Video Has Been Assimilated

“People don’t want to watch video on their iPod.” - Steve Jobs

Last week, Steve Jobs again proved he’s the most accomplished, most forgivable liar in business. After years of dismissals we have an iPod which will play back video. What happened?

Like the mobile phone, portable video is an obvious technology. Why wouldn’t people want to be able to enjoy movies while they travel in the same way they enjoy books and music? Jobs knows this, which always made his denials seem like tilting at windmills. Technology and media are interlinked. It’s easy to forget that books were once chained down in monasteries, and that it was only the paperback that made literature truly portable; or that music only started to follow people around with the first transistor radios in the ’60’s. It’s hard to think Job’s was one of the people forgetting though.

The iPod has always been destined for video, that’s the main reason it’s not called the iSong, or the iStereo. The challenge Apple’s faced introducing video have been more political than technological and, with last week’s announcement, they’ve laid out their strategy.

The technology to play back video from an iPod is simple. It’s been part of the specification of the chips the iPod’s built around since the first iPod Photo over a year ago (which I paid $700 for - ouch!) Apple didn’t activate it then because they had nothing to sell. The record companies, wedded to supernatural stupidity and a luddite outlook, have been campaigning to make buying songs from iTunes more expensive. The obvious windfall they’d enjoy from selling videos online can’t be tapped if they insist on a $1.99 per song price (which they have) and Apple, if they are as savvy as they appear to be, must spend a lot of time trying to convince them to sell songs for $.20 a pop and videos for $.40. It’s taken Apple this long to realize how they could force Disney to open its archives to the iPod as a way of making nice with Pixar (Steve Jobs other company, the most profitable studio in America and producer of the only Disney animations anyone cares about).

Apple know that the movie studios (who make the record industry look technologically aware) recognize that the future’s digital but have no idea how to get there. The iPod brought to market last week is Apple’s public demonstration of the viability of online video sales - designed to persuade the studios, and the TV industry that:

• Video can be sold online profitably
• Viewing figures will not collapse due to sales of online video
• Piracy will not increase when ‘officially certified’ video files are available

Apple can test this in public because there’s nothing to prove (and they have a few hit shows from ABC to play with - which is part of Disney.)

• With distribution costs close to zero, profit is guaranteed.
• Television viewing figures have already been impacted by the web, but people who have given up TV for the internet aren’t using the internet to watch shows. Most of the people who watch TV shows they download from Apple will be existing viewers, or internet users without TV’s. Very few people will stop watching TV because they can see shows on their iPod - it’s not a substitute, it’s a compliment.
• Video piracy is already widely established and provides people with access to files of significantly higher quality than any Apple’s selling. People who want ‘free’ video downloads have been able to get them for years and will continue to be able to.

Apple also know that money talks. When the studios see the money downloads are making the legal issues that prevent online distribution will fall away. For proof of that look at Apple’s success setting up iTunes stores in every country it decides to - regardless of local laws that theoretically make it ‘impossible’.

Rather than negotiate the terms the studios are currently asking for - which are doubtless greedy and ridiculous (e.g. each download costs $5, the studios get $4.50, the video can only be played on one computer and it self destructs after seven days), Apple intends to establish a market of portable video players, tie it to a well-worked out distribution system and then dictate the terms of business to studios who have no real opportunity to resist.

With 80% of the MP3 player market in the iPod, and every new iPod playing video, within a year Apple will be able to tell the studios and TV companies exactly how things are going to be priced, sold and distributed. Some will hold out for a while - and lose a lot of money - but as long as people keep buying iPods, Apple will be able to negotiate for the same breadth of catalogue (i.e. everyone but Sony) that they do for their music store.

Apple’s DRM will mean that if people want to watch their video on other devices it’ll be as easy as playing back songs from iTunes on other players - impossible without hacks.

In the Music market Apple is dominating sales of music online with a format most people hadn’t heard of until Apple said it was their standard - AAC. With video Apple are telling us that the standard is going to be MPEG-4 encoded using h.264 compression (or MPEG-4 AVC/MPEG-4 Part 10). There’s no point in debating the technology - it has been written.

For anyone putting video online (including pornographers) that makes things simple. Encode in MPEG-4/h.264, and ensure the archives we’re building will be compatible with iPods (which will probably make up 80% of future video playback devices) or don’t, and bet against Apple’s continued success. (If you want to do that, email me - you’ll get great odds.)

The iPod’s  in stores now aren’t the video iPod. You can tell by looking at them, their screens are 4:3 and their battery’s are too small. HDTV (and remember Apple declared 2005 the year of HD in January - laying the path for the HD PowerBook’s they’re just about to announce) is shot in 16:9 format, America’s well behind Europe moving to digital TV and even the shows Apple’s trumpeting (Lost and Desperate Housewives) are made to be seen in widescreen. Movies, of course, need a widescreen by default. So what are these iPods for?

Apple is selling cheap (just about) video capable iPods, for exactly the same price as its old audio only players, to lock-in market domination of video players. People who just want an iPod, now have to buy an iPod with video. Apple don’t have to sell the machines any differently and they don’t need video content to be a huge success - sales of iPods with video playback are guaranteed.

Then, when their lead is established, Apple will release a ‘true’ iPod video with a bigger screen, sell consumers on a ‘widescreen’ experience and use the extra bulk to hide a bigger hard drive and a lot more battery. That device will appear at the same time as a full-blown downloadable movie service. The studios will have been sold on the idea of ‘Eleventy Billion video capable iPods in circulation’ and Apple will make a lot of money from people upgrading the iPods they already have, because they don’t want to watch Toy Story on a square, two and a half inch screen. That might also be when all those engineers Apple’s hired to work on putting wireless capability into the iPod demonstrate what they’ve come up with.

In a nutshell, Apple’s solved the chicken and egg problem for selling video, by working out how to get people who want to listen to music, to buy video players anyway. They’re going to force old (clueless, greedy) industries to negotiate reasonable terms, because soon the iPod will be the majority platform for mobile video, and Apple will have total control of the hardware and online distribution. In doing so they’ve created a format which all companies selling video online (like us pornographers) need to prepare for.