Steve Jobs on iPod and Podcasting: Why Pocket Devices Compromise

So without further ado, Steve Jobs. Steve Jobs. Welcome. Thanks. So it's been a great year for you. Amazing iPods, continued amazing success. But what have you done for us lately, I think? Everyone wants to know. What's the next thing from you? Where do you think iPods going? Well, you know, we're working on a bunch of great stuff, but I can't talk about it. Okay. It's a problem. And I know it's hard, but there used to be a saying at Apple, isn't it funny a ship that leaks from the top?

Uh-huh. Uh-huh. Okay, then. I don't get it. Well, let's talk about a few things about the iPod. You now have iPods that start at $99 and go to like $450 or something like that. Yeah. And for most of it, it's like in $50 increments. Every $50 increment for most of it, yes. And you've maintained a very strong market share, I think, quite a long distance from the introduction of the thing, which is unusual in consumer electronics. But people have got to catch up to you sometime, right? I mean, it's pretty unnatural for a market to be dominated to this extent by one company, and there's like zillions of other companies, and the stuff is getting better and better that they're putting out there.

So is this the year it all collapses? Well, it could be. But congratulations. You know, I mean, there are companies that have managed to hold on to pretty good market shares. A colleague of mine in this room runs one of them. So I don't know that it's inconceivable that we can't. But we're focused on putting out the best products, and the market share for iPods has actually risen over the last year. It's gone up. And we've had unbelievable competitors. So what can I say? We're focused on putting out the best iPods we can. Our competitors are trying to copy us, and some of them are getting a little bit closer. But we've got some pretty great things in the lab.

So I think when people see what we're doing, they might be pretty pleased with it. Well, can you give us an idea in areas of video, for example? Something you talked about on stage last year. Yeah, well, let's talk about it. You've said on the stage that you didn't think video on a small device like that made sense. You're always fighting things that are opposed to each other. So as an example, let's take the PlayStation Portable, right? Great game machine. But it's not such a great music player. And, you know, there's many reasons for that. But the biggest reason is it doesn't fit in your pocket, right? So you've got, you know, games want nice big screens. Music players want to fit in your pocket. And you have to pick one and optimize for it. And the second thing you do will certainly be suboptimal. Maybe you can do it, but it's suboptimal. And so you can do video on these devices if you want to.

But the things that are suboptimal about it are the screen size, so it fits in your pocket, and the battery life, and things like that. And, you know, the fundamental problem here is that headphones are a miraculous thing. You put on a pair of headphones, and you get the same experience you get with a great pair of speakers, right? There's no such thing as headphones for video, right? There's not something I can carry with me that I can put on, and it gives me the same experience I get when I'm watching my, you know, 50-inch plasma display at home. And, you know, until somebody invents that, you're going to have these opposing constraints. Well, they have those huge goggles you can wear. But they're lousy. But you never get a date if you ever wear them, right? So let me ask you about another kind of iteration on iPod, which is wirelessness.

You, I think, four or five years ago now, you probably remember exactly, came up with this phrase, digital hub, the Macintosh, or we could expand it. You didn't, but I might expand it to say the PC in general, the personal computer in general is the hub. Everything kind of goes through it. Everything plugs into it. Why? Why with the Internet out there and available wirelessly, shouldn't I be able to have an iPod-type device that avoids the need to go through a PC or a Mac? Well, those are two questions. Number one is should we integrate wireless networking into an iPod someday? And, yeah, maybe that makes sense. Again, you've got constraints. Wireless networking, like 802.11, takes a lot of battery life or takes a lot of power. So you have battery life, you want your player to last as long as possible, and you've got wireless networking, which takes a lot of power.

But that's not the heart of the issue. The heart of the issue is that when you're in a music store and you want to browse music and stuff, it's really nice to have a screen that's, you know, bigger than that so you can see a bunch of things at once, right? It's the same issue you're talking about with the video. Yeah, same issue. You want a nice big screen so you can see lots of music and pick out what you want versus a tiny little screen. And, again, you want the screen as small as you can so you can put it in your pocket. So actually discovering and buying music on a computer and downloading it to the iPod, in our opinion, is one of the geniuses of the iPod. And you can look at changing that, and maybe that will happen over time. But I think the experience you'll get on a device with a small screen optimized for putting in your pocket is going to be far less satisfactory than on a personal computer.

You may still want to do that occasionally, but I don't think it's going to ever mean you can not have some other device that is your primary device for buying and cataloging your music. What would solve that? Rollable screens, foldable screens, you know, goggles you can put on. I don't know. But it's not on the horizon. If that's true, what is it you're doing with Motorola to put the iTunes store on a phone, which is, after all, a small device with a small screen? And is that a suboptimal thing, or what is it you're doing? What we're doing with Motorola is basically putting an iTunes player on some of their phones. A player, not a store interface. A player. And so, well, initially what we're going to do is you can just transfer music from your iTunes on your PC or your Mac to the phone.

It's not a bad idea. The thing about it, though, and maybe we'll do some over-the-air stuff later, but we don't think that that's going to be where the action is. I mean, all the carriers, they're paying more for their phones to add 3G networks and they're adding video and they're adding music playing capability. And the reason they're doing this is because the phones are going out to the consumers at the same price. The reason they're doing this is to raise their ARPU, or average price per user. And the problem is the ARPU is not going up. It's not going up. No, they make money, as an example, with putting cameras in their phones that cost them money. They make money when people ship around the photos. But they're not sending the photos around. Now, whether that's because up until recently you couldn't send them cross-carrier or because the user interface is so crazy nobody could figure out how to do it, I don't know why.

But it's not happening, so they're not seeing their ARPU go up. And it's going to be the same way on music. They're going to pay more to get these phones with this capability and they're going to try to sell music at $2 and $3 a song to the phone. Well, it's going to be a lousy buying experience and the music is going to cost two to three times as much as if you buy it on your computer. And it's hard to see that their customers are that stupid. Well, wait a minute. The customers are now paying $2.99 and even more in some cases for 30-second ringtones. You give away and Microsoft gives away and other people, Yahoo, 30-second previews for free. They're charging $2.99 for that. And that's because the phone manufacturers have pretty much put their phones in walled gardens so you can't put ringtones on their phones.

Is it the manufacturers or is it the carriers? It's the carriers, excuse me, the carriers. Well, the carriers are forcing the manufacturers. So you've got to buy them that way. But again, and I don't think consumers have other options to carry around their music not on their phone. Well, then what about an iPod phone, which I desperately want, please. Thank you very much. It's a hard problem. All right, but wait a minute. I know it's a hard problem. You're a smart guy. There's some reason. There are some people who say for whatever reason, maybe just curiosity, you have a little work in designing a phone going on at Apple. The various rumor sites have said that. We're doing everything if you read those things. I know. Nuclear submarines, right? But the phone. Yeah. The problem with the phone is that, you know, as you know, Apple's greatest successes have not been in the Fortune 500.

