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2024-may-be-a-year-of-reckoning-for-apple’s-$85-billion-services-business

2024 may be a year of reckoning for Apple’s $85 billion services business

scrutinized —

US court cases and tougher EU regulation will pose challenges to Apple’s bottom line.

2024 may be a year of reckoning for Apple’s $85 billion services business

Apple faces a legal reckoning in 2024, with a series of regulatory decisions by US and EU authorities over the coming months set to determine the future of its $85 billion-a-year services business.

The biggest hit to the iPhone maker could come from a US antitrust trial against Google, where it emerged that the fellow tech giant had paid more than $26 billion in 2021 to make its search engine the default on Apple devices and other smartphones and browsers.

Should Google lose the case, it could be forced to stop making regular payments to Apple, which Eric Seufert, an independent analyst, estimates as being worth a quarter of annual revenues earned by Apple’s services arm.

Meanwhile, Apple and other tech giants face increasing scrutiny from the Biden administration over concerns about the dominance of its App Store, which it is already being forced to change in the EU due to legislation designed to rein in the power of Big Tech.

Together, the legal and regulatory actions spanning two of Apple’s biggest markets represent the biggest threat to the company’s business in years.

Its services arm, which includes income from the App Store, video streaming arm, and Apple Music, has steadily increased as a proportion of the company’s total revenues, which is still dominated by sales of devices such as the iPhone.

The Google trial, seen as the most significant antitrust monopoly trial in more than 25 years in Washington, will hear closing arguments in May. Should Google lose, it will almost certainly file an appeal, but such a decision would raise questions about how the two tech giants work with one another into the future.

“I think the judge was intrigued with that issue during the trial,” said Bill Kovacic, a former Federal Trade Commission chair and competition professor of law and policy at George Washington University Law School. “The question in the background was: ‘if Apple is going to have an auction for that prime placement, what should Google have done?’”

The White House is at the same time intensifying its efforts to tackle what it regards as excessive corporate power. Jonathan Kanter, head of the Department of Justice’s antitrust unit since November 2021, has made no secret of his ambition to bring cases against the biggest US companies.

His department has been probing Apple’s App Store policies for years and is now, according to Kanter, “firing on all cylinders.” The window for him to bring a case is closing, however, as the US presidential election and a potential change in administration loom. The DoJ did not respond to a request for comment on the Apple probe.

Regulators, businesses, and enforcers have for years been seeking to pry apart Apple’s iOS ecosystem, a move the tech giant has always insisted would undermine the mobile operating software’s security.

Apple, however, acknowledged recently in a filing to the Securities and Exchange Commission that it would have to make changes to its App Store in the EU, due to the bloc’s new Digital Markets Act, which has a March deadline for legal compliance from tech companies.

In the EU, Apple is preparing to allow “sideloading,” which enables iPhone users to bypass its store and download apps from elsewhere.

This will breach, for the first time, the walled-off ecosystem that the company has protected since Steve Jobs unveiled the iPhone in 2007. Apple has dragged its feet on this issue, since it maintains the practice will create security risks to its system.

Sideloading could have an impact on the App Store, where Apple charges developers as much as a 30 percent fee on digital purchases. Games account for more than half of that revenue. Google’s Play Store, which charges a similar fee, is also in the spotlight after it lost a landmark trial against Epic Games in California in December.

Apple draws between $6 billion and $7 billion in commission fees from the App Store globally each quarter, according to Sensor Tower estimates.

Competitors are pushing to earn some of that share and launch rival app stores and payment methods on Apple devices. Microsoft is talking to partners about launching its own mobile store.

Fortnite maker Epic Games, a longtime Apple foe, wants its store on iOS devices and points to its lower 12 percent fee as an incentive for consumers to switch to its platform.

While Epic broadly lost a lower court judgment into its claims against Apple in 2021, a California judge ordered Apple to put an end to App Store rules that prevent developers from steering customers outside of the store to make purchases. The appeals court upheld that injunction earlier this year. The US Supreme Court will review the case next year.

