Unpacking This Week’s News – Friday, December 9th, 2016

Apple Wants Early Access to Movies on iTunes – by Carolina Milanesi

This week, Bloomberg reported Apple is in talks with Hollywood studios to get early access to movies to be distributed at a premium price on iTunes. 21st Century Fox Inc., Time Warner Inc.’s Warner Bros, and Comcast Corp’s Universal Pictures all confirmed they are looking at the opportunity to bring movies to your home shortly after they open in theaters as a high-price home video rental.

This is not the first time studios have contemplated such a move. However, the strong resistance from theaters had them back off on previous occasions. The big loss for theaters would be the money we all spend on popcorn and other concessions more so than the number of paying customers for the movies themselves.

For the studios, the biggest problem would be to guarantee the content could not be easily pirated. Although earlier, wider availability might lower in-theater piracy. While iTunes encrypts video, one could always record the movie from an external device such as a phone. Screening Room, a new service Napster’s founder Sean Parker is trying to create that also allow for early viewing of movies still in theater, used a watermark which, while not deterring piracy, makes it trackable and therefore punishable.

For consumers, a rental price of between $25 and $50 per movie would still represent a very competitive price compared to what a movie outing usually costs. The service would also speak to changing consumers’ behaviors. Larger, higher-definitions TVs are dropping in price making the home theater experience a reality for more and more consumers. At the same time, the theater experience has not improved in a way many consumers would consider proportional with the price hikes for 3D and IMAX. It only takes going to a couple of popular movies to see the longer line is usually for the regular screening rather than 3D or IMAX screenings.

This news hit the same day as Eddy Cue, Apple’s SVP of Internet Software and Products, announced Apple Music reached 20 million paying subscribers. While this is still only half of Spotify’s paying customers, it does make Apple Music the second largest paid-for music service.

For Apple, a higher-priced movie rental service would be a great revenue generator. More importantly, though, it would help to position Apple as a stronger, one-stop-shop of content for consumers. More eyeballs, premium-paying eyeballs, would also make Apple a more interesting partner for content providers. Let’s not forget the Apple TV “hobby” is waiting to become a full-time job!

Square Cash Partners with Apple to Integrate Virtual Cards into Apple Pay – by Jan Dawson

At the Code Commerce conference this week, Square (and Twitter) CEO Jack Dorsey announced Square’s virtual credit cards would now be integrated into Apple Pay. Both Dorsey and Apple Pay head Jennifer Bailey spoke at the conference, with Bailey speaking mostly about general momentum and possible future directions for Apple Pay rather than making any big announcements.

This is the latest in a series of evolutions for the Square Cash service. It began life as a Venmo-like peer-to-peer payment service but added the ability to maintain a cash balance in February of this year and, in September, added the ability to create a virtual credit card to spend that balance. The big limitation on that virtual card was it was mostly useful for “card not present” transactions — like paying for your Netflix account or Uber rides — and wasn’t much use in stores. The addition of Apple Pay integration now makes it possible to use that virtual card in physical retail stores which accept Apple Pay.

Apple and Square are interesting bedfellows here – both are involved in the payments space but both have chosen to work in partnership with the major card issuers and banks rather than trying to supplant them, so they have that in common. Where their interests align – as they do here but also in the case of the newest generation of Square card readers accepting Apple Pay – we can expect them to work together to achieve mutually beneficial objectives. The adoption of those newest readers by Square’s merchant base is broadening Apple Pay support along with the many merchants adopting NFC-capable point of sale systems as part of the ongoing EMV liability shift.

The key thing that draws Apple and Square together is that Square mostly works on the merchant side of the equation and Apple works exclusively on the consumer side. Square has dabbled in the consumer side with Square Cash but it’s still a tiny part of its business relative to point of sale systems and even business loans. I’ve argued in the past that Square would, in fact, be an interesting acquisition for Apple, one that would allow it to simultaneously drive both the consumer and merchant sides of NFC and Apple Pay adoption. It still feels like a long shot, not least because Apple has generally steered clear of acquisitions that are B2B first rather than having B2B sales as a byproduct of consumer products, but it would be an interesting way to drive faster adoption among merchants. Assuming such an acquisition doesn’t happen, these partnerships are a good secondary way to drive faster adoption and increase the attraction of Apple Pay for consumers.

