Tech Brew Ride Home - Tue. 01/15 - Netflix Raises Prices

Episode Date: January 15, 2019

Netflix raises prices, maybe the Apple battery replacement WAS a big deal after all, cops can’t force you to unlock your phone with your face, and Amazon is driving its retail competitors into the arms of Microsoft. Sponsors: Metalab.co DatadogHQ.com/ridehome Links: Netflix will raise prices for US subscribers, with its most popular plan going up to $13 per month (TechCrunch) Apple Q1 Numbers: Missing Explanations (Monday Note) ON APPLE’S $29 IPHONE BATTERY REPLACEMENT PROGRAM AND ITS ROLE IN THEIR EARNINGS MISS (Daring Fireball) MongoDB Follow-up, AWS’ Incentives, Batteries: The iPhone’s Missing Miss (Stratechery) Apple's 5G iPhone shift bogged down by Qualcomm chip battle (CNET) German court throws out Qualcomm's latest patent case against Apple (Reuters) Feds Can't Force You To Unlock Your iPhone With Finger Or Face, Judge Rules (Forbes) Microsoft counters Amazon again with big Walgreens partnership, aiming to reshape healthcare (GeekWire) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the tech meme ride home for Tuesday, January 15th, 2019. I'm Brian McCullough today. Netflix raises prices.

Maybe the Apple battery replacement was a big deal after all. Cops can't force you to unlock your phone with your face, and Amazon is driving its retail competitors into the arms of Microsoft. Here's what you missed today in the world of tech. Your monthly Netflix bill is going up. Netflix this morning announced it was raising prices for all U.S. subscribers by between 13 and 18 percent, depending on which plan you subscribe to. Their most popular plan, the HD streaming plan, will go from $11 a month to 13.

The most expensive plan, the one with 4K and four simultaneous streams to different devices, will go from $14 a month to $16. And even the basic plan, which doesn't even get you HD, is going from $8 to $9 a month. So that's the purse strings math, but here's the more important math. This is Netflix's biggest rate hike ever, and it comes on the heels of Netflix's last price hike just 15 months ago. Previous times that Netflix has raised prices, it has tended to only do so to certain plans or certain users, but this one hits everybody across the board. Well, specifically, it will affect new subscribers immediately and then roll out to all U.S. customer,

in the next three months. We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience, Netflix said in a statement. Yes, but this price hike is coming at a particularly interesting time. All of those competing streaming services

are supposedly coming online in the next 18 months, and there are going to be a ton of them, and there's a very good chance that they are going to compete, with Netflix on price. For example, just yesterday NBC Universal announced it will launch an ad-supported streaming service in Q1 of next year. It will be free for pay TV subscribers and non-subscribers would pay somewhere around $12 a month.

Okay, so maybe the same price, but also with ads. So that's maybe not the most competitive offering, but consider the other players. Disney is bringing content it already owns to the table when it launches its streaming. service. So what if it was willing to come in at, say, $9.99 a month, or maybe even less? Plus, you'd have Star Wars and all the Marvel movies. That's pretty compelling. Then there's that chart that's been making the rounds on the internet that shows the breakdown of the most popular content currently streaming on Netflix based on minutes watched. A show like The Office is like a monster on Netflix right now,

and Netflix is about to lose the rights to the office. So some other streaming service could offer Michael Scott soon, and who's to say they might not decide to come in at $7 a month? So given all that, this seems like a pretty dicey time for Netflix to raise prices, right? But the bottom line is Netflix might not have any choice. Netflix is scrambling to create its own content library, we know. it's gone billions of dollars into debt to do so we know and well it has to have the cash flow to service that debt number one

but also I mean heck they just ponied up 80 or 100 million dollars for friends or whatever it ended up being that money's got to come from somewhere this was always going to be a delicate balancing act for Netflix and the rubber is really now hitting the road can Netflix stay ahead of the competition long enough that it will have its own compelling content library soon enough. Can it spend wisely enough to create that library without risking financial issues? I think the most likely scenario here is that Netflix figures it is probably better to habituate people to slightly higher prices now. I mean, it needs that cash flow anyway.