For investors, gauging the ultimate risk from the raft of regulatory and legal actions across the world is difficult. “I think there’s just a belief that there’s all this noise in the background, and ‘don’t worry about it,’” said Gene Munster, managing partner at Deepwater Asset Management.

Investors, he said, had been “lulled to sleep” by Apple’s initial wins against Epic in particular. “But I think investors should take it seriously.”

Apple declined to comment.

© 2024 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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smartphone-manufacturers-still-want-to-make-foldables-a-thing

Smartphone manufacturers still want to make foldables a thing

Huawei MateX 5

Enlarge / A Huawei Technologies Co. Mate X5 smartphone arranged in Hong Kong, China, on Saturday, Sept. 16, 2023.

Every large smartphone maker except Apple is betting that “foldable” phones will help revive a lackluster mobile market, despite the devices still largely failing to attract mainstream consumers.

Foldables, which have a screen that opens like a book or compact mirror, barely exceed a 1 per cent market share of all smartphones sold globally almost five years after they were first introduced.

But Samsung has doubled down on the product, investing heavily in marketing this year. In July, the Korean group released its 5G Galaxy Z series.

The world’s largest smartphone manufacturer points to estimates from Counterpoint Research that foldable devices may surpass a third of all smartphones costing more than $600 by 2027.

“We will continue to position our foldables as a key engine for our flagship growth with the clear differentiation, experience and flexibility these devices have to offer,” said Samsung.

Other handset makers such as Motorola, China’s Huawei and its spin-off Honor are also pinning their hopes on the product helping to revive a market that suffered its worst year for more than a decade.

“This is the year people [in the industry] really dived in,” said Ben Wood, an analyst at CCS Insight. “Everybody now is betting on this, except Apple.”

The iPhone-maker has yet to show any interest in the category, though patent filings suggest it may one day introduce an iPad that folds in half. Every other big smartphone maker has followed Samsung into the market, including Google’s Pixel Fold and Chinese alternatives from Huawei, Oppo and Xiaomi.

“We believe foldables are the future of smartphone devices, just like electric cars were to the auto industry,” said Bond Zhang, UK chief executive of Honor. “We’re approaching a crucial tipping point where foldables may soon become mainstream.”

But market data shows foldables are still far from mainstream. Counterpoint Research estimates about 16 million foldable phones will be sold this year, just 1.3 per cent of the 1.2 billion smartphone market total. Analysts say consumers are deterred by concerns about price, reliability and utility.

“I do wonder if there are too many products chasing too little market share at the moment,” Wood said.

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ai-created-“virtual-influencers”-are-stealing-business-from-humans

AI-created “virtual influencers” are stealing business from humans

digital influencer

Enlarge / Aitana Lopez, an AI-generated influencer, has convinced many social media users she is real.

FT montage/TheClueless/GettyImages

Pink-haired Aitana Lopez is followed by more than 200,000 people on social media. She posts selfies from concerts and her bedroom, while tagging brands such as hair care line Olaplex and lingerie giant Victoria’s Secret.

Brands have paid about $1,000 a post for her to promote their products on social media—despite the fact that she is entirely fictional.

Aitana is a “virtual influencer” created using artificial intelligence tools, one of the hundreds of digital avatars that have broken into the growing $21 billion content creator economy.

Their emergence has led to worry from human influencers their income is being cannibalized and under threat from digital rivals. That concern is shared by people in more established professions that their livelihoods are under threat from generative AI—technology that can spew out humanlike text, images and code in seconds.

But those behind the hyper-realistic AI creations argue they are merely disrupting an overinflated market.

“We were taken aback by the skyrocketing rates influencers charge nowadays. That got us thinking, ‘What if we just create our own influencer?’” said Diana Núñez, co-founder of the Barcelona-based agency The Clueless, which created Aitana. “The rest is history. We unintentionally created a monster. A beautiful one, though.”

Over the past few years, there have been high-profile partnerships between luxury brands and virtual influencers, including Kim Kardashian’s make-up line KKW Beauty with Noonoouri, and Louis Vuitton with Ayayi.

Instagram analysis of an H&M advert featuring virtual influencer Kuki found that it reached 11 times more people and resulted in a 91 percent decrease in cost per person remembering the advert, compared with a traditional ad.

