Kelly's TechFix Review

They're Just Pieces of Paper

2006-06-25T04:51:00.000-04:00

For those who are new to the market, and trying to pick stocks, one of the most difficult things to grasp is the separation between a company and it's stock. People generally think that stocks trade in tandem (more or less) with the way the company moves: the comany's doing well, and it's stock goes up (and vice versa).

But for those of us who spend our days staring at those quote screens, and researching the next big trade, we know this is far from the truth. Those stocks are just pieces of paper, and nothing more. Their value is loosely based on a fractional percentage of what the milions and millions of people out there providing liquidity in the market feel the underlying company will be worth in a few years.

And that is one of the things we must always remember when trading stocks. They are literally pieces of paper. Their value is far from being etched in stone, and can change at any minute at the whim of the masses. Stocks can be broken while companies prosper, and stocks can rise while a company falls. And unless you are taking a position on the order of hundreds of millions of dollars, don't ever say that you 'own a piece of the company.' Sure you do, in literal terms, but in reality, there is nothing you will ever get for that few hundred-share position if the company goes bankrupt. And no decision you ever make in a proxy statement will matter. It's always the big dogs running that show.

Keep emotion and devotion out of the game. You don't own a piece of the company, you just bought a few pieces of paper that you think should be worth more than the other few million people buying and selling it think it is. And even if it should be worth more than it's current pricing, it doesn't mean it ever will be. The market can stay irrational longer than you can stay solvent.

The Apple Rumor Mill Churns

2006-06-17T16:42:00.000-04:00

Apple has garnered an almost cult following from the release of it’s first Macintosh and that infamous commercial in 1984. A number of magazines devoted solely to the Mac following are published, from MacWorld to MacAddict. And the Internet has evolved, taking the Mac fanatic with it. In the beginning there were just a few Mac rumors sites, and most of them had legitimate connections inside Apple corporate and you could find some great information on these websites. They really used to know what was going on way before the public did.

Now there are literally hundreds of these sites plastered over the Internet. There are even sites that aggregate the information from other Apple rumors sites. And when you combine that with Apple’s now-large (and still growing) popularity, and sprinkle on a little non-disclosure thanks to Reg. FD, you’re left with nonsense. The Apple rumor mill is churning as hard as ever, but it is difficult to filter out what is meaningful with the sheer amount of information, mostly false and even absurd, available. And so, as we await the arrival of the Video iPod, I thought this would be a good time to discuss what's expected of it (and in it) and when.

Apple has made it no secret that the current high-end iPod is a transitional item to help bridge the gap between portable audio and video. Though it’s called the iPod Video by many, Apple doesn’t refer to it as such; they still just call it an iPod. Apple has always pushed the envelope with its products, and in the case of some (think the Newton) has brought them to market too quickly. Steve Jobs has done an excellent job of judging market acceptance, as is evident with his timing of the iPod. Apple is thinking along those same lines about the upcoming Video iPod, which will be a device meant for watching videos and full-length feature films, also capable of storing a ton of music. The screen is going to be much larger than the current iPod, as will the storage capacity. Apple will have to stick with a hard drive-based system for the Video iPod, simply because Flash memory is just still too expensive per byte.

With every iPod ever released, minus the Shuffle, Apple has used a product from PortalPlayer for the CPU and Audio Decoder. It was announced just last week, though, that Apple is going to drop PortalPlayer chips from “its new mid-range and high-end flash-based iPods.” With iPod Nano sales representing 70% of PortalPlayer’s bottom line, PLAY has taken a huge hit on the news. The press release notes, however, that PortalPlayer believes the their chip “will continue to be used in other members of the iPod family.” The most likely successor for the chips in Apple’s flash iPod line is SigmaTel, who has a commanding share of the flash mp3 player market and already provides the chipset for the iPod Shuffle. Other possible successors include Samsung, Actions, and LSI Logic.

Though PortalPlayer claims that their product will continue to be used somewhere in the iPod line, I can’t see why this would be the case. The video decoder chip in the current iPod, the processor that deals with pictures and video is made by Broadcom. This very same chipset, the VideoCore 2724, is capable of the very same mp3 and AAC audio decoding that is accomplished by the PortalPlayer chip. Perhaps Apple kept PortalPlayer’s product in the current iPod for the sake of expediency and getting the device to market, but I can’t see why they would keep their chipset in a fully re-designed iPod model. The Broadcom chip is also capable of video resolution up to 640x480, twice as large as the current iPod display and certainly enough for a full-screen iPod.