And part of that is because we're not very good going through orifices to get to the end users, right? Thanks for that. So there are 500 men and women in the Fortune 500, CIOs, that you have to go through. Right. And we've never been real good at that. So if you look at it and say Apple's DNA is not great at going through these orifices to get to the end users, then it's even worse, as you can imagine, in cell phones, you know, because you've got like five of them or four of them in the U.S. So if we can't succeed with 500 of them, how are we going to succeed with four? And it's even worse because the carriers now have gained the upper hand in terms of the power of the relationship with handset manufacturers.

And they're starting to tell the handset manufacturers what to build. And if Nokia and Motorola don't listen to them, well, Samsung and LG will. So the handset manufacturers are really getting these big, thick books from the carriers telling them, here's what your phone's going to be. And that's not the way you work, right? Well, we're not we're not good at that. OK, so. So, why not form an MDNO? In other words, your own cell phone carrier where you don't have to put up towers, you just lease it from Sprint or Verizon or somebody. You have your own MDNO and you can make whatever phone you want. Yeah, it's not clear the endurance of those things. It's not clear that when an industry gets more and more competitive that there's room for a lot of hands in the till.

So, you've said on this stage before, for instance, in discussing PDAs and why you didn't do a PDA, you've said the cell phone is the big deal. People carry cell phones. They do a lot of things on cell phones. They go in your pocket. Your dinner companion, Bill Gates, was quoted recently as saying that the lifespan of the iPod, the stand-alone handheld music player, is limited because it's all going to move to the cell phone. In fact, you know the same hard disk you use in the iPod Mini is now in some Samsung and Nokia cell phones. I know that you could put music software, music firmware in there and all that, plug headphones into it. Why isn't that true, that it's going to move into the cell phone? I thoroughly understand the question.

Excellent. I'm going to have to leave the answer to our actions in the future. All right. Does that have to do with that ship thing? That's the ship thing. All you bloggers heard that, right? Now, in that same area of selling music, Yahoo just announced this new $60 subscription service. You don't do the subscription service, but you haven't ruled it out, correct? Right. No, we're not religious about this. We'd be happy to offer a subscription service if when we go out and we ask customers, is this what you want, very few of them tell us that's what they want. So there's three ways to look at subscriptions. One is not enough people want them. Two is enough people want them.

Or three is enough people want to at least augment their purchase experience with a discovery experience that you can use a subscription service for. The problem is that the subscription services, Yahoo nonetheless, are not going to be so cheap. Now, Yahoo went out at $5 a month if you pay for a year, and that's, let's just say, substantially below their costs. And part of the reason they did that was because they're probably not going to have any customers for a little while. So they can go out and make a big splash with that, but they will raise their prices as they get customers. And the music companies, I mean, we talk to them, as you can imagine, quite a bit. They love the idea of subscriptions because they want to jack up the price every year. They look at subscriptions like the cable industry.

Remember when cables cost X amount? Now it costs 7X amount. So they want to just keep raising prices. And right now, not that many customers want to rent their music because they're afraid that when they stop paying, their music will go away, and of course their rights. And they don't really know how much the rent is going to cost three or four years down the road. So if somebody could come out and say, look, it's $5 a month and it's going to be $5 a month for the next 10 years, then that might be more compelling. So if you could get a deal with the record labels that would give you some price stability confidence, would you be... And if we went out and asked our customers and they said, sure, this is something we'd love to have, then... I don't think you and your company are known for basically reacting to customer surveys.

Yeah, well... I mean, really, Steve, my sense of it is you sort of do things and then you build markets around them and... Well, it is true that we're not driven by that. But it's not true... It's not true that we don't go out and ask our customers to help course correct. And we do. I mean, we're out talking to iTunes customers constantly. And we're out talking to non-iTunes customers constantly. So we're going to keep our eye on this Yahoo thing. And we've got a little betting pool going around the company about how many months it is before they start raising their prices. And we'll see what that's like. And where's that now? Well, it's all over the map. So I have five months is mine. Oh, do you? What's your relationship with the record industry at this point? I mean, you dominate. And yet we just recently had a representative from the Recording Industry Association in our office.

And I wouldn't say it was hostile, but he was not, like, singing your praises. Well, I think there's two or three things there. One is there's this big case that's, you know, in the Supreme Court now, the Grokster case. And they really wanted us to come out and unequivocally support their position that... well, the music industry is trying to fight the peer-to-peer networks. And they're trying to fight them by introducing this concept of intent. If you have a product where the intent is that you could... the product could be used to steal copyrighted content, then you could be held liable. The problem is intent's a funny word. And so we didn't want to support anything wholeheartedly where somebody could say, well, you know, when you were dreaming up the iPod, one of your engineers had the intent that this could be used to hold pirated music, and all of a sudden we're liable.

And we asked them to see if we could clarify that, and we couldn't reach any agreement. So we came out very strongly in favor of not... of the protection of intellectual property and the protection of copyrighted content. But we couldn't go all the way, and that's maybe one of the things they're upset about. And the other thing, you know, is that the music companies... there's four big ones now. And we have really good relationships with most of them. But some of them are a little difficult to deal with. And as an example, when... That's a surprise. Yeah, when we sell a song on iTunes, they make more money than when they sell it on a CD. And they make more money because they don't have to pay any marketing, and they make more money because there's no returns, as there is in the physical world. And so we think that's pretty good.

And we're selling music. You know, we've sold over 400 million songs. We sell music at the rate of over half a million songs... half a billion songs a year now. But some of them, you know, they constantly talk about wanting to raise prices and this and that. So we're... And because you have market power and you don't want to raise prices, that is difficult for them. So isn't that... I mean, aren't some of them just pissed off because they... all of a sudden, you're their one big customer for legal downloading, and you dominate... What are you, 70%? Something like that? But you have to remember, the legal download music business is still only 5% of all the music that's distributed on CDs. So it's, you know, it's not like we're their biggest customer, but we're certainly in their top ten.

And they don't seem grateful. When I talk to them, they don't seem grateful. I don't know what it is. Well, the good news is is that customers are really grateful. All right. And they're really enjoying it. So is there anything new you're doing in iTunes, iPod, that you can... There is. There's something here to show you today. All right. So let me do a demo. One of the fun things about iTunes is we keep improving it every several months and building in new features. And we're going to introduce... I want to show you a little sneak peek. We haven't introduced this yet. We'll roll it out in the next 60 days or so. How many of you here use an iPod? Let's start there. Oh, great. Bill, is your hand up? That's okay.

And how many of you know what podcast... How many of you heard of podcasting? Great. How many of you actually know what it is? Okay. How many of you have listened to a podcast? And how many of you have actually subscribed to a podcast? Okay, great. So let me start at the beginning and tell you what this is all about. Podcasting is a word that's a concatenation of iPod and broadcasting, right? Put together, podcasting. And what podcasting is, it started off as Wayne's World for radio. Think of it that way, right? Where you've got... Anybody could make a radio show and put it on the Internet and broadcast it out there and anybody else could listen to it. And then what you could do is because people like to put out multiple episodes of their radio show, you could subscribe to a radio show.

