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Analyst: Apple Executives Share Thoughts on e-Book Market, iPhone Profits

Friday October 30, 2009 8:41 am PDT by Eric Slivka
RBC Capital analyst Mike Abramsky published a research note today regarding a meeting with several Apple executives, including Chief Financial Officer Peter Oppenheimer, iTunes VP Eddy Cue, and Mac Marketing VP David Moody, covering a number of topics related to Apple's business.

While the executives were tight-lipped as usual about the company's plans for the future, one interesting tidbit that came out of the meeting was the executives' apparent lack of enthusiasm for the "online book/newspaper market" while sharing views that video content would be the next big growth area in media. In both areas, however, licensing and other rights issues are seen as significant hurdles.

After music, video content is expected to be the next "exploding" opportunity, but requires overcoming industry rights dysfunctionality, competing with subsidies (cable box, video), and developing the right consumer "offer". Apple TV, while still a "hobby", is well positioned to benefit from evolving market dynamics. Apple was less enthusiastic about the online book/newspaper market, given unattractive industry structure.

The executives also confirmed comments made during the company's most recent earnings conference call claiming that Apple has managed to maintain its iPhone profit margins and subsidies received from carriers in markets that have transitioned from exclusive agreements to multiple-carrier models.

Despite intensifying competition (Android, RIM, etc.) Apple continues to enjoy strong global carrier interest in iPhone, given high ARPU, low churn. In markets (Canada, Europe) where distribution has expanded to multiple carriers, Apple has sustained its economics (subsidy, margins). 3GS remains popular while $99 iPhone addresses a competitive price point (free in some markets).

The news could temper concerns that Apple might be reluctant to pursue a multiple-carrier model in the United States once AT&T's exclusivity window closes for fear of sacrificing per-unit economics.

Among other topics of discussion highlighted in the report were Apple's view that the Windows 7 launch provides an opportunity for the company to attract new customers and the persistence of the integrated iPhone/iTunes/App Store model as an advantage over other up-and-coming competitors such as the Android platform.

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