The biggest hurdle that Apple has encountered with the Video iPod is the user interface. How do you create a compact device with large screen and a user interface? The answer appears to be to combine the two; make the user interface part of the screen. Rumors of a “touch-screen” iPod interface have been floating around the web for quite some time, but Apple appears to have made quite a bit of headway in the process, as evidenced by a patent filed by the company in early February that describes the system in detail, in addition to applications for the touch screen in a tablet PC. Cypress Semi’s touch-sensitive system used in the current iPod scroll-wheel will likely be scrapped for the Transparent Capacitive Position Sensing product from Syanaptics for the touch screen.

So where, you ask, is this Video iPod if Apple is so far along with it? Rumor has it that Apple encountered a number of issues with the “virtual track wheel”, as it is being called, and has scrapped the current version for another solution. And just as important, Apple has yet to strike a deal with any of the large movie studios, something Apple wants (and needs) to have in place before the Video iPod can be a success. They’ve made some inroads towards these deals, and are in a good position to strike them with a few studios, but we’ll have to leave that for another article. For now, we’ll just say that Apple is most likely going to have to push the release of the Video iPod back to the back-to-school season, if not the holidays.

Where The Ads Are

2006-06-11T17:46:00.000-04:00

Viewers of cable & satellite TV stations TMC and Boomerang might have noticed something a bit different about them: they don’t advertise anyone else’s products. You won’t be seeing ads for electronics, pharmaceuticals, toys, or restaurants. In fact, the only ads you’ll see are those for programs, shorts, and movies produced by the company that owns the station. Unlike HBO and Showtime, however, these are not subscription stations. Time Warner (NYSE: TWX), for example, owner of TV station Boomerang, displays only ads for Boomerang and its parent Cartoon Network.

For years, these stations depended on sponsors. American Movie Classics' (for example) sole source of revenue was corporate sponsorship for their programs. They never displayed ads for their sponsors at any point in their programming, but would slyly embed their sponsor’s logo into their programming. The intro to All My Children, for example, which Wikipedia notes at one point held #1 ranking in the daytime Nielsen ratings, included an animation of photos of the actors sliding into a photo album. As the intro wrapped up, the cover of the book closed to reveal the embossed All My Children logo on top. In many AMC showings of the sitcom, the title of the show would then fade away, yielding to the sponsor’s logo, and a quick blurb from the announcer about the sponsor. But that was all – that’s where the advertising ended. The idea was that the station could keep unusually high viewer ratings by showing fewer commercials, and would then be able to draw higher sponsorship rates.

This format worked well for AMC and others - but not well enough. The broadcasters knew they were still missing out on a large revenue stream, even if they kept their ratings up by omitting commercials. AMC broke from their original format in October 2001, including standard commercial breaks. AMC explains, “by adding advertising to our schedule, AMC generates additional revenue that enables us to provide a broader range of movies and original programming to our viewers.” I don’t’ believe that the aim was to provide a broader range of products – they just (understandably) wanted the added revenue stream – I mean, they are a business. AMC makes a point of noting, however, that their channel “carries among the fewest commercials per hour of any basic cable channel.”

The message is quite clear: advertising is absolutely key to the success of television. This movie is playing itself out yet again, though, with Video On Demand. A vast amount of the VOD programming out there today is advertisement-free. Comcast (Nasdaq: CMCSA), the largest cable company in the US according to Wikipedia, is also one of the largest providers of VOD programming. Providing everything from kids shows, to classic movies, to music and current programming, most of Comcast’s VOD offerings are entirely free from commercials and subscription fees. The only source of revenue is – you guessed it – sponsorship! Although the company doesn’t give a specific breakdown of the ad revenue it gets from VOD, they make no secret of the fact that the number is small.

Very few people believe that the sponsorship business model will work for VOD where it failed for standard broadcast stations. Rainbow Media, parent company of AMC, boasted a 20% year-over-year revenue increase from its networks the year it switched to standard commercial advertising. Josh Bernoff, an analyst at Forrester Research said, “VOD can’t be a revenue-free zone. If it is, then it’s not going much further from where it is today.”

