Monday, August 29, 2005 - Good Morning Silicon Valley

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Published: Monday August 29, 2005

And to celebrate, we're taking everyone out to launch


Today brings with it news of a major consolidation in the satellite sector. Intelsat this morning said it will pay $3.2 billion cash to buy PanAmSat, an acquisition that will create the world's largest commercial-satellite fleet. That purchase price amounts to $25 a share, 26 percent more than the recently gone-public PanAmSat's closing price of $19.80 on Aug. 26 in New York Stock Exchange composite trading. That's quite a premium. But for Intelsat, which is fighting to win broadcasting customers as demand for high definition TV and high speed Internet service increases, it was a necessary investment. Said Petercam analyst Thijs Berkelder, "Eliminating a competitor should be good for the pricing environment of the entire industry, and Intelsat can run their satellites more efficiently than before." The deal likely heralds further consolidation in the satellite industry, which haslong suffered from overcapacity.
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Q  U  O  T  E  D

"Full-disclosure update: When we first wrote these '10 things' four years ago, we included the phrase 'Google does not do horoscopes, financial advice or chat.' Over time, we've expanded our view of the range of services we can offer -- Web search, for instance, isn't the only way for people to access or use information -- and products that then seemed unlikely are now key aspects of our portfolio. This doesn't mean we've changed our core mission; just that the farther we travel toward achieving it, the more those blurry objects on the horizon come into sharper focus (to be replaced, of course, by more blurry objects)."

-- Google revises its original philosophy to say, "There are a few unspecified things Google does not do, unless persuaded otherwise by the promise of a healthy revenue stream."
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Might we suggest you put that $50 credit towards a new 60GB iPod? The folks at have good cause to celebrate today, now that a Superior Court judge in San Mateo County, Calif., has given final approval to a settlement that will compensate the owners of iPods whose batteries failed to hold a charge. Under the terms of the settlement, affected owners of first- and second-generation iPods are entitled to $25 in cash or a $50 credit at the Apple store. Those who paid Apple for a battery replacement are eligable for half of the cost of that service back. Those who own third-generation iPods are entitled to a $50 credit, a free battery, or perhaps even a replacement iPod. "All these people are going to get relief, and we think that's a big victory for them," said Steve Williams, lead counsel for the suit and an attorney for Burlingame's Cotchett, Pitre, Simon & McCarthy. If you own a first-, second- or third-generation iPod with lousy battery life, you have until September 30 to submit a claim form.
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Recording industry announces plans to screw up remaining business model: Only the recording industry would look at Apple's iTunes Music Store, the lone success in a vast plain of digital music business model failures, and feel compelled to mess with it. The New York Times reports that some record labels, jealous of the profits Apple is making on sales of the iPod, are pushing the company to abandon the $.99 uniform pricing approach that has made iTunes so successful and instead adopt a multitiered model that would price songs by their popularity. New songs, they say, should be priced at up to $1.49; older, less popular songs at $.99 or less. "I just think the music companies are now at a point where there's too much money on the table not to insist [Apple accept variable prices]," Paul Vidich, a special adviser to America Online and former executive vice president of the Warner Music Group, told the Times. "The question is what do they want the profile of the business to look like going forward?" Indeed. And beyond that, is the market for paid downloads established enough to sustain such a pricing adjustment in its dominant service? A sudden shift away from the $.99 sweet spot could send consumers fleeing back to the file-sharing networks. Ironic, isn't it, that the recording industry, which two years ago had no digital music strategy to speak of, is today trying to muscle the company that gave it a digital music revenue stream. "As I recall, three years ago these guys were wandering around with their hands out looking for someone to save them," said Mike McGuire, an analyst at Gartner G2. "It'd be rather silly to try to destabilize [Apple], because iTunes is one of the few bright spots in the industry right now. [It's] got something that's working."
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If you strike me down, I shall become more powerful than you could possibly imagine... Recording industry executives demanding Apple raise prices at its iTunes digital music storefront would do well to note a new study that shows file sharing's popularity continues to grow unabated. According to research outfit CacheLogic, peer-to-peer traffic accounts for the majority of data traffic on the Internet, usually about 60 percent of the total. One would think that a lot of that traffic could be attributed to BitTorrent, but interestingly it's not as much as you'd think. BitTorrent usage seems to have fallen off a bit in the wake of some high profile busts (see "Feds' redesign of Elite Torrents site falls short on usability"), as users move other networks. Today, eDonkey is the more popular application. And even Gnutella is making a comeback of sorts. "Gnutella was once seen as dead, so [it] may be off the radar of the music and movie industries" CacheLogic CTO Andrew Parker told Reuters. "It's proof that legal pressure from industry groups results in the mass migration of file sharers to an alternative network, whether old or new. This cat-and-mouse game will continue."
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You come screaming through my front door and you're going to meet Mr. Smith and Mr. Wesson: "We're coming through the front door, loud and screaming that we're creating a new industry. It's a positioning issue. I don't believe a PC belongs in the living room. But a digital video recorder with our chips belongs there." That's how Don MacDonald, general manager of Intel's digital home group, described the company's latest play for a share of the market for consumer electronics chips. Later this year, Intel will uncrate a line of multimedia display processor chips developed by Oplus Technologies, a company Intel acquired in April. For Intel, which last year abandoned a high profile plan to offer a liquid-crystal-on-silicon TV chip, the release of the Oplus chips signals the beginning of a renewed effort to move into the digital television market.
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Off topic: The McSign (Thanks Dave) and sodium party (Thanks Trevor)

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Good Morning Silicon Valley is written and edited with the able assistance of John Murrell.

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