Two juicy details, T-Mobile is paying 10% of revenue with traditional calls and data transfer to Apple, same deal as O2 it seems.
Telekom Austria was also trying, together with its partner Vodaphone, to get the exclusive rights for Austria. Vodafone was against a revenue-sharing clause.
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