Now Comcast’s VOD services aren’t revenue free, just revenue deficient. In fact, Comcast has done quite well in their quest for sponsorship of their VOD stations. Kimberley-Clark’s (NYSE: KMB) Huggies is a major sponsor of their PBS Kids Sprout station, and Sneaker maker New Balance is the sole sponsor of VOD exercise channel ExerciseTV (not only is their logo displayed at points in the program, but all of the exercisers wear New Balance shoes). But while Comcast is not sitting back and accepting the puny revenue stream they are currently realizing from their VOD stations, they don’t want to be too aggressive in their advertising either. “I don’t envision VOD advertising evolving the same way [broadcast] TV did, with 30-second and 60-second spots, because people could just fast-forward through them. Our industry will be creative. It’s going to be much more subtle than traditional TV”, said Page Thompson, VP of the Comcast On Demand unit.

One solution is to have viewers pay on a per-show basis, a la Apple. While this system has been shown to garner a lot of viewer support, the margins are paper-thin for the content providers. Verizon (NYSE: VZ) recently struck a deal with CBS (NYSE: CBS) for the rights to broadcast all of CBS’ programming, including VOD. Though the terms of the deal were not disclosed, it was certainly not cheap for Verizon, and they have to pay yet again when they actually broadcast the stuff. Reinhardt Kruase of Investors Business Daily estimates that Comcast pays for 95% of its VOD content. Comcast, in fact, already has a deal in place with CBS, charging 99 cents per episode to view shows like “Survivor.”

So what advertising format is going to work in the VOD world? Comcast announced last month it was going to start testing a system called AdPoint from Tandberg Television to place ads at the beginning of its VOD offerings, initially available on three of it’s less-popular VOD networks. Companies like C-COR (Nasdaq: CCBL) and SeaChange International (Nasdaq: SEAC) are developing similar products. Eventually Comcast wants these ads on all of its VOD stations, and targeted directly to the viewer – tailored to their viewing and product preferences. And it’s all about targeting. Comcast CEO Brian Roberts compared targeted VOD advertising to Google’s ad model, saying “Why is Google so valuable? Because it gives you, after a very targeted search, access to those of us who did the search. It's an advertiser's dream.”

Comcast is just one example of a broadcasting company struggling with the challenge of pulling revenue from VOD and keeping the consumer happy. Every company in the space is wrestling with the same issues. More broad based moves to IPTV and to VOD will only hasten these fundamental changes in advertising, and many different business models are sure to be tested. For now, the real is you – the consumer. And then there is also the issue of revenue sharing. Who gets what piece of the pie? An intriguing topic, but we’ll have to leave that for another article.

Invest In A Mutual Fund, or, Play Baseball Blindfolded

2006-06-10T13:35:00.000-04:00

Republished From Snow Underground
May 8, 2006

It's pretty ridiculous how tipped the scales are when it comes to the financial world. It really is true--the system is set up to make the rich get richer and the poor get poorer. I mean, what kinds of financial instruments does the little guy have access to? He can get bullshit advice from a stock broker trying to sell him stock or an ETF like a door-to-door knife salesman, or he can buy a Mutual Fund. And that's pretty much it. Sure, he could buy some bonds too, but that's not exactly a leg up...the rate of return is crap, anyway.

Stocks, and in fact equilibrium prices in any market (which is what current stock quotes are: momentary equilibrium prices for a given piece of paper...err...stock) go up and down. They ebb and flow. So how, in any way whatsoever, does it make sense to employ a system where you can only make money if stock prices rise. Do you REALLY think "buy and hold" actually works. No, this is all just another way that rich people make money off the little guys. The whole system is set up to get most individual investors into useless stocks on the long side, betting that the stocks will go up, so that these knowledgable, powerful hedge funds can come in on the short side and take it all. But think about how hard it is for most investors to get into a hedge fund - matter of fact it's virtually impossible unless you're swinging around a few mil.

