The UpStream (Page 208)

Microsoft Takes Almost $1 Billion Charge on Unsold Surface RT Inventory

posted Sunday Jul 21, 2013 by Nicholas DiMeo

Microsoft Takes Almost $1 Billion Charge on Unsold Surface RT Inventory

I think everyone thought Acer was crazy when they told Microsoft back in August to stay out of the tablet industry. However, days after the launch of the latest line of Windows 8 and WinPho 8 products, including the Surface RT, Microsoft's President of Windows, Steven Sinofsky, left the company, which clearly meant Ballmer & Co. believed that the launch of the Surface RT either could have been better or that RT in general was a bit crazy. It appeared that Sinofsky seemed confident RT would take off and excel well in the market, however the numbers from this week's earnings call leads us to believe Microsoft was right in removing Sinofsky from his position.

Microsoft took a charge-off on the remaining Surface RT inventory, along with their recent discount adjustments for Q3 ending June 30th that came to a total price of $900 million. That's quite a big number, even considering that some of it was for the sharp price cut of the devices just two weeks ago. Amy Hood, CFO for Microsoft, also noted that the charge-off includes an unspecified number of components purchased, which we can assume is for parts that haven't been used to build new Surface tablets and also for accessories.

In regards to the announcement, Hood commented on the state of the company as a whole.

While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365,, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.

Steve Ballmer, who's still around for now, added,

We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs. Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.

With the rumored Surface Mini and Surface 2.0 right around the corner, it doesn't surprise me that Microsoft is clearing out and taking back all of the first-gen devices. Plus, with the Ballmer-mentioned company restructuring and realignment, it's going to take a quarter or two to see any real changes reflected in sales number. For now, all we can do is sit back and wait, and hope that we see some new hardware in the near future. Until then, enjoy the latest Microsoft ad against the iPad after the break. It's the best one yet, and includes the iPad questioning its attractiveness.

Google's Legal Problems Mount in Europe

posted Sunday Jul 21, 2013 by Scott Ertz

Google's Legal Problems Mount in Europe

While Google might have legal troubles in the US, they are nothing compared to their troubles in the EU. One of the complaints against the company here is that they promote their own services and sponsors at the expense of actual, valid results. The same complaint has been filed against Google in the EU, but with significantly bigger implications.

Here, when you do a search for, say, computer monitors, you will probably see sponsored results at the top and right of the results page for TigerDirect or Best Buy or Amazon. Those results are semi-clearly labeled, sometimes with a slightly different background and always with a little word "Ad" or "Sponsored" somewhere near it. While not necessarily obvious, these things do differentiate the paid results.

In the EU, however, the same search terms may return the same or similar paid results, but the paid results are not differentiated from the proper, valid search results in any way. In fact, in this case, the non-paid results may not even show up until the third or fourth page. While this is good for Google and the advertisers, it is not exactly good for the people using the service.

The EU's antitrust investigation, opened in 2010, received a proposal from Google earlier in the year, and it seems the commission is not pleased with the results. In response to this proposal, the European Commission has issued Google a warning that they need to fix this proposal if they hope to get out of their antitrust case in the EU. Even American organizations are weighing in on the EU case. John Simpson from Consumer Watchdog wrote to the commission,

Since 2007, if not earlier, Google has favored its own services-particularly its specialized 'vertical search' services-over the services of competitors. Google has both promoted its own services in its search results and demoted and penalized the results of its competitors.

He also noted that the proposal excludes, which is, of course, the site that most commonly returns search results, including in Europe.

One of the unique aspects of an EU antitrust case is that the European Commission works closely with the competitors to ensure that everyone is content with the solution. If not, those competitors can sue the commission for damages, which is something that they would prefer not happen. Therefore, the process will have Microsoft, Yahoo and whoever else the commission deems a damaged competitor, actively involved until an adequate resolution can be found.

PlayOn Adds Aereo Channel to its Network

posted Sunday Jul 14, 2013 by Nicholas DiMeo

PlayOn Adds Aereo Channel to its Network

After winning their court appeal and then filing a complaint against CBS for repeated lawsuits, Aereo is moving on to bigger and better things. MediaMall Technologies, the company responsible for PlayOn, wanted to get in on the Aereo action and will be placing the video-streaming service onto PlayOn's TV/Cloud-DVR service.