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how-watching-beavers-from-space-can-help-drought-ridden-areas-bounce-back

How watching beavers from space can help drought-ridden areas bounce back

Busy as a… —

An algorithm can spot beaver ponds from satellite imagery.

Beaver on a dam

Enlarge / Where beavers set up home, the dams they build profoundly change the landscape.

For the first time in four centuries, it’s good to be a beaver. Long persecuted for their pelts and reviled as pests, the dam-building rodents are today hailed by scientists as ecological saviors. Their ponds and wetlands store water in the face of drought, filter out pollutants, furnish habitat for endangered species, and fight wildfires. In California, Castor canadensis is so prized that the state recently committed millions to its restoration.

While beavers’ benefits are indisputable, however, our knowledge remains riddled with gaps. We don’t know how many are out there, or which direction their populations are trending, or which watersheds most desperately need a beaver infusion. Few states have systematically surveyed them; moreover, many beaver ponds are tucked into remote streams far from human settlements, where they’re near-impossible to count. “There’s so much we don’t understand about beavers, in part because we don’t have a baseline of where they are,” says Emily Fairfax, a beaver researcher at the University of Minnesota.

But that’s starting to change. Over the past several years, a team of beaver scientists and Google engineers have been teaching an algorithm to spot the rodents’ infrastructure on satellite images. Their creation has the potential to transform our understanding of these paddle-tailed engineers—and help climate-stressed states like California aid their comeback. And while the model hasn’t yet gone public, researchers are already salivating over its potential. “All of our efforts in the state should be taking advantage of this powerful mapping tool,” says Kristen Wilson, the lead forest scientist at the conservation organization the Nature Conservancy. “It’s really exciting.”

The beaver-mapping model is the brainchild of Eddie Corwin, a former member of Google’s real-estate sustainability group. Around 2018, Corwin began to contemplate how his company might become a better steward of water, particularly the many coastal creeks that run past its Bay Area offices. In the course of his research, Corwin read Water: A Natural History, by an author aptly named Alice Outwater. One chapter dealt with beavers, whose bountiful wetlands, Outwater wrote, “can hold millions of gallons of water” and “reduce flooding and erosion downstream.” Corwin, captivated, devoured other beaver books and articles, and soon started proselytizing to his friend Dan Ackerstein, a sustainability consultant who works with Google. “We both fell in love with beavers,” Corwin says.

Corwin’s beaver obsession met a receptive corporate culture. Google’s employees are famously encouraged to devote time to passion projects, the policy that produced Gmail; Corwin decided his passion was beavers. But how best to assist the buck-toothed architects? Corwin knew that beaver infrastructure—their sinuous dams, sprawling ponds, and spidery canals—is often so epic it can be seen from space. In 2010, a Canadian researcher discovered the world’s longest beaver dam, a stick-and-mud bulwark that stretches more than a half-mile across an Alberta park, by perusing Google Earth. Corwin and Ackerstein began to wonder whether they could contribute to beaver research by training a machine-learning algorithm to automatically detect beaver dams and ponds on satellite imagery—not one by one, but thousands at a time, across the surface of an entire state.

After discussing the concept with Google’s engineers and programmers, Corwin and Ackerstein decided it was technically feasible. They reached out next to Fairfax, who’d gained renown for a landmark 2020 study showing that beaver ponds provide damp, fire-proof refuges in which other species can shelter during wildfires. In some cases, Fairfax found, beaver wetlands even stopped blazes in their tracks. The critters were such talented firefighters that she’d half-jokingly proposed that the US Forest Service change its mammal mascot—farewell, Smoky Bear, and hello, Smoky Beaver.

Fairfax was enthusiastic about the pond-mapping idea. She and her students already used Google Earth to find beaver dams to study within burned areas. But it was a laborious process, one that demanded endless hours of tracing alpine streams across screens in search of the bulbous signature of a beaver pond. An automated beaver-finding tool, she says, could “increase the number of fires I can analyze by an order of magnitude.”