Playing only one side of the stock market, e.g. only the long side, betting that stock prices will rise, and never shorting or buying Puts at all, is the biggest handicap I can think of. It's like playing Baseball with a blindfold on. Or worse, it's like getting up to bat, and then in the next half of the inning putting your pitcher out there without a single defender. What the hell's the point??! It's not like shorting stocks or indices is cheating. It's a valuable, even necessary part of our financial system. So why limit yourself to just one side?

The name Hedge Fund comes from the fact that these firms use strategies to "hedge" their bets. Almost every single stock I'm trading in right now is on the long side, betting that the price will rise. But I still own some Put options on the indices--a small bet that will make a lot of money if the stock indices go down, but that becomes worthless if the price rises. I use that to hedge the bets I've made in these individual names.

So, please, learn how to play the system if you really want to trade. Don't just put your money to work in something useless so that it can be taken from you by the big guys. Buy and hold doesn't work. It's a bullshit phrase designed to keep you in the game when you're losing...so they can take more of your money. If you don't have the time to really play this game then you should just get out and buy some Bonds or a CD or two. At least you won't be losing money.

RSS Feeds & You

2006-06-06T19:10:00.000-04:00

The CodyBlog is encouraging its users to read a particular 'Tiger Tip' from Apple showing how Mac users can easily make any RSS feed their screen saver, including The CodyBlog. And so I figured this would be a good time to explain just what an RSS feed is and to show you step by step how to add The CodyBlog to your RSS feeds and to make it your screen saver.

RSS, as of the most recent version (it was changed at version 2.0) stands for Really Simple Syndication. It is a format for delivering web feeds, which can be a summary of content or the full content itself. RSS delivers this content in an XML file called an RSS Feed.

The end user accesses the RSS feeds with something called an aggregator. Aggregators are pieces of software that grab content in real-time from multiple RSS feeds and merge them into one location. They automatically retrieve RSS feed updates and eliminate the need for the user to keep checking back. Many web browsers such as Firefox, Safari, and Opera have built in aggregators. Notably, Microsoft's Internet Explorer is void of this feature, but it is being built into the forthcoming Outlook 2007 - more to come on this next week.

The CodyBlog's RSS feed is available at feed://feeds.feedburner.com/TheCodyBlog or by clicking the "XML" button at the top of the page.

If you are a user of Apple's Mac OS X operating system, subscribing to The CodyBlog's RSS feed and setting it to your screen saver can be done very easily.

Click the RSS feed link above to load up The CodyBlog's RSS feed. Then drag the RSS feed onto your favorites bar (I used the "News" folder).

Open up your System Preferences via the Apple Menu, and click the Desktop & Screen Saver icon. In the 'Screen Savers' column on the left, set your screen saver to 'RSS Visualizer.' Click the "Options" button, and select 'The Cody Blog
from the list. And that's it - The CodyBlog is now your screen saver.

For Windows users, the MSN Screen Saver, which is still in Beta can perform a similar function. Setting it up is not quite as easy though.

DRM Wars & Cody On-Demand

2006-05-27T19:02:00.000-04:00

Welcome back to Kelly's TechFix Review. This week's column is going to be a two 'fer: a tug of war in the technology world, and a TechFix reader request.

The roots of the first segment of this TechFix can be traced back to our move to new offices on Soho. Soho, by the way, is often written SoHo, as it stands for South of Houston; SoHo is the neighborhood in Manhattan sandwhiched between Houston Street in the North and Canal Street in the South. And yes, there is a NoHo. But I digress.

The space is just incredible, and my job as technologist was to make sure that our offices were Tech Heaven, so to speak. We have two sets of speakers in the office, one in Cody's office and one in the "Media Room". We also have a PowerMac G5 in the Media Room on which is stored a ton of AAC audio files (the format used by the iTunes Music Store). Cody's criteria for the system was that either set of speakers could pull music from the G5 independently, and that both sets could be "linked" to play the same thing simultaneously if we wanted to really rock out. After some searching, an incredible-looking product emerged: The Sonos ZonePlayer.

Man this thing looked cool. The idea was to set up one ZonePlayer box in each of the rooms, connected to their respective stereos. In each room we would have a ZonePlayer Controller, a little wireless micro-computer that could change the music being played on either of the stereos from anywhere in the office.