For those who don't know, think of PlayOn to be a media server for all of your movies and shows that you have on your computer. You can then stream all of that content to TVs, smartphones and tablets that you own. You can either pickup PlayOn for $24.99 per year or go with the lifetime subscription option at a reduced cost.

Named the Aereo Channel, Aereo customers will have the ability to stream live shows and watch their saved programs on the PS3, Xbox 360, Google TV, Wii, Wii U and Android devices all through PlayOn. In the future, PlayOn will expand the Aereo channel to all of its supported devices.

Jeff Lawrence, CEO of MediaMall Technologies, spoke about the addition of Aereo.

PlayOn already gives users a simple, easy, and accessible way to watch on-demand movies, TV shows and personal media through their TV and mobile devices. Now, with our new Aereo channel, we can bring users in New York, Boston and Atlanta live local content as well. With Aereo, PlayOn is an even more powerful and comprehensive cable-replacement solution - making it easier than ever for users to cut the cable cord.

A spokesperson for Aereo said that "Aereo has no business relationship with PlayOn." MediaMall added that this is not "taking any revenue away from Aereo" and that this is merely expanding options for Aereo customers to consume their content. Aereo is currently only available on PC and Roku, with the company starting their service up in 24 new markets by the end of the year.

Sony's CEO Kaz Hirai Maintains That Consumer Electronics Division Needs Most Help

posted Sunday Jul 14, 2013 by Nicholas DiMeo

Sony's CEO Kaz Hirai Maintains That Consumer Electronics Division Needs Most Help

Sony CEO Kaz Hirai has a lot on his plate right now. The executive announced a revival plan last year that included a purchase of cloud-gaming company Gaikai for $380 million. Now, with rumors swirling on a possible spinoff of Sony's entertainment and media division, Hirai has remained firm in saying that despite the pressure, the sinking consumer electronics division is what needs help the most.

At a conference this week, Kaz Hirai said,

I don't worry about the entertainment business, it's doing just fine. Electronics is what needs the most work. Television manufacturing and the marriage of music and video to mobile devices are big areas of focus at Sony.

As discussed on our show, Third Point LLC, an investment firm, is pushing for Sony to spinoff its media division and have it start its own IPO to boost stock price. The Sony board is still undergoing review of the proposal, but Hirai remained firm that phone, TV and laptop sales must be improved to give Sony the best chance at coming out of this company-level recession. Last month in June during an investor call, he also promised his staff and stockholders that he will make noticeable differences in the company in order to revive the electronics sales, which are credited for Sony's nine straight annual losses, totaling $8 billion.

For Sony, this upcoming holiday season will be huge for the company as a whole, with the release of the PlayStation 4. Considering that the game console could play a huge role in total revenue and profit for Sony, a strong marketing plan will be essential for sales and success for the device. Can Sony continue to ride the tide of misplaced trust in the brand by the consumers following Microsoft's choice to not explain their reasoning at E3? It might give the company just enough of a profit to then spend money focusing on improving the rest of the consumer electronics division, preventing Sony from being bought out or closed altogether. For Sony's sake, I do wish to see them succeed in coming out of the red for the first time in ten years and I think Kaz Hirai could be the guy to turn it all around.

Apple Drops Lawsuit Against Amazon Over App Store Terminology

posted Sunday Jul 14, 2013 by Nicholas DiMeo

Apple Drops Lawsuit Against Amazon Over App Store Terminology

Does anyone remember that Apple sued Amazon for their use of the term "Appstore" in relation to the Apple App Store? Well, Apple has finally dropped that suit after a two year battle in the courts. You can thank Judge Phyllis Hamilton of the US District Court in California for agreeing to close up the case between Amazon and Apple, with Apple agreeing not to sue Amazon any longer, beginning June 28th. In January, Judge Hamilton dismissed the case from her court, but Apple kept fighting every little detail, changing its reasoning slightly for the lawsuit each time they presented their argument.