And every time it's updated, you'll get the update right on your computer and it'll go into your iPod when you sync your iPod, right? Pretty cool. Or competing music player, not just an iPod. The few of them out there. And so then what's happened since is that it's not just the Wayne's World of radio, but real radio is jumping onto this. It's getting very, very exciting. Let me read you some stats. I have a little thing over here with some little factoids on it. And so... First of all, there was a Pew survey done last month. 29% of US iPod users had listened to a podcast. Not necessarily subscribed to one, but listened to one.

Now, the reason they hadn't subscribed to one was because you have to get a third-party app and download it on top of iTunes and that does the subscription stuff and it's kind of a pain. But there's millions of people that have done this. And there's over 8,000 podcasts today. It's kind of interesting there's no FCC regulation because you're not using Spectrum, you're using the internet, so that makes it very simple. It's worldwide. You can put your radio show out there and anyone in the world can listen to this. And if you Google podcast, 6.2 million entries in Google on podcasting, which is kind of fun. So, again, it's sort of like TiVo for radio for your iPod. And you just subscribe to these things, right? So let me show you what it's like. This is the next release of iTunes called Release 4.9 and I'm just going to run it right now.

And what we can do is we go to the music store and we can, this is not a live music, this is not the music store that's live for everybody else, it's a little private one for us here. And there's a little thing called podcasts right here, you click that and we've got a page full of podcasts right here. And so, some of these are real podcasts, others like the Walt one we just made up. So here's one as an example, KCRW, this is a public radio station, you just click on it and here are their three latest shows and you can just listen to one or you can subscribe to one, you just push the button, they're all free and we've just subscribed to this podcast and we go up here to the podcasts and here's, you know, the latest one. This podcast of The Treatment is a production of KCRW Santa Monica at 89.9 FM and webcasting at kcrw.com.

From KCRW in Santa Monica, this is The Treatment. So anyway, these, well let me just play one more for you. And these are just really cool radio shows coming off of very professional radio broadcasts. We've got Clear Channel, Infinity, Sirius, NPR are all doing podcasts now, BBC. And these are all free? These are all free. Newsweek is doing podcasts, Businessweek is doing them, Forbes is doing them, Washington Post, Denver Post, Seattle Post are doing podcasts, Philadelphia Daily News, San Francisco Chronicle. Disney, when they wanted to get the word out on their 50th anniversary, did a podcast. It's pretty amazing. And you have this subscribe, unsubscribe. That's correct. I presume they could be used if you were to eventually get into selling paid audio stuff.

Well, you could try to sell podcasts, but the whole phenomenon is so great, it's free. And I think what we're gonna see is an advertising-supported model emerge just like free radio. Here's another one. Adam Curry is one of the guys that invented podcasting. And he has a podcast called The Daily Source. Let me go ahead and subscribe to that. And we can go listen to his latest one. You know, just click on it. Here's your daily source code, show number 180. Something remarkable is happening here. Radio is springing free of the regulated gatekeepers who've managed what you can hear since radio was invented. It's jumping into the hands of anyone at all with something or nothing to say. $16 million worth of airplanes strapped to my ass. Transmitters. And the next generation radio content in my ears.

We don't need no speaking transmitters. I like to think I'm flying into the future. Podcasting is Adam Curry. That's right, it's show number 180 and it's Friday, everybody. Thank God. The power of your intellect. I've actually had to restart the show three times. My Mac has been acting up like a motherfucker. I don't know what's going on. I think it's something to do with the file system. Okay. No, no. How do you control, say, dirty stuff? We're gonna have an explicit flag on these like we do the music so you can know if it's explicit. So I can find it easier. Yeah. Thanks. You know, we're gonna start one here on New Music Weekly that we've got.

And let me just show you one of the features. So let me go ahead and subscribe to this and go back here and we can just play, you know, by the way, if you wanna get an old one, you can just go download an old one if you want, but usually it's just the latest one you're getting. And we've got artwork on these things too down here and we can scrub through and you can actually, the artwork can change as you're going through these things. You even have chapters, you know, that you can go through and, you know, and you can even click on the artwork and actually go to the music store where a part of a song might be playing if you wanna buy it, et cetera, et cetera. Right now. You produced that yourselves? What's that? This one we produced ourselves, yeah. You produce, are you gonna produce a lot more or just rely? No, no. There's the community out there is phenomenal. Here's one we did for Walt that's fun. We just got Walt to record his column yesterday. And again, I have a feeling.

This is exciting stuff, I have to tell you. Well, you know, I bet you'll be podcasting your column in the not too distant future. Yeah, like I need more work, yeah. This is Walt Mossberg and this is personal technology from the Wall Street Journal. Personal technology for May 5th, 2005. A guide to using RSS, which helps you scan a vast array of websites. So Walt's gonna have to up his production value here a little bit, but we'll get there. I was gonna say, that was riveting. That held me. We'll have a string quartet back there. All these things sync up with your iPod every time you sync your iPod. So you can get these radio shows, you can subscribe to them. Every time there's a new one, it'll automatically come onto iTunes and automatically go on your iPod the next time you sync it.

And remember, this has been really hard to do so far. You've gotta download this third party app and it's pretty crufty. And I think already millions of people are subscribing to these podcasts and I think this is just gonna send it into orbit. And this'll be on both Mac and Windows. Yeah, absolutely. And as to get a lot of them, as opposed to songs, I know there's a lot of songs, but there's, I think, 10 million blogs at this point. This is gonna go, how do you manage that? I mean, in terms of the size that it becomes from your perspective. Is it something that people- Well, because in order to subscribe to one of those podcasts, it has to be offered in your store. No, that's not true. No, these podcasts don't need to be hosted by us. Not hosted by, but it has to appear in the UI of the store as a list. So how do people register their podcasts with you or get them included in your- We're gonna have a service where they can submit them very efficiently, in a very automated way.

And do you expect hits to happen? I mean, the hits naturally happen the way they do in- And we'll be able to highlight what are the 20 most popular podcasts today, this, that, this, that. And there's editorial that goes along with this stuff too. So we can highlight the ones that are really great. Yeah, just like with your music. So, so far we've been talking about a product you make that has got, I don't know, what is it? 60, 70, 80% share, the iPod and different. But you make another line of products that's like under 5% share has been. Yeah. The Macintosh. We try harder. You try harder. Lots of analysts have written about this so-called halo effect from the iPod. Is that just bullshit or is it true? Is it real or- Well, what we can say is the last few quarters we've grown, you know, three and four times as fast as the rest of the industry.

So we are picking up some market share and I strongly suspect it is due to that iPod halo. How much of a role do you think the stores play in it? I think the stores play a huge role. You know, we have 105 stores, 100 of them in this country and we're seeing over a million visitors a week now. And that's a lot for us. And in addition to that, the experience they get when they go into the stores is just phenomenal. So, you know, we've got, as an example, one of the best inventions of the store is called the Genius Bar. And you can go in with problems about, you know, how does this software work with this, you know, with my computer or my operating system's not working right or whatever it might be, repairs, you name it, and these people handle it for free. And we've, you know, in some of our stores now, like in our New York store, we have, we're pushing a hundred geniuses that work there.