With Fairfax’s blessing, Corwin, Ackerstein, and a team of programmers set about creating their model. The task, they decided, was best suited to a convolutional neural network, a type of algorithm that essentially tries to figure out whether a given chunk of geospatial data includes a particular object—whether a stretch of mountain stream contains a beaver dam, say. Fairfax and some obliging beaverologists from Utah State University submitted thousands of coordinates for confirmed dams, ponds, and canals, which the Googlers matched up with their own high-resolution images to teach the model to recognize the distinctive appearance of beaverworks. The team also fed the algorithm negative data—images of beaverless streams and wetlands—so that it would know what it wasn’t looking for. They dubbed their model the Earth Engine Automated Geospatial Elements Recognition, or EEAGER—yes, as in “eager beaver.”

Training EEAGER to pick out beaver ponds wasn’t easy. The American West was rife with human-built features that seemed practically designed to fool a beaver-seeking model. Curving roads reminded EEAGER of winding dams; the edges of man-made reservoirs registered as beaver-built ponds. Most confounding, weirdly, were neighborhood cul-de-sacs, whose asphalt circles, surrounded by gray strips of sidewalk, bore an uncanny resemblance to a beaver pond fringed by a dam. “I don’t think anybody anticipated that suburban America was full of what a computer would think were beaver dams,” Ackerstein says.

As the researchers pumped more data into EEAGER, it got better at distinguishing beaver ponds from impostors. In May 2023, the Google team, along with beaver researchers Fairfax, Joe Wheaton, and Wally Macfarlane, published a paper in the Journal of Geophysical Research Biogeosciencesdemonstrating the model’s efficacy. The group fed EEAGER more than 13,000 landscape images with beaver dams from seven western states, along with some 56,000 dam-less locations. The model categorized the landscape accurately—beaver dammed or not—98.5 percent of the time.

That statistic, granted, oversells EEAGER’s perfection. The Google team opted to make the model fairly liberal, meaning that, when it predicts whether or not a pixel of satellite imagery contains a beaver dam, it’s more likely to err on the side of spitting out a false positive. EEAGER still requires a human to check its answers, in other words—but it can dramatically expedite the work of scientists like Fairfax by pointing them to thousands of probable beaver sites.

“We’re not going to replace the expertise of biologists,” Ackerstein says. “But the model’s success is making human identification much more efficient.”

According to Fairfax, EEAGER’s use cases are many. The model could be used to estimate beaver numbers, monitor population trends, and calculate beaver-provided ecosystem services like water storage and fire prevention. It could help states figure out where to reintroduce beavers, where to target stream and wetland restoration, and where to create conservation areas. It could allow researchers to track beavers’ spread in the Arctic as the rodents move north with climate change; or their movements in South America, where beavers were introduced in the 1940s and have since proliferated. “We literally cannot handle all the requests we’re getting,” says Fairfax, who serves as EEAGER’s scientific adviser.

The algorithm’s most promising application might be in California. The Golden State has a tortured relationship with beavers: For decades, the state generally denied that the species was native, the byproduct of an industrial-scale fur trade that wiped beavers from the West Coast before biologists could properly survey them. Although recent historical research proved that beavers belong virtually everywhere in California, many water managers and farmers still perceive them as nuisances, and frequently have them killed for plugging up road culverts and meddling with irrigation infrastructure.

Yet those deeply entrenched attitudes are changing. After all, no state is in more dire need of beavers’ water-storage services than flammable, drought-stricken, flood-prone California. In recent years, thanks to tireless lobbying by a campaign called Bring Back the Beaver, the California Department of Fish and Wildlife has begun to overhaul its outdated beaver policies. In 2022, the state budgeted more than $1.5 million for beaver restoration, and announced it would hire five scientists to study and support the rodents. It also revised its official approach to beaver conflict to prioritize coexistence over lethal trapping. And, this fall, the wildlife department relocated a family of seven beavers onto the ancestral lands of the Mountain Maidu people—the state’s first beaver release in almost 75 years.