As the ZonePlayer system arrived, Cody and I could not wait to set it up. We rushed to plug in all the wires and set up all the software, and we were ready to go. But then we ran face first into a roadblock: the ZonePlayer system is unable to play files downloaded from the iTunes Music Store, as they are DRM protected. Silly me to think the people at Sonos would have thought that one through. And shouldn't they at least have a nice big sign about that on the website? I guess there's still enough people out there downloading illegal music that there's enough of a market for their product, even if it can't play iTunes Music Store downloads.

It turns out that Sonos is one of many companies begging Apple to release the algorithm for their Digital Rights Management system, so that they can take advantage of the millions of users of Apple's wonderful Music Store. But Apple just won't budge, and even went so far as to say flat out (in regards to releasing their DRM algorithm), "it'll never happen".

Now, there is a workaround. You are allowed by Apple to burn your purchased music to CD. And if you then decide to put that music back on your computer, which is perfectly legal - it is your music after all - then the newly-ripped files will play through any system, including those from Sonos.

But the question that has been nagging me since I completed this installation is, has Apple taken DRM too far? I mean, if we have paid for the rights to legally own the music, should Apple really be able to limit that intensely the places we listen to it and the devices we use to do so? Given the strengh with which Apple has become the de facto standard for downloading legal music, they seem to have the clout to do as they wish. And in the mean time they will have a monopoly not only on the downloading of legal music but on the devices we use to listen to it. But as the revolution rolls on, I just don't think their grip can hold. In the revolution the consumer is king, after all.

The second segment of this week's TechFix Review comes in response to a reader comment regarding CNBC. The reader is unable to access CNBC via television, and wanted to know some way to access it on the Internet, in addition to Cody's K&C appearances that we post here on The CodyBlog.

And in response, I have a few answers. The first is that CNBC makes many of their daily segments available here. I know it's not quite like watching the station on broadcast TV, but hey, it's a step in the right direction. And the revolution will roll on.

As for the clips we post here on the website, we switched a month or two ago to Quicktime video files from Windows Media. The move was prompted by Quicktime's more efficient video encoding (think smaller files) and the wide availability of the Quicktime Player software. If you have been having problems viewing our recent clips, then you probably need to install Quicktime. You can download it here. It is also bundled with iTunes, which you can download here.

And as a parting Flip It™, if you are running Quicktime on a Mac and want to be able to play Windows Media files in the Quicktime Player, you can do so by downloading a plugin called Flip4Mac available here.

Thanks to the reader that posted that question. Feel free to post your own TechFix questions in the comments section below, or e-mail me at kelly@clwillard.com. Thanks for reading!

De-authorizing iTunes

2006-05-23T19:12:00.000-04:00

Hello and welcome to the first Kelly's TechFix Review post. Let me begin by briefly introducing myself. My name is Kelly Brewster, and I am Cody's research associate and "technologist." In my capacities as such I spend a lot of time researching technology and troubleshooting problems therewith. This has been especially true as we complete the move into our new office space in SoHo. A ton of tech-related issues have come up in the process of setting up the office, and Cody thought this would be a great time to detail some of the tech tasks that he has asked me to solve recently. Today's TechFix Review regards "de-authorizing iTunes."

Apple's iTunes software uses a unique DRM (Digital Rights Management) system to protect music that has been downloaded from the iTunes Music Store. Whenever one of these DRM-protected songs is played in iTunes, the iTunes software checks the computer to see if it has been "authorized" to play the music downloaded by the particular user.

Unfortunately, Apple only allows five computers to be authorized at a time. If you have more than five computers, but have access to them all, it is easy to de-authorize one or more of the computers so that you can choose which five to use. But what if you have sold the computers or given them away and don't have access to de-authorize them?

You have to perform a deauthorization of all computers associated with your account, and then add your current computers back individually. Begin by opening iTunes and going to the Music Store. On the main page, click the heading of the second section in the left column, titled "Account."

This will bring you to the account information screen. If you have 5 computers authorized on your account, a button labeled "Deauthorize All" will be visible. Click this button and iTunes will deauthorize any computer associated with your account. You are now ready to begin authorizing your current computers as needed. The first time you select a DRM-protected song for playback on any of your computers, you will be prompted for the password on your Apple account. Simply enter the password, and the computer will be authorized. Repeat this process for any current computer you want to authorize...up to five of course.