A hundred geniuses? A hundred geniuses. You found a hundred geniuses in New York City? Yes. Yes. That's amazing. Who actually wanted to work for us? Um, you say your market share has increased. What is your market share for the Mac at this point? It depends who you listen to. In the US, you know, it's, I think, starting with a four now, which is good. Internationally, it's a little bit less because we haven't participated in some of the emerging markets as much as we should have. When do you expect that you'll get to 10%? I don't know when. Do you think you will get to 10%? It's possible. Um, you know, I've given up predicting stuff like that. We're just trying as hard as we can and the vector's going in the right direction. Do you need a new product in that area in terms of laptops, in terms of- No, I think our products are really good. I think they're the best they've ever been. And, you know, so we're trying to make the best personal computers in the world.

I think we do. We're trying to make the best operating system in the world. I think we do. And we've got some awesome applications. So, you know, our customers love us. We've got 25 plus million customers and I think you'd be hard-pressed to find too many other customer bases that are in love with their products as much as ours are in love with our products. And what's so great about the iPod- Thank you. Thank you. What's so great about the iPod is it's putting an Apple product in the hands of now, you know, tens of millions of people that don't have one. And some of them are going, wow, this is really great. I wonder what else Apple makes. And some of them are going- Do they do that? Yeah. I wonder. And some of them are going in to buy an iPod at the store and they're going, what's all this other stuff here? And they're learning about our computers. And, you know, I think if people learn about our products, many of them choose them.

You have been free of known successful viruses on OS X, which came out in 2001 so far. And I'm saying that carefully because there've been some viruses created in the labs, but as far as I know, there've been none that have been reported to be spreading among Macintosh computers in the real world. Yes. Is that gonna end this year? What do you think? Is the temptation- One never- Even though you have a small market share and so you're not nearly as attractive a target, they can't bring giant corporations to their knees by infecting Macs because, as you said earlier, you're not that big in the Fortune 500. Well, they can bring one, at least. Yeah, one. And a lot of people who love you.

Actually, I learned that the Xbox guys at Microsoft had, I think they told me something like 4,000 Macs that they bought, too, because they use the same processor you do. Right, they were a great customer this year and we appreciate that very much. So do you think- But now- We promised them we'd go out and buy 4,000 Xboxes, too. But now they can flood the market with used Paramax. It's an issue. But... So... So, isn't it kind of becoming something where the first guy that can infect a bunch of Macs with a virus looks like a hero because nobody has done it? Oh, I think it's looked that way for a long time because while you may not bring Procter & Gamble to its knees because they don't all use Macs, there's a lot of very visible, very influential people that do. So, I think people have been trying for a long time.

And one thing you never want to do in dealing with security and viruses is be cavalier. So, who knows? It could be tomorrow when something like that happens. But we try really hard and we have a very robust operating system in terms of security. And we have some practices that I think are certainly best-of-class practices in terms of how users have to relate with that operating system. I remember when we were designing OS X, Avi Tavenian, the person that was running software at the time, showed us OS X. And every time you wanted to load an application into OS X, whether it was off the Internet or even off a disk, you had to type in your name and password. You had to authenticate. And we gave him incredible shit for that. We said, Avi, are you nuts? This is the Mac. And he said, trust me. And so we deferred to Avi in the end on that after trying to twist his arm for a year.

And boy, was he ahead of his time. Just that simple thing. And there's like a hundred things like that in OS X where you can't load an app off the Internet without authenticating before it runs. And other operating systems are implementing these same things now. But there's a lot of stuff in X that was thought through correctly. Now, we don't market this because that's like the red cape and the bull. And this is a problem we all have. So I don't think it should be used as a competitive weapon. But OS X has been pretty good so far. But do you think it's a competitive factor? Do you think you're at least getting consideration from people that might not have given you consideration because they want to find a haven where they think they'll have less hassle from viruses? Well, I think it's a fact, number one. And number two, I think we've certainly had people come to us and say, we clearly have to have a more heterogeneous environment now.

With a homogeneous environment, we are just too vulnerable. We have to have a heterogeneous environment. But you don't see yourself moving into the corporate space. You said the Fortune 500 was not where you dealt. It's not where we proactively go out and push. But when people want to buy our computers, we hardly ever say no. Even if they live in an orifice, you're willing to go in. That's great. How's Tiger doing? Tiger came out, what, three, four weeks ago? Yep. Tiger is doing phenomenally well. Tiger, if you don't know, is the latest release of Mac OS X. It's the fifth major release of Mac OS X since we released it about five years ago. And it's phenomenal. It's the most successful. Well, it's the best OS Apple's ever released.

It is the most successful OS release we've ever had, both in terms of critical acclaim, reviews, as well as sales. And we couldn't be happier with it. Do you have any idea what percent of your user base, I know it's early, but already has converted? We do, but I can't say because we're supposed to keep those things quiet until we announce earnings and stuff. Really? Yeah. That's not the rule here at D. So you can tell us. We won't tell. You don't have earnings. No, the SEC has declared this like a free zone. A free information zone. Is it the percentage of how many of the people use it? Yeah, we know this every week as we tally up our results, but I can't say.

All right, then. How many of you have ever seen Mac OS X Tiger? Great. You guys, there's a lot that haven't, though. Can I show? Yeah, you can show a few things. Let me just show two things in Tiger here real quick. I know I don't want to bore those of you who are using it, but there's just two features that would be fun to see. One is called Spotlight. We live in the Google era, thank you, and we can find stuff on the Internet really fast, but it turned out it was much harder, it started to be much harder to find stuff on our computers than it was to find stuff on every server on the Internet, and that's pretty crazy. So a lot of people have been working on desktop search. We demoed this about, gosh, 18 months ago, and about nine months ago we saw Google and Microsoft come out with desktop search tools, and I think we've seen Yahoo come out with one, too.

And we actually, from the very beginning, wanted to build it into the operating system. And the reason you want to build it into the operating system is because it just works better. It's far more comprehensive than an add-on tool, and maybe most importantly, it knows when to update its indexes. It knows when something changes because the operating system is smart. It can say, hey, this file changed, you better go update your data for that. So things get updated instantly instead of waiting and therefore missing results. So we could go search for something. We just put something up in the menu bar here, a little place to type in. I could type in baseball, and boom, it finds stuff, whether it's images or documents or presentations, whatever I want. I could just go click something and open it. Right here, a PowerPoint presentation, Excel document, mail message, contacts.

Or I could say show everything. There's 401 things it found. It brings up another window, and it shows me images. As an example, there's 325 of them. I could see them all, boom, find images real fast, or go back to just looking at my top five. And I've got documents here. I could open up an Excel spreadsheet, and it's got something about baseball in it somewhere. Go up in a PowerPoint presentation. Again, a mail message, boom, there's a mail message having something to do about baseball. And so whatever it is you're looking for, you can just find it instantly. I could, again, type in Yosemite. And any app, even inside of PDFs. Here's a map of California that's a PDF file.

