Tuesday, December 14, 2004


I missed the big run in APPLE this year after deciding not to buy the stock several times. It has been another one that is always too high. The stock is in the news a lot. The i-pod is jumping off the shelf this during the holiday gift buying season. The music business is big but maybe not as big as the constant news about satellite radios, i-pods and MP-3's.

Last night I went to Costco to buy a $5 dirty Santa present. I hardly got in the door before I ran into display after display of MP-3 players. There were hundreds of these things. The small ones advertised 4 hours of playing time and the large ones advertised that they hold 13,000 songs! Who has the need to carry around 13,000 songs?

I used to be an early adopter of the latest electronic wonder. I paid $1,600 for my first calculator and about the same for my first cell phone. In later years, I have learned to buy the stock first and the product after some of the excitement dies down.

The manufacturers are really spitting these things out. I received a Dell catalog and noticed that Dell offers a knock-off of the i-pod that appears to be a better product for less money.

One reasons the race is so competitive is that this is much like the "Gillette razor game". Gillette was the fellow who discovered that if you give away a special patented razor, the consumer had to come back to you to get more blades.

Steve Jobs is a brilliant man and I do not plan to sell APPL short. However, I think the profits from selling the i-pod are going to go away. The profits from selling media will be around for a long time to come. Microsoft and Real Networks (RNWK) are the leaders in media players. Both will be formidable competitors in the media wars to come.

In other blogs, I have written about the deals between Liberty Media, ROXI and RNWK. I have written about the new networks being built by QCOM. The future is coming. The business is a growth business. It will start out very fragmented but will eventually boil down to a few winners. Along the way, there will be mergers and acquisitions.

Comcast and TWX are just two of many other interested parties. Comcast just announced a deal to offer music videos through Music Match. TWX has a huge investment in the area and has decided to develop its own media player.

RNWK has many other established relationships that are hard to quantify. To a large extent, it comes down to a gut feeling or educated guess. My guess is that RNWK will either turn out to be one of the winners or it will get a take over offer that is just too good to pass up.

This morning we purchased shares in RNWK. A couple of years ago, we bought shares in this one and sold them at break even after holding for about a year. Since then there have been anti-trust actions against Microsoft in Europe and a lot of other changes to the business. Again, the big change that is coming is the "all in one" cell phone.

I don't think consumers will give up their cell phone or carry a cell phone and an i-pod if instead they can carry an "all in one" phone. There was a time when I knew a number of people who carried a pager in addition to a cell phone. Now-a-days, most folks have abandoned the pager and carry a cell phone that serves both functions.

Early in the new year, I will probably reduce my positions in SIRI and XMSR. I will continue to add to positions that will benefit from wireless networks.