Amazon has been using the term "Appstore" for their marketplace, which is very similar to Apple's "App Store" term that they've coined and trademarked in 2008 for their marketplace. The suit against Amazon was filed in March of 2011, saying that Amazon's Appstore title infringed on Apple's trademark and would confuse Apple customers. Either Apple was just being crazy, or their customers might be stupid enough to not understand the difference between Amazon and Apple.

A linguist even thought the case was a little crazy. Expert Ronald Butters filed a document with the US Patent and Trademark Office, saying that claiming "App Store" as a proper noun is insane, because they are both generic words, regardless if they're used together or not.

The compound noun app store means simply 'store at which apps are offered for sale,' which is merely a definition of the thing itself - a generic characterization.

On the dismissal of the case, an Apple rep said snidely, "with more than 900,000 apps and 50 billion downloads, customers know where they can purchase their favorite apps. We no longer see a need to pursue (this) case," while Amazon said that they were "gratified that the court has conclusively dismissed this case."

Microsoft Details Conversion Plan from Points to Real-World Money

posted Sunday Jul 14, 2013 by Nicholas DiMeo

Microsoft Details Conversion Plan from Points to Real-World Money

At the Microsoft event at E3, the Xbox team announced something that we knew was going to happen for a while now: the change from Microsoft Points to real-world currency. This week, Microsoft added an entire FAQ dedicated to the change and how it will affect you. To start, here's what's going to go down in the near future:

We are excited to announce that, as part of the next Xbox 360 system update, Microsoft Points will be retired, and transactions on Xbox will take place using your local currency instead of Microsoft Points. The monetary value in your Microsoft account will be stored in local currency, offering you a new, convenient way to purchase exciting Xbox content. This change allows you to use a single Microsoft account to purchase games, movies, apps, and entertainment from your favorite Xbox stores - or the Windows Phone Store for users with a Windows Phone 8!

This change will affect you if you're in Argentina, France, Mexico, Spain, Australia, Germany, Netherlands, Sweden, Austria, Greece, New Zealand, Switzerland, Belgium, Hong Kong SAR, Norway, Taiwan, Brazil, Hungary, Poland, Turkey, Canada, India, Portugal, United Arab Emirates, Chile, Ireland, Russia, United Kingdom, Colombia, Israel, Saudi Arabia, Czech Republic, Italy, Singapore, Denmark, Japan, Slovakia, Finland, Korea, South Africa or the US. Moving forward, you will be able to add your real-world money directly to your Microsoft Account using PayPal or your debit or credit card.

You will also be able to buy Xbox Gift Cards instead of Microsoft Point cards to add funds. You will still be able to use and redeem Microsoft Point cards in the meantime, and Xbox will "add to your account an amount of currency equal to or greater than the Marketplace value of your Microsoft Points, and your Microsoft Points will be retired." You should note, however, that you will have one year to use any Microsoft Points added to your account, as they will expire at that point. Any existing points will be converted to real-world money, too, and that currency will expire on June 1st, 2015, so be sure to spend your bankroll before then. However any actual money added to your account, at any time, will not expire during or after the transition. And just like Steam, Origin and other online currency systems, once you put money in, you won't be able to extract it back out to your real-life wallet. You also will not be able to transfer currency from one Microsoft account to another nor will you be able to purchase Xbox Live Gold Membership with your in-account currency "at this time."

Unfortunately, Xbox Live Rewards will be affected by this change as well.

Microsoft Points that you've earned through Xbox Live Rewards will remain in your Xbox Live account and will transition to your local currency with the rest of your Microsoft Points. Prior to the transition, all your earned Pending Points will be added to your account. Any Microsoft Points you received as part of Xbox Live Rewards, promotions, or contests will retain their same expiration dates after your account transitions. Be sure to stay up to date with all the latest Xbox Live Rewards news at Xbox LIVE Rewards or by following @XboxLIVErewards on Twitter.

Of course, this is just the starting point for the complete transition and more details will be coming in the future, but at least Microsoft is preparing you well ahead of their full changeover in June of 2015. This move will allow for other countries to finally have a more equal playing field, as Microsoft Points sometimes would be over or undervalued depending on where someone lived, and it wasn't fair to the gamer.

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