And inside this map of California, there is the word Yosemite that it just zoomed in on, inside a PDF. So it finds things just about anywhere in the system just about instantly. How is this different from the Google add-on Desktop Search for Windows or the MSN, which a few days ago came out of beta with their – it's actually called Windows Desktop Search. Why is this – I mean, isn't it the same thing? You don't have to spend $129 on a new OS to get those. They're free. Well, it's better in three ways. Number one, it's far more comprehensive. It searches many, many more things. Really? Oh, sure, absolutely. It finds applications, finds preferences, finds everything all over the system. Many more application types as well. Number two, it knows when to index because the operating system tells it something changes.

These other tools are not up to date. So you have to tell them to index or they index on a schedule. But if you're trying to find something that changed five minutes ago, you're not going to find it with these tools. And number three, this is built into the system so applications can actually build this feature into themselves. So as an example, we joke around a lot, but Microsoft and Apple have a really good relationship with each other. And they have a Mac business unit, which does a great version of Office for the Mac. And they are building in Spotlight into the next generation of Office. Spotlight is the name of the search technology. So you can find stuff from their applications as well. Even though this finds stuff from the Microsoft applications today, they're building it in to do something else. Well, it doesn't find stuff in Entourage. It doesn't find stuff in Entourage, that's right.

And they're going to build that in. Yes, they are. Now, is this the way people are going to compute the way they deal with their desktop? When I got back to Apple seven years ago, the Finder, which is our file management system, was the face of the OS. And in every user interface study we've ever done, and I'm sure everybody, it's pretty easy to learn how to use these things until you hit the file system, then the learning curve goes vertical. And so you ask yourself, why is the file system the face of the OS? Wouldn't it be better if there was a better way to find stuff? Now, email, there's always been a better way to find stuff. You don't keep your email in your file system. The app manages it. And that was the breakthrough as an example in iTunes.

You don't keep your music in the file system. That would be crazy. You keep it in this app that knows about music and knows how to find things a lot of different ways. Same with photos. We've got an app that knows all about photos. And these apps manage their own file storage. So you don't have to go trudging through the file system to find stuff. What we've wanted to do for a while is take the last vestige of this over with something that was easy to use. And that's what Spotlight's going to do. And we're already seeing people using their Finder less and less and less. And eventually, the file system management is just going to be an app for pros. And consumers aren't going to need to use it. But they have to trust that this is going to find everything. Yes, just like they have to trust that the file system is going to file everything and it's going to be there tomorrow when they go to look for it.

And so people are going to stop making folders for this project and that project. I think the majority of consumers are going to have dramatically less use. And some are going to stop using the file system altogether. Directly. Directly, yes. And just do this. Use this plus their other apps like iTunes, iPhoto, et cetera. Now, some of the Windows products do many more previews than you do in here. The Microsoft, the Windows desktop search, for instance, the Yahoo one, almost anything they'll preview. If it's a Word document, they show you the Word document in a separate panel. If it's music, you can play it. You have photos, but you don't have many other previews in here. Why is that philosophically? Why didn't you do that?

What you find if you go talk to people is most people find everything other than photos by their names, by their file types and their names, which we have both of. And we could put those other things in there. It's just that it takes up space and most people would rather see more stuff. We tried it that way and actually people far preferred it this way. I mean, you could make another panel here where I could quickly look at this Word thing. Maybe I don't have to open Word. I just want to see what's in the... You mean the document? Yeah. You mean actually see a little thumbnail of the document? More than a thumbnail. They really do a preview. It's maybe not a full screen, but it's readable. Well, maybe that's something we should go look at. Okay. All right. You have another tiger feature you want to show? I want to show you one other feature, which is dashboard. Matter of fact, let me just get this back up so we have something there. So let's say you're working on something. You've got a bunch of windows up, a bunch of apps up.

You want to just check something. You want to find out what the weather's like, et cetera, et cetera. And we came up with this thing called dashboard, which has just got to be the most popular feature of Tiger. You hit this thing right here and boom. These little widgets come onto the screen instantly and you can get them off. Boom. Instantly go back to what you were doing. So boom. We got San Diego time. We got New York time. You can set up as many clocks as you want just by going back here and we want to set one up for Europe. And let's say we want to set one up for Paris right here. Yeah, it's getting to that age. And same with weather. We got San Diego weather. We can have as much weather as we want. You can have stock widgets here looking at stock pricing. I don't know if we're on the internet here or not. We got flight tracker. I could say here's a jet blue flight going across the country.

We can program any flight we want and just track the flights. So different things you can do, calculators, et cetera, et cetera. And all this stuff just disappears instantly and comes back. Here we made a... Well, I'll come back to that a little bit later. We got some third-party widgets as well that we can have. Here's one. I've got one up here which is a countdown widget that'll count down the number of days to a specific event that you just put in. We've got an Amazon widget here where you can just look stuff up on Amazon by typing it in and it'll go immediately to Amazon which is kind of fun. Got a CNN widget here. And, you know, here's the top stories on CNN which, again, you can go immediately and read them all if you want to. Here's a sports scoreboard one, you know, that just gives you sports scores and cycles through those.

And we made one here called the Walt widget which just points to your columns and, you know, just click on it and it goes to your column right here. And it's pretty cool. And it just all works together with everything else in Tiger. Can I license that? Yeah. Like back from you? Here's another feature of Tiger that's fun, you know, which is the text switch. Apple computer will introduce a new edition of the operating system for its Macintosh computers that finally solves the missing file problem and introduces other features as well, including a new. That sounds better than Walt. Yeah. So, anyway. She's hired. That's Dashboard. Thanks. Yep. So, you wear another cap. I don't know how much time you spend at Pixar. You could tell us if you like.

What's the split between them? And it varies. I try to spend one day a week there physically, but when we're, you know, getting ready to release a movie, I can be there all week. So it's dynamic. The new movie is Cars coming out. We have a movie coming out in about a year called Cars. It's our next one. What is going on in that business from your perspective? I just finished the Disney book by, totally blanking, Jim Stewart, and it was, in it, you were talking a lot to Roy Disney, and one of the things you said is I'll never do business when Michael Eisner is there, and he's moved along. Yeah. Well, you know, what's going on in that business is the same as going on in that business for a long time, which is people are trying to make really good movies. And it's a really different business than the computer business. In the computer business, you know, if somebody buys a Dell, they're probably not going to buy a Mac.

If somebody buys a Mac, they're probably not going to buy a Dell. So it's a winner and a loser. And, but in the movie business, it's not that way. If there's three lousy movies out, you're probably not going to go see any of them. If there's three good movies out, you might go see all of them. And so, you know, you could ask yourself, we had a year a little while back where Shrek came out in the spring, and I think it was Monsters, Inc. came out in the fall. And you could, you know, Shrek was a big hit. If Shrek had failed, would that have helped Monsters? I don't think so. If Shrek succeeded, did that hurt Monsters? I don't think so. Matter of fact, it might have helped Monsters because it gets people seeing animation. So it's not a zero-sum game like the computer business. As long as you have different release windows, it's fine. And so we're really competing about whether we can make a movie that a lot of people want to go see, hopefully a few times, and then buy the DVD.

