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Scott Woolley Attacks Apple TV in Forbes, Gets the Facts Wrong

Scott Wolley Attacks Apple TV
Daniel Eran Dilger
Scott Woolley of Forbes tried his best to paint Apple TV as a colossal failure, but his article is based on supposition and false comparisons, and demonstrates he doesn’t know much about the video distribution industry he writes about.

Woolley described Apple TV as a flop, comparing his own unit sales estimate against the record breaking sales launch of the iPhone. Of course, lots of successful products might look like a flop compared to what appears to be the most successful consumer electronics product launch in history.

Apple TV Sales.
Woolley estimated sales of 250,000 Apple TVs, but he really doesn’t know how many have sold, because Apple doesn’t isolate sales numbers and it counts revenues of the Apple TV over a subscription basis like the iPhone.
Scott Woolley

Apple rarely isolate product sales for any individual items, a competitive game played by most manufacturers. Instead, the company has typically reported revenue buckets for computers and iPods, and only occasionally breaks down sales for specific models or classes of models, such as laptops and desktops.

It’s therefore no surprise that Apple isn’t publishing Apple TV figures. Woolley is doing his readers a disservice to speculate that “apparently the truth is too humiliating.” Either he doesn’t understand basic marketing, or he knows he’s presenting a false angle to whip up a frenzy of ignorant sensationalism.

As evidence of the Apple TV’s “lack of sizzle,” he only cites the fact that some Circuit City employee had “trouble locating the product’s small kiosk,” and that at a nearby Apple Store, the Apple TV had been “shoved aside” to make room for more iPods.

Hobbies and Jobs.
Jobs has described the Apple TV as a ‘hobby’ several times, once in talking to employees about his vision for Apple’s future business. He described the Mac and iPod as two legs of a chair, and hoped the iPhone would act as a third leg. The Apple TV, he noted, might work out as a fourth leg in the future, but until then it was being run as a hobby and the focus was on establishing the iPhone.

A hobby is something you do primarily for fun or experience, not as a profitable exercise, although hobbies can turn into big business. Thirty years ago, Steve Wozniak’s hobby was wiring together electronics. Steve Jobs’ hobby seems to be taking ideas and turning them into profitable businesses, as he did with Woz’s computer design (Apple is now worth $120 billion), NeXT (sold to Apple in 1996 for over a half billion), and Pixar (sold to Disney for $7.4 billion in 2006).

So when Jobs says he has a hobby, he’s not talking about painstakingly putting ships into bottles. Lots of people dismissed the iPod in 2001; that product did take a few years to get established, but has since attained explosive growth. Many pundits also announced that Apple would become the iPod company and let go of its Mac sales, but Apple has also dramatically increased Mac sales over the last two years, in large measure due to the move to Intel processors
Inside Apple TV

[Inside Apple TV]

Success Is Failure, Up is Down.
Woolley says Apple execs ignored the product in its last quarterly earnings reports. Apple did spend its time talking about the iPhone, record Mac sales, and improved gross profit margins. Apart from the highlights of what it wants to talk about, what Apple executives say in earnings reports conference calls is largely based on what analysts on the call ask them.

In the previous quarter, Tim Cook answered a question about Apple TV sales by saying, “we just started shipping on the third week in March. We’re off to a very good start and we’re going to continue investing in this area. We’re very, very excited about the long-term potential of the product,” but added, “we’re not releasing the exact unit shipments.”

Apple never bragged that it would sell millions of Apple TV units per quarter, as it did with the iPhone. The company isn’t making big money on the Apple TV. Its price–compared to the components inside it–indicates Apple knew the box wouldn’t be a high demand seller, or it would logically set a higher price target. There’s little money to be made in selling and supporting a $300 box full of nearly $250 in hardware. Instead, Apple offers the unit as an alternative way for consumers to make use of the developing video market in iTunes.

[RSS: How Apple Will Change TV in 2007]

Sustainable Platform Development.
This slow growth strategy requires the playback pieces to be in place while the content lines up. Assembling both ends of a platform and distribution chain is the classic catch-22: which comes first, the eggs or the frying pan?

Do you crack open eggs and let them sit out while you set out to obtain a frying pan, or put the pan on the flames and then go to the store to find eggs? Ideally, you have them both lined up before things get cooking.

Apple had already added TV content to iTunes, and was selling respectable numbers of shows to users with 3“ iPod screens or hunched over their PC. When it added movies, it couldn’t really market the idea of rapid growth in iTunes without a TV-centric playback system. Apple is still working to add movie content to iTunes, but now it has a marketable way to sell them.
Brent Schlender's Apple TV: Fortune Dud or Fortune FUD?

[Brent Schlender's Apple TV: Fortune Dud or Fortune FUD?]