In the meantime, Apple will also need to continue to focus its efforts on those transactions that occur most frequently, a strategy which is driving its emphasis on transit systems and fast food service establishments like Dunkin Donuts and Starbucks. To the extent Apple Pay becomes an indispensable part of transactions Apple’s customers engage in daily (or multiple times per day), this will drive a much more meaningful engagement with the platform than the occasional grocery store run or ride in a cab. All of this is critical for turning Apple Pay from something people use occasionally out of sheer curiosity into something people use regularly because it provides benefits on a predictable and frequent basis.

Microsoft Brings Windows Back to ARM – by Ben Bajarin

On Wednesday, Microsoft made a number of announcements at WinHec, including outlining the details of the specs for Windows Holographic, but a suprise announcment came at the end — Windows is coming back to the ARM chipset. We all remember too well Windows RT and the disaster that turned out to be. Many conversations I’ve had around this topic the last few days were about if this was just another rerun of Windows RT. While I appreciate the (warranted) skepticism, I think this time around we can look at this product strategy differently. We can’t make the assumption that ARM-based Windows devices are going after the same markets Intel-based PCs are going after. In fact, a fascinating data point in today’s PC markets is that ASPs are rising, something I predicted a few years ago in this report. Both enterprise and consumer PC customers are not looking for something that is less than capable, or even cheaper, but rather something that will last. This is not the target for ARM-based PCs. Instead, this announcement sets the stage for ARM-based Windows PCs to go after more thin-client use cases in both enterprise and education markets. While many of the benefits Microsoft outlined in moving to ARM are also true of Intel devices — all day (or longer) battery life, thinner and lighter machines, etc. — there is one thing Qualcomm has which can prove to be a true differentiator — their integrated modems. I do sense there could be some value in having integrated connectivity to laptops, especially if I’m right about the target for these products being more thin-client applications. The form factor of these products can be 2-in-1 detachable and convertible devices which make for great thin-client, connected, field work machines.

Microsoft and Intel Partner to Drive AR and VR Adoption – by Bob O’Donnell

Though most of the news from this week’s WinHEC conference in China focused on the Microsoft and Qualcomm partnership to bring a full Window 10 experience to ARM CPU-based devices (again), there was an equally important set of announcements from apparent “frenemies” Microsoft and Intel. Specifically, the companies discussed Project Evo, an effort to evolve the PC in multiple areas.

It actually involves several different pieces, some of which are further along (or more important) than others. First, there’s a continued push to improve the security of PCs through a combination of hardware-based secure boot technologies as well as some Intel-created software technology that enables password management in Windows-based browsers via a plug-in. While these are interesting, they’re frankly best seen as part of a continuing saga regarding PC security.

A second development is integrating eSIM technology into PCs so PC owners can more quickly (and theoretically, more cheaply) sign up for LTE data services on their PC. This concept has been tried by several PC vendors before with little success. But today’s telecom environment is different and its possible it will gain more traction this time around. In this particular case, however, the potential tie-in to a Qualcomm 835 CPU with an integrated 4G modem could make it more interesting for those devices than for Intel CPU-based devices. The reason is Intel-based PCs have to absorb the cost of a 4G modem and, even though Intel now makes modems, the additional part will likely add a $75-$100 cost to the price of the PC, which could be hard for consumers to accept.

The biggest news of Project Evo, ironically, is something it still doesn’t have (yet really needs) — a name. Specifically, the companies have created agreed upon specs for both mainstream and premium performance-level AR and VR-capable PCs. The specs themselves are actually somewhat backward looking in that they incorporate PCs that have been shipping for over a year but at least they set a baseline consumers, AR/VR headset makers, and AR/VR content and application developers can work around. The problem is, without a name and a logo to specifically identify them, these specs will be of somewhat limited value. Hopefully, that obvious oversight will be fixed soon because it could help make 2017 a really big year for AR and VR on PCs.

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Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

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