And so it's a very different business. One of the issues, we don't have topics at D, but this year one has certainly emerged about disaggregation of media. I think Hollywood is obviously concerned in the music business. It's moving to the video business. Newspapers are very concerned. Well, we see that with iPodcasting, the disaggregation of radio. Right, exactly, in every area. And so the idea is, and I don't know if you, we actually, I think, I hope he's in the room, Chris Anderson, the editor of Wired, wrote a piece called The Long Tail. And I think he's written a book about it. And it's very interesting. It goes to this idea of, do we still have our mass market? And, you know, we've been focused very much in the kind of physical world on these hits, big hits. Hollywood's certainly been part of that. But there's really, in the virtual world, money to be made all the way down that long tail of things that don't command as many sales as the hits, but cumulatively.

Well, Hollywood has been focused on that tail as well. I mean, the DVD revolution, Hollywood's put out the library on DVDs, and it's printing money. So it's not just the hits. There is a long tail in Hollywood of content that's been released on DVDs that was made many years ago. But your studio, you've been in the big hits business, right? I mean, and that's a good thing, obviously. Well, no, we've been really, we've worked really hard, and we've been really lucky, and we've had six big hits. And what happens if you have, you know, I don't wish this on you, but what happens if you have two flops, or two things that are just sort of mediocre at the box office? Well, you know, I think someday I'm sure we'll have a movie that doesn't perform as well as we'd like. You know, our stock will go down, we'll take our cash, buy our stock back.

I don't know. But what does it take to get a hit? I mean, I think what Walt's getting at is that, you know, if one small, say, Indian movie hits everyone who wants to see it, which the Internet can help you do that. Well, you know, the way that you make animated movies is really different than live action movies, as you may know. In a live action movie, the director goes out and shoots lots of film. Typically, between 10 and 100 times more footage than will end up on the screen. And then they take it all into the editing room, and they build their movie in the editing room. And that's why, you know, sometimes you see a movie, and you go, that stunk. Didn't they know it? Well, the answer is, yes, they did, but they knew it too late. They knew it in the editing room, and they go, oh, Jesus. And by the time they knew it, the actors were gone, the sets were down, they ran out of money, and they had what they had, and they made the best movie they could.

Or not. Or not, yeah. So in animation, it is so expensive that you cannot afford to animate more than a few percent more than is going to end up on the screen. You could never afford to animate 10 times more than is going to end up on the screen. So how do you do it? Well, Walt Disney himself solved this problem decades ago. And the way he solved it was he said, we have to edit our film before we make it, not after. Well, how do you edit a film before you make it? Well, you get your story team together, and you do storyboards. You do these little pictures for every key scene. But that wasn't enough. Then what he did was he actually photographed them on film. He filmed each picture, of which there are, you know, thousands. And then he got scratch voices, people around the studio to do the voices, and he'd even put in some scratch music.

And then he could watch his movie. And we still do that today. We use video. We're more sophisticated at it. But basically, we build our movie before we make it out of these story sketches. And we video them, and we put scratch music and scratch voices so we can watch our movie. And invariably, what you think is going to work crashes and burns when you see it in the reels. And you iterate on these reels thousands of times. And only when it works in the reels do you then go animate it and actually produce it. And so, you know, in Hollywood, one of the most popular sayings is, you know, the story is king. But it turns out it really isn't. Because when push comes to shove, when a movie's in production, and there's a lot of mouths to feed, and they're waiting for stuff to make, and the story's not working, almost everybody says, well, we just have to make the movie.

And one of the things that I'm proudest of Pixar of is we have a story crisis on every movie, and production's rolling, and there's mouths to feed, and something's just not working. And we stop. We stop, and we fix the story. Because John Lasseter, you know, who's one of the founders of Pixar, he really instilled a culture of story, story, story. And even though Pixar is the most technologically advanced studio in the world, John has a saying that's really stuck, which is, no amount of technology will turn a bad story into a good story. So that's, I think, one of the reasons why we've been so fortunate, is that we get to look at our movies before we really make them, and perfect them in reels, and then go make them.

Well, does that endure in Hollywood now? I mean, what is changing in the way they make movies? Or not much? Or is this idea of the story still important everywhere? Because that's sort of an old idea. It's, well, it's one of those things where it's easy to say and harder to do. Expensive to do. And everybody has to make their choice, and it's one of those things you find out what people really care about, you know, when you're in a tough situation and the meter's running. Then you find out how important they think the story is. Let me ask you about the technology which is, makes possible the kind of animation you do, the kind of animation DreamWorks has been doing. What part of the curve are... you want in that technology? Is it still, you know, gets better but also more expensive or you're at a point where it comes down in price or, I mean?

Well, when we first started this off, one of our frames, there's about 120,000 frames in a movie, you know, a 90-minute movie or so. One of our frames used to take about three hours to render, to take all of the mathematical data and actually make a picture. And now we have computers that are about 10,000 times more powerful, throwing at the problem. And you know how long it takes to render a frame? About three hours. How could that be? Well, because the appetite grows just as fast as the technology is there to feed it. And so, if you look at a frame of The Incredibles, it's vastly richer than a frame of Toy Story. And our next film, Cars, it takes it even to another level. And so, it's unbelievable what we can do and the artists want to do it. So, we're constantly inventing new technology and it's just getting used, like that.

What does that do to the actual look of it? I mean, it's more realistic? Oh, it gets far more detailed, far more realistic if that's what the director wants. I mean, realism is just a random point in our, you know, in the space of what you can do. Like The Incredibles, they didn't want realistic humans. They were caricatured humans. For Cars, it's actually much more realistic. Some of the sets you'd think were live action, but they're all synthetic. So, it's still, it's so much richer that in order to hold it to three hours, you have to have much more computing power. Oh, yeah. And does that cost you more? And much more sophisticated software. Much more. I mean, we're reinvesting. So, a lot of it is software? It's all software. It's all software. So, as an example, you know, the video games, the new Xbox coming out, which looks great, and whatever Sony and Nintendo will do. I mean, they're saying, gosh, you know, we'd like to put Toy Story, you know, real time.

We can render Toy Story on a game box. And that's great. But, you know, what we can put on the screen now is literally, you know, three orders of magnitude more detailed, more sophisticated. So, at Pixar, do you use Macintoshes at all to do this work? We do. We use Macs. We also use PCs running Linux. You know, it pains me to sign the POs to Dell, but I do it. And in terms of this idea of Hollywood, and it gets back to the iPod, this disintermediation of media, where do you see Hollywood continuing in that stream of going from the movie to the DVDs, selling the... Well, again, DVDs are where it's at right now in Hollywood. And so, Hollywood, though, has watched what happened in the music industry, and they want to avoid it. And it's a much more mature distribution than music.

As an example, before iTunes, if you wanted to listen to music, you had to go out and buy the CD. Right. That was it. In Hollywood, if you want to watch a movie, you can buy the DVD. You can rent the DVD, both at block... like going down to Blockbuster. You can have the DVD delivered to your house with Netflix. You can watch it on pay-per-view. If you want to wait a little bit, you can watch it on free TV. You can watch it on the airplane. There's a lot of ways to watch a movie. And so... and it's cheap. You can watch a movie very inexpensively now. So it's not like the music industry, where you had to pay 16 bucks for a CD, and that was it. You can watch a movie... you rent a movie for a buck and a half. And so I think... However, it's always going to be on the Internet. Right? This is what we told the music companies, and it's what we tell the studios. You will never keep your content off the Internet.