Measuring Success By Accomplishment.
Apple doesn’t have to make fantastic money on the Apple TV for it to be a success, just as Sony and Microsoft can afford to actually lose money–billions in the case of Microsoft–if only sales of their game consoles take off at some point and establish a critical mass of a platform.

That being the case, why would Forbes tear into Apple TV for not outselling the iPhone? The simple answer is that finding problems with Apple’s ongoing strategy is so difficult that only a cheap shot that skirts reality can even hope to make the company look bad.

Apple TV exists as a product to legitimize the company’s movie strategy. Expanding sales of movies and TV content will help sell the iPod and retain a commercial availability of legal content for Mac users.

Really, the main point of the iTunes Store is to save Apple from being ostracized by Microsoft in a dystopian world where all media is tied to Windows. Apple didn’t have to destroy the market for Windows Media to establish iTunes as a success; that was just a nice bonus.

After just short of a year of existence, iTunes certainly isn’t the best movie selection on the web. However, while its easier to find more movies elsewhere, those sources don’t offer the benefits of Apple’s tightly integrated and well conceived ecosystem.

Universal vs Apple in the iTunes Store Contracts

[Universal vs Apple in the iTunes Store Contracts]

Apple TV vs Netflix.
One of the best options today is Netflix; it has nearly everything, but it involves waiting for days to get the DVD you request. If you get an unplayable DVD, you have no recourse but to wait out a few more days to get a replacement.

Netflix has recently moved to offering subscribers instant playback over the web for a good variety of titles, but the service is Windows only and offers very low quality. It’s a great way to watch a documentary or slapstick comedy, but it’s not a cinematic experience, it’s a YouTube experience.

That leaves Netflix a very good option for people who like to watch lots of movies. For less than $20 per month, you can cycle through several movies a week and always have at least a couple DVDs available to watch. You pay a monthly fee whether you use the plan a lot or not, so if you go without updating your queue or are busy with other things, you pay for content you’re not watching, just as with a cable subscription.

The downsides to Netflix–and DVD rental in general–is that DVDs can’t easily be accessed on demand, or kept in a digital library that’s available to any TVs in the house or any iPods for portable playback.

Apple TV: Using DVDs and other Video Sources

[Apple TV: Using DVDs and other Video Sources]

Pulling the Woolley.
Forbes’ Woolley didn’t mention Netflix. Instead, he boasted up TiVo, the Xbox 360, Slingbox, a yet to be delivered product from Poloroid, and Vudo, a small startup that sells downloadable movies for $20 each. All are apparently in far better shape than the Apple TV hobby, which is a great flop of a failure, according to Woolley.

Except that he withheld the truth:

  • the staggering, multibillion dollar losses of Microsoft’s Xbox every year over the last half decade.
  • the regular, multimillion dollar losses at Tivo over the last several years–it lost $52 million last year, and another $19 million in the most recent quarter ending in July.
  • Polaroid Corporation went bankrupt half a decade ago. Its name is being licensed by a holding group.

  • Vudu is an interesting box offered by a group of WebTV and TiVo refugees. It’s a $400 box with very similar features to the Apple TV. It also features rentals and has hardware support for 1080p and Dolby Digital surround. It demands a 3 Mbit Internet connection. 

  • Slingbox is a streaming device that transmits a video signal over a network. It has nothing to do with Apple TV.

So Wolley paraded out some real failures, some vaporware, a promising potential rival, and something completely unrelated. That’s proof of the Apple TV’s great failure? In contrast, it looks like Apple is among the few companies with a viable plan for video distribution, and stands among the minority who can actually earn any profit at all.
Ten Myths of the Apple TV: 5.1 Audio
[Ten Myths of the Apple TV: 5.1 Audio]
[Ten Myths of the Apple TV: Xbox and Hardware]
[Apple TV: Turn DVI into HDTV; HP Drops Microsoft]

Wholly Weaselly Woolley.
Not content with simply blowing out some ignorant misinformation, Woolley then went on to castigate Jobs for choosing to ”shut out millions of Web downloads on YouTube“ with the release of Apple TV in a ”parochial and proprietary approach“ that forced users to get all their content from the iTunes Store.

Except that isn’t the truth at all. Is every feature Apple adds to is products now going be described as a ”freedom previously withheld by Jobs’ arrogant tyranny“ in retrospect? What a weaselly, desperate spin!

Woolley also stated that ”NBC Universal scrapped its deal to sell movies and shows via iTunes, making Apple TV even less appealing.“ While admitting that Apple backed out of negotiations with NBC Universal after the studio made absurd demands, Woolley called Apple ”sulky and pious“ for doing so.

Sounds like Woolley couldn’t find a story and had to make one up with the help of a thesaurus. One should expect more from Forbes. For his sloppy efforts in crafting a sensationalist headline, Scott Woolley gets a Zoon.

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