Better to get people used to higher prices for a few months before the competition is actually live and ready and people can make apples to oranges comparisons. The long-term premise of Netflix was always that if it killed the cable bundle, it could eventually have pricing power to replace the $80 to $100 a month that people have been used to paying for cable. The question now is, is there an upper band to what Netflix,

as a standalone service, can justify asking people for in a coming universe of other $10 to $15 a month streaming options? We're about to find out. Back when the news broke that Apple had its big earnings restating, The headlines were about a sales slowdown in China, but also hidden among the details and speculation were murmurs about Apple's battery replacement program for older iPhones. Lots of people were skeptical that simply allowing users to replace their batteries would be enough of a factor to move the needle on the iPhone upgrade cycle. Indeed, long-time Apple pundit Jean-Louis Gasset wrote, quote,

I have a hard time believing that the $29 limited time offer had a significant impact on Apple's numbers. Did Apple replace hundreds of thousands of batteries? I doubt it. At 100 replacements per Apple store times 500 stores, that's 50,000 happy customers and only 50 million in missed new iPhone revenues. I'd have to be off by a factor of 10,

half a million iPhone battery upgrades, 1,000 repairs per Apple store to approach a mere 500 million in missed revenue, end quote. SA later adjusted his estimate a bit, but wrote that even if his back of the envelope math was super low, quote, Apple had full knowledge of battery replacement numbers when issuing its November 1st guidance. Well, in Daring Fireball, John Gruber dropped this little nugget. Mark German had previously reported that Tim Cook held an all-hands meeting of Apple employees on January 3rd to discuss the revenue restatement issue. but what hadn't been reported until Gruber leaked it

was that Cook reportedly told Apple employees that Apple replaced 11 million batteries under the replacement program and they had only anticipated replacing about 1 to 2 million. So there's that big number right there. Quoting from Gruber's piece, but Gassay's second point still stands. The battery replacement program ran all year long.

So even if it was more popular, than Apple originally expected. Why wasn't it accounted for in guidance issued on November 1st, 10 months after the program started? My guess? The effect of the battery replacement program on new iPhone sales wasn't apparent until after the iPhone 10R and 10S models were available. A few million extra iPhone users happy with the performance

of their old iPhones with new batteries who would have otherwise upgraded to a new iPhone this year put a ding in the bottom line. end quote. So John is speculating here that people just waited for the big iPhone announcement to see what was new, decided that it wasn't new enough, and then there was that battery program, so why not? This morning, Ben Thompson followed up on this by writing in Stratectary. This makes perfect sense.

As iPhone performance is increasingly good enough for an increasingly large number of people, the reason to upgrade becomes more about physical deterioration, whether that be broken, screens, worn out batteries, etc. But if that is the case, why not simply replace the screen or the battery? I suspect most customers have long known about the possibility of the former, but that just as many people had no idea the latter was even possible. In other words, the real problem for Apple from the battery slowdown controversy, at least from a revenue perspective, was not reputational damage, but simply increased awareness amongst end users that a battery replacement could very well make their phones feel like new.

Again, though, while this isn't great news for Apple, it's not terrible news either. Customers that didn't upgrade are still iPhone users. They are still contributing to services revenue, and they are still likely to upgrade eventually, end quote. A couple more Apple nuggets before we move on. The Federal Trade Commission antitrust trial against Qualcomm is currently going on. The government has accused Qualcomm of using its dominant position as a manufacturer of smartphone chips in order to gouge its customers, customers like, for example, Apple. And on Monday in San Jose, Apple C-O-O, Jeff Williams, was on the stand at the trial to testify that Qualcomm

reportedly refused to sell chips for use in newer iPhones, while Apple and Qualcomm are fighting their separate legal battles. Specifically, Apple wanted to use Qualcomm's 4G-L-T-E processors, but Qualcomm wouldn't see. sell the chips to Apple. Quote, we have been unable to get them to support us on new design wins past that time, Williams said. He's referring to the time period when Apple filed its lawsuit against Qualcomm. This has been a challenge, end quote. Apple's latest iPhones only use 4G chips produced by Intel, by the way.

And in testimony yesterday, it was suggested that Apple risks falling behind in crucial 5G technology because of Qualcomm's intransients. Apple has a separate suit against Qualcomm over licensing terms for processor technology. It's messy and complicated and would take me 10 minutes just to lay out all the details. But the key quotes from yesterday's testimony came when Williams described a contract renegotiation with Qualcomm from back in 2013. This is from CNET. We were staring at an increase of over $1 billion per year in licensing, so we had a gun to our head, Williams said. as he explained why Apple signed another licensing agreement.