Because all you have to do is... all there needs to be is one way to hack it by one hacker, and it's on the Internet. The new Star Wars was on the Internet. Yes, of course. Like the day it came out. It will never end. And so what you have to do is construct business models that are more enticing than free off the Internet by some hacker. And I think iTunes is an example that said, hey, there may be a way to do that. And Hollywood is beginning to explore ways to do that as well. Now, in the next... the current version of iTunes, not the one you showed, but the one that's out, there was an unannounced feature. It's not like Apple not to announce whatever it thinks is cool, but there was all of a sudden in iTunes the ability to play video clips. Right. You didn't announce it. What is that in there for, and why didn't you announce it?

Well, we're putting it in there because we are now with some albums. When you buy... Our whole mantra was we wanted to give the customer the choice of whether to buy the album or individual songs. And it took us a while to convince the music labels of that, but we did. But we still love to sell albums, and we do sell a lot of albums. And we'd like to entice people to buy albums, and so would the labels, by giving them some extra stuff, maybe an extra song or two. And we're doing these PDF booklets now that we started off with U2, and we're doing with a lot of artists now on their albums, where we put together a special booklet you can download in PDF that's pretty exciting. And the other thing we can do is we can put a music video with that album. So there's a few albums on iTunes now where you buy the album, and you get a music video and a PDF booklet and an extra track.

It's an extra feature. It's an extra feature to entice you to buy albums today. Do you have... Between now and D next year, do you expect that you'll be selling videos, movies, any other form of videos? Anything's possible. Anything's possible? That's possible. You don't rule that out. You wouldn't expect to be viewing them on an iPod, but for viewing them on a computer... It's job security for me not to tell you this, so you invite me back next year. I can't let you get off the stage. We're going to do some audience Q&A without asking about a side controversy that is going on, which is you're suing a bunch of journalists who have their own websites or blogs for revealing some of your future product plans.

And I think it hasn't really gone to trial. It's gone through a few stages, and you seem to have won each stage. But there's a big uproar, because don't you think journalists have a First Amendment right to report news about companies or the government or anybody when they find it? What's the deal with this? Why are you doing this? It turns out the law is actually pretty clear on this. And the law says that journalists do have a First Amendment right, except if they break the law. Breaking the law trumps the First Amendment. And the law is quite clear on this. And the people we're going after took Apple trade secrets, I mean, things with drawings, schematics, confidential documents with the Apple confidential stamped on them, and they published them on the Internet. And we take exception to that. We're not the only ones. Intel and several other companies have filed briefs in support of what we're doing.

And now, there are times in history where courts have decided on a one-off basis that publishing things, even though these journalists are breaking the law, this is in the public good. And they have overruled breaking the law, and they've said, we're going to allow these journalists to publish without going to jail. And that's happened several times in our lifetimes. But we don't think this is one of them. We don't think that satisfying the curiosity of Mac customers, and more importantly, our competitors, is so much in the public interest that it's going to result in these journalists being allowed to break the law. Let me ask you, would you have sued the Wall Street Journal if it had done something like this? Well, see, this is a very interesting thing. Would we have? I don't know. We might have.

But see, the Wall Street Journal has serious thought behind what they publish. And they publish things, and they have a lot of editorial introspection about what they publish. The interesting thing today is anybody can be a, quote, journalist, unquote. So as an example, if I come to work at your company, and I, three days later, publish all your secrets on the internet. Like the plans for my podcast, right? Yeah, exactly. Plans for your podcast. Or widgets. Actually, you said there were some things here that you would rather not have people put in their blogs. Let's say that stuff ends up out somewhere. But all your secrets, you have some intellectual property that's out on the internet. You might get upset about that. So there needs to be, in this area where anyone can be a journalist, in this area where anybody can publish anything without much editorial supervision, we are in a gray area now to define some of that stuff. And we're trying to help in our own small way. And the courts will adjudicate this.

Well, except that you could be making some very bad precedent. Well, we worry about that. Look at Enron. What if Enron, it was right for the people of Enron to release these documents and secrets and everything else. And so here you are making, if you win, precedent. It's very dangerous. Well, it turns out the precedent's already there. The law is already there. But to be very honest, I worry about that in today's political environment. I think this case could go to the Supreme Court. Okay. Well, thank you very much. We're going to have maybe ten minutes of audience Q&A. There are some mics in the aisles between the tables. There should be one. There's one right here. There's one right here. Maybe we could bring the mics up. There's one right here. I don't know where the other one is. Questions for Steve Jobs.

No one wants to ask a question? Oh, way back there. Okay. Go ahead. Steve, what do you see as the pros and cons of porting OS X to other platforms? Other platforms meaning like Xbox? Xbox, hardware. What do I see are the pros and cons? Again, we think that the people that are choosing to buy... OS 10. I'm actually not, you mean like PCs or? Yeah, PCs, Intel, other hardware. I see. Well, we think we make the best hardware in the world. So, generally, the Mac OS X customer wants really good hardware and we supply that.

We've, you know, it's been suggested to us that we sell OS X as software, but we're just really sticking with our program right now of selling a complete solution for a customer. Thank you. Wait, over there. I have a question about recycling. Dell and HP both have aggressive recycling programs. Yep. When will we see that from Apple? You know, we have a pretty aggressive recycling program now. We take back a lot of stuff. I forget how many tons it was last year. We also take back iPods in all of our stores and have battery exchanges and stuff like that. So, there was one environmental group that approached us and wanted us to fund a lot of their initiatives, and we had a slightly different way of going about it, so they protested at our annual meeting.

But our environmental record is actually really good, and we're really proud of it. Yes, sir. Hi. I've been an avid Mac user myself for quite a while, but for the first time ever, I find myself lusting after sub-notebooks from, say, Sony, Toshiba, the X40, IBM. Why is there no sub-notebook from Apple? Why is even the smallest, most portable one much more bulky than these competitors offer? I lust like that myself. I understand. The sub-notebook market are notebooks that don't have optical drives in them, and they're generally for executives that take them to do e-mail and stuff on trips, and they represent about 15% of the notebook market. And we have had our hands full making, you know, the other portables that constitute 85% of the market, but, you know, we're doing pretty well now, and maybe we should take another look at that.

Please do. I know several, actually quite a lot of people who might be switching, actually, to the Mac if you made something like that available. Well, I like that. Yeah, I thought so. Over here. Jean-Baptiste Su with La Tribune in Paris. There was another controversy, side controversy, and it's about a book. So, Steve, what in ICON did you like to react that way? Actually, I haven't even seen it, but that was unfortunate because the publisher, Wiley, I believe, they make some great how-to books for the Mac and stuff like that. And this book, our folks and their folks, we had a really bad experience with them on this book, and the way they treated us wasn't so good.

