Apple Sees New Money in Old Media

Steve Jobs's tablet device looks to repackage TV, magazines, just as iPod changed music sales.

With the new tablet device that is debuting next week, Apple Inc. Chief Executive Steve Jobs is betting he can reshape businesses like textbooks, newspapers and television much the way his iPod revamped the music industry—and expand Apple's influence and revenue as a content middleman.

In developing the device, Apple focused on the role the gadget could play in homes and in classrooms, say people familiar with the situation. The company envisions that the tablet can be shared by multiple family members to read news and check email in homes, these people say.

For classrooms, Apple has been exploring electronic-textbook technology. Apple also has been looking at how content from newspapers and magazines can be presented differently on the tablet, according to the people familiar with the situation. Other people briefed on the device say the tablet will come with a virtual keyboard.

Apple has recently been in discussions with book, magazine and newspaper publishers about how they can work together. The company has talked with New York Times Co., Condé Nast Publications Inc. and HarperCollins Publishers and its owner News Corp., which also owns The Wall Street Journal, over content for the tablet, say people familiar with the talks.

New York Times Chairman Arthur Sulzberger declined to comment in an interview Wednesday on its involvement in the new device except to say, "stay tuned."

Apple is also negotiating with television networks such as CBS Corp. and Walt Disney Co., which owns ABC, for a monthly TV subscription service, the Journal has reported. Apple is also working with videogame publisher Electronic Arts Inc. to show off the tablet's game capabilities, according to one person familiar with the matter.

Apple's strategy contrasts with how other technology companies are approaching media. Notably, Google Inc. offers content to consumers largely free on properties like its video-sharing site YouTube, making relatively little distinction between clips from users and those of professional media companies, although YouTube this week said it plans to experiment with movie rentals. Web sites like Twitter and Facebook also provide outlets for user-generated content.

Mr. Jobs has a longstanding strategy of devising new ways to access and pay for quality content, instead of reinventing the content. Apple's iTunes Store, for instance, became the world's largest music retailer partly by making it easy for people to buy music, most of it from major record labels, by the song instead of by the album. Its digital-media receiver Apple TV was also designed so people can buy and rent movies and television shows.

Mr. Jobs is "supportive of the old guard, and [he] looks to help them by giving them new forms of distribution," says a person who has worked with the CEO. "What drives all of these changes is technology, and Apple has an ability to influence that."

Apple's divide with Google over how it views media content also drives the wedge deeper between the two companies. Apple's iPhone, for example, currently closely integrates Google's mapping and search technology, but a person familiar with the matter said Apple was in serious discussions with Microsoft Corp. to incorporate its Bing search engine into the iPhone as the default search and map technologies. Microsoft declined to comment. The talks were reported earlier by BusinessWeek.

Details of how Apple charges for the content on its tablet couldn't be learned, but people familiar with the company's thinking say Apple could change conventional payment structures. One person familiar with the matter said the company was discussing with the New York Times how it could charge for news through iTunes. It is unclear how people will access content wirelessly off the tablet.

An Apple spokesman said the company "doesn't comment on rumors and speculation." Mr. Jobs didn't respond to a request for comment.

Mr. Jobs' effort to repackage and resell more media content isn't without obstacles. He already has faced resistance from television companies and cable-network providers over Apple's desire to license just their best content rather than all of it.

Many music executives complain that it has become a powerful gatekeeper between the labels and customers. What's more, the iTunes Store's music downloads haven't grown fast enough to offset the decline in CD sales for music companies.

On Monday, Apple sent out an invitation to a media event on Jan. 27 "to see our latest creation." The tablet, which Apple currently plans to ship in March, will have about a 10- to 11-inch touch screen, say people familiar with the situation.

Apple's tablet foray faces several obstacles. Analysts say demand will depend on its price, which some believe will be about $1,000. Apple must also convince consumers the product is worth buying in addition to an iPhone and a laptop computer. And Apple faces competition from cheaper netbooks and other devices such as Amazon.com Inc.'s Kindle e-book reader.

The tablet's success will depend "on how this product can fit into the user's daily life... and whether you have enough content to make it important enough to use it," said Henry Lu, senior vice president of Taiwanese computer company Micro-Star International Co., which failed at selling a tablet computer a few years ago.

In the academic arena, Apple could face hurdles wooing universities if the tablet doesn't meet their needs or isn't compatible with other computing devices that students are using.

Amazon had been hoping to target the market with its 9.7-inch screen Kindle DX e-book reader, for example, but schools said the device wasn't sufficiently interactive and lacked basics such as page numbers and color graphics.

One person familiar with the matter said Apple has put significant resources into designing and programming the device so that it is intuitive to share. This person said Apple has experimented with the ability to leave virtual sticky notes on the device and for the gadget to automatically recognize individuals via a built-in camera. It is unclear whether these features will be included at launch.

Apple's content-related efforts heated up in the fall. In October, Apple sent representatives to the Frankfurt Book Fair, the industry's largest trade fair, according to one person familiar with the matter.

At the same time, Apple pitched media companies on a "best of TV" subscription service to television networks under which customers would pay a monthly fee for on-demand access to programs from a bundle of participating TV networks, giving consumers another way to readily access television content.

At a meeting in New York with one network in October, an Apple executive said the company was specifically looking to access four to six shows per channel, said one person familiar with the meeting.

Apple also has been planning a revamp of its iTunes music service by creating a Web-based version of it that could launch as soon as June, say people familiar with the matter. Tentatively called iTunes.com, the service would allow customers to buy music without going through the specialized iTunes program on computers and iPhones.

People familiar with Apple's plans say a central part of the new strategy is to populate as many Web sites as possible with "buy" buttons, integrating iTunes transactions into activities like listening to Internet radio and surfing review Web sites.

In November, Apple hired Tracy Augustine, a former executive at textbook publishers Cengage Learning Inc. and Pearson Education Inc., as the director of world-wide education. Ms. Augustine is responsible for "driving global strategy and revenue for the education online store for students," according to her LinkedIn description.
- WSJ.com January 22, 2010