The alternative was, if you don't accept it, it just defaults to the contract manufacturer rate of $18, $17, William said. We needed their chip supply. If we tried to pursue them legally, we wouldn't have access to the chips. We didn't have a lot of options, end quote. In related news, this morning, another side of this multi-front legal war, a German court dismissed Qualcomm's latest patent lawsuit against Apple, the patent in question was not violated by the installation of Qualcomm chips in iPhones.

This was the case that might have led to a ban on certain iPhone sales in Germany, but according to Reuters, all iPhone models are available for sale in Germany as of today. And in one more legal piece, we've been following the back-and-forth battle between law enforcement and encryption locks on smartphones. Yesterday, a district court judge in California ruled that a authority, authorities definitively do not have the right, even with a warrant, to force suspects to unlock phones via biometrics, thus your face or your finger. This ruling apparently goes further than other rulings in other cases to actually restrict the options of law enforcement and thus

is being held as a potentially landmark decision. Some previous judges had ruled that a person could be ordered to unlock a phone via finger or face, despite the fact that the police are not permitted to ask for a password. The fine legal distinction came down, I'm not kidding, to the fact that a password is stored in someone's brain. Quoting from Forbes previously, courts had decided biometric features, unlike pass codes, were not, quote, testimonial. That was because a suspect would have to willingly and verbally give up a passcode,

which is not the case with biometrics. A password was therefore deemed testimony, but body parts were not, and so not granted Fifth Amendment protections against self-incrimination, end quote. So contra that, this is what the judge in the case, Candace Westmore, wrote, quote, declaring that technology is outpacing the law. The judge wrote that fingerprints and face scans were not the same as physical evidence when considered in a context where those bodily features would be used to unlock a phone. Quote, if a person cannot be compelled to provide a passcode because it is testimonial communication, a person cannot be compelled to provide one's finger, thumb, iris, face, or other biometric features to unlock that same device. The undersigned finds that a biometric feature is analogous to the 20 nonverbal physiological responses elicited during a polygraph test,

which are used to determine guilt or innocence and are considered testimonial, end quote. And finally, today Microsoft has announced it has said, partnered with Walgreens to help that company on its tech infrastructure in order to, quote, develop new healthcare delivery models, technology, and retail innovations to advance and improve the future of health care, end quote. That was from a joint statement between the two companies. Walgreens is going to migrate all its tech to Microsoft's Azure cloud platform. Walgreens staff will all be signed up for Office 365, et cetera. So you might be saying, great, Brian, who cares? Well, here's the interest.

angle. This is the second major partnership Microsoft has announced with a major retailer in the last two weeks. I didn't talk about it, but Microsoft announced last week a major tech partnership to help Kroger reinvent grocery shopping. And late last year, Microsoft announced a similar major deal with Walmart. What do all of these companies have in common? That's right. They're competitors with Amazon. Obviously, in the case of Kroger and Walmart, Amazon is coming after those companies in the realms of grocery retail and retail, retail, respectively. But Walgreens is facing a double whammy. Walgreens is, of course, a major retailer in its own right. But it's also sitting smack dab in the middle of a market that everyone expects Amazon is going to go after in a big way this year. Healthcare, prescription drugs specifically. So, enemy of my enemy is my friend's sort of thing, but also consider this angle. Microsoft.

Microsoft has been on a tear recently. recently reclaimed the mantle of the most valuable company in the world, King of the Tech Hill. And how has Microsoft been able to pull off all of this winning? By killing it in cloud computing, for one of many things. Sure, AWS might be ahead in the cloud race, but it turns out there might be some advantage to simply being a tech company and just a tech company,

and not also in everything store, because it turns out maybe that companies, companies are afraid to partner with your cloud computing arm if they know that that other arm is at the same time trying to eat your lunch by swallowing all of retail. That's all for today. Not much to add this time other than January weather really has finally definitely come to NYC, January temperatures at least. It's really cold out there. although there has been no bad January weather yet, no snow of any significance. That D.C. snowstorm went south of us this past weekend.

However, I can almost guarantee that we will get snow a week from right now. Do you know how I know that? Because two different family members have to take two different flights, one into and one out of New York City, exactly a week from right now. So I'm sure that that's when the first. first big snow of the season will hit. Murphy's Law and all that. Talk to you tomorrow.