And so we decided not to carry their book in our hundred Apple stores. And, you know, there's a lot of other places that are going to sell their books, so thousands of other outlets, so I doubt if they'll be very affected by it. But we just decided we didn't want to do business with them because we didn't like the way we were being treated. Didn't you think it might boost the publicity? Oh, yeah, that wasn't what it was about. It probably did. It's fine. You know, people should publish what they want to publish, and people should read what they want to read. We're not trying to tell anybody what to write or what to read. We just won't sell it. We just, in our hundred little stores, we just decided not to do business with Wiley anymore. Now they're little stores before they were big stores. Yeah. Jan? Steve, many people, many Mac owners are very passionate about their machines, but they're also very passionate about you personally.

You've had a very tough year. You've had a tough year personally and health-wise. How are you? Oh, thank you for asking. Well, I'm vertical. I was diagnosed with a very rare form of pancreatic cancer, which fortunately was curable with surgery. And I was very, very lucky. And I got a very great lesson in the recuperative ability of the human body, which is way beyond anything I thought. And I also got a wonderful experience of a lot of people sending really great wishes my way, and I will always remember that for the rest of my life.

So, you know, like anything like that, it was pretty awful, but it had a few blessings in disguise. And I feel great. So thank you for asking. Right here. Steve, if your desire is to try and get a halo effect out of the iPod or into the Windows community, are we likely to be able to see WMA as a first-class citizen for iPods? You know, we don't get any requests for that. Why would you like that? I would like that because I have a library that's filled with a bunch of WMA stuff that won't go easily without re-encoding. Well, actually, there's two kinds of WMA.

There's unencrypted WMA and encrypted WMA. And unencrypted WMA is automatically converted. So if your library is unencrypted, we automatically convert it. Now, Microsoft had the encrypt checkbox checked for many years on WMA, so some people, unbeknownst to them, actually were protecting their library as they were encoding. Why convert it? You've got a smart device. Why not play it? Well, people have different opinions about the different encoders. We think the open standards encoder and decoder, AAC, that we use, we like that better than using Microsoft's proprietary technology for that, and we think it sounds better.

So we've chosen to support that one. It has nothing to do with your history of competition with Microsoft? Even if it's better. Actually not. We actually talked to Microsoft about licensing WMA at one point in time, and the license terms that came back were so onerous that we shelved it. You're talking about open WMA or their encrypted version that sold at all the other download stores? We were talking to them at the time about both. And this was a few years ago, and the terms that came back were just not something we felt we could live with, so we went with an open standard, which was AAC. Even if you're right about the quality differences and subjective, obviously, converting from WMA to something else will only get lower quality, so you could definitely do better native.

Yeah. You know what's interesting? We really don't get that request very much. Thank you. But I'll put it in the hopper. Steve, there's a thousand bloggers at Microsoft and bloggers at – people at Apple, I understand, are not allowed to blog, and you don't blog. I'm saying employees. Why is that? Well, I don't blog for the same reason that I read Bill describing why he doesn't blog. It's a pretty time-consuming thing, and once you start, you kind of feel like it's one more thing you've got to do every week. So that's why I don't blog. But in terms of blogging at Apple, you know, again, we have a lot of secret stuff going on, and it's one of those things where we'd really rather not have to have some of our employees spreading that around and not have to get upset with people who, you know, made a bad judgment about what to put in their blog and what not to put in their blog.

And then one other thing, will you be able to add any RSS feed to the – or any podcast RSS feed to iTunes, or is it only through the store? Oh, you'll be able to add anything you want, completely open – we're just working with the open standards out there, yeah. And will you help companies like ours sell podcasts, you know, be an audible? So if we wanted to sell a podcast through your service, would you help us do the fulfillment? You know, we're planning on having all the podcasts be free at first, but zing me an email with what you've got in mind, and we're open to anything. Same email I always send it to you? Yep. Okay, you got it. All right, we have time for one more over here. All right, so my wife right now is actually watching Desperate Housewives using her TiVo, which is – she is entirely non-technical, a technology brand she loves.

And I'm embarrassed somewhat to admit it as a Windows bigot. She actually forced me to buy her an iMac this weekend. Two brands she loves, the Apple and the TiVo. Are they going to come together? Well, first let me say that you married a smart woman. And one with great taste. You know, we've – there were rumors floating around that Apple was one of the many companies that was thinking about asking TiVo if they wanted to be acquired by them, and that was not true in our case. It was not something that we really thought about too much. Again, the real issue surrounding this stuff is the gatekeepers or the aggregators of the television experience. Comcast comes to mind as well as the others.

And again, they have – they subsidize set-top boxes. And so what that's done is it's distorted the marketplace. So you can make the best set-top box in the world and put it out into the world at, you know, $300, $200, much like TiVo did, and you don't get much traction if you can rent a set-top box for free or for $5 a month from your cable company. So much like the phone companies, I think we've got an issue that is definitely a limited innovation in that space. And you see people trying to go around it, like TiVo did. like Xbox may do in the living room, like other things have done in the living room, without a lot of traction, to be honest. And on the Xbox, you get a lot of traction as a game machine.

But in terms of trying to really supplant or usurp the set-top box, which is really where the action is, if you want to reinvent television, it's difficult. Well, they're only, I mean, to be fair, the new Xbox is the one that really has much of that in it. That's what, yes. We don't know yet. Right. But I think people will find it hard to get around that. And unfortunately, that's limiting innovation. Well, can I just expand on that for a minute? Microsoft, of course, has the Media Center edition of Windows, which does DVR and a lot of other things. They continue to iterate on it and add new features and interesting things. It doesn't seem like they have to get Comcast permission for that, the way that a cell phone handset maker may have to get Verizon Wireless's position or a straight set-top box maker.

Is there, is that, you know, there was a lot of speculation when you brought up the Mac Mini that you could take that and make some kind of a... Yeah, again, again, though, if you really look at it, you know, I mean, the Media Center is a fun product, but it really, you know, has sold not high volumes, even by our standards. And so that's, you know, it's been a, not been a raging success except compared with what it did a year ago. So that's one. The second thing, though, is that if you decide you want to hook your Media Center up, you can't replace your cable box because the cable box has got decryption in it and the Media Center doesn't. So you've got to have your cable box and the Media Center and the number of remotes we all have keeps multiplying like rabbits.

So this is part of the problem. What you'd love to do is rip out that cable box, put in the Media Center or whatever and really have a much more integrated experience. But there is cable card coming and... It's a constant time to hear. It keeps getting delayed, a year and then a year and then a year. So it's constant, kind of two years and it'll be here. And then you have to get people to use it. And then you have to get, and even when you get people to use it, you know, the first generation of these things isn't going to handle things like HPO and stuff. So it's a real mess. And so, like with the cell phone case, you're not that anxious to get involved in it for that reason? Well, again, you know, a lot of people have beaten their heads against the wall. And, you know, TiVo, what a great invention. It hasn't really gone very far. And so, you know, I admire Microsoft for continuing to try and keep at it.

And sooner or later, there will be some plate tectonic changes in the industry. And maybe the grips that the providers today have on this will loosen and there'll be an opportunity for more innovation. Thank you very much. Thank you very much. Thank you. Thank you.