It’s only appropriate, then, that California is where EEAGER is going to get its first major test. The Nature Conservancy and Google plan to run the model across the state sometime in 2024, a comprehensive search for every last beaver dam and pond. That should give the state’s wildlife department a good sense of where its beavers are living, roughly how many it has, and where it could use more. The model will also provide California with solid baseline data against which it can compare future populations, to see whether its new policies are helping beavers recover. “When you have imagery that’s repeated frequently, that gives you the opportunity to understand change through time,” says the Conservancy’s Kristen Wilson.

What’s next for EEAGER after its California trial? The main thing, Ackerstein says, is to train it to identify beaverworks in new places. (Although beaver dams and ponds present as fairly similar in every state, the model also relies on context clues from the surrounding landscape, and a sagebrush plateau in Wyoming looks very different from a deciduous forest in Massachusetts.) The team also has to figure out EEAGER’s long-term fate: Will it remain a tool hosted by Google? Spin off into a stand-alone product? Become a service operated by a university or nonprofit?

“That’s the challenge for the future—how do we make this more universally accessible and usable?” Corwin says. The beaver revolution may not be televised, but it will definitely be documented by satellite.

This story originally appeared on wired.com.

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researchers-come-up-with-better-idea-to-prevent-airtag-stalking

Researchers come up with better idea to prevent AirTag stalking

Picture of AirTag

BackyardProduction via Getty Images

Apple’s AirTags are meant to help you effortlessly find your keys or track your luggage. But the same features that make them easy to deploy and inconspicuous in your daily life have also allowed them to be abused as a sinister tracking tool that domestic abusers and criminals can use to stalk their targets.

Over the past year, Apple has taken protective steps to notify iPhone and Android users if an AirTag is in their vicinity for a significant amount of time without the presence of its owner’s iPhone, which could indicate that an AirTag has been planted to secretly track their location. Apple hasn’t said exactly how long this time interval is, but to create the much-needed alert system, Apple made some crucial changes to the location privacy design the company originally developed a few years ago for its “Find My” device tracking feature. Researchers from Johns Hopkins University and the University of California, San Diego, say, though, that they’ve developed a cryptographic scheme to bridge the gap—prioritizing detection of potentially malicious AirTags while also preserving maximum privacy for AirTag users.

The Find My system uses both public and private cryptographic keys to identify individual AirTags and manage their location tracking. But Apple developed a particularly thoughtful mechanism to regularly rotate the public device identifier—every 15 minutes, according to the researchers. This way, it would be much more difficult for someone to track your location over time using a Bluetooth scanner to follow the identifier around. This worked well for privately tracking the location of, say, your MacBook if it was lost or stolen, but the downside of constantly changing this identifier for AirTags was that it provided cover for the tiny devices to be deployed abusively.

In reaction to this conundrum, Apple revised the system so an AirTag’s public identifier now only rotates once every 24 hours if the AirTag is away from an iPhone or other Apple device that “owns” it. The idea is that this way other devices can detect potential stalking, but won’t be throwing up alerts all the time if you spend a weekend with a friend who has their iPhone and the AirTag on their keys in their pockets.

In practice, though, the researchers say that these changes have created a situation where AirTags are broadcasting their location to anyone who’s checking within a 30- to 50-foot radius over the course of an entire day—enough time to track a person as they go about their life and get a sense of their movements.

“We had students walk through cities, walk through Times Square and Washington, DC, and lots and lots of people are broadcasting their locations,” says Johns Hopkins cryptographer Matt Green, who worked on the research with a group of colleagues, including Nadia Heninger and Abhishek Jain. “Hundreds of AirTags were not near the device they were registered to, and we’re assuming that most of those were not stalker AirTags.”

Apple has been working with companies like Google, Samsung, and Tile on a cross-industry effort to address the threat of tracking from products similar to AirTags. And for now, at least, the researchers say that the consortium seems to have adopted Apple’s approach of rotating the device public identifiers once every 24 hours. But the privacy trade-off inherent in this solution made the researchers curious about whether it would be possible to design a system that better balanced both privacy and safety.

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saving-the-african-penguin-from-climate-change-and-overfishing

Saving the African penguin from climate change and overfishing

penguins

Enlarge / African penguins on a beach near Simon’s Town in South Africa.

CAPE TOWN, South Africa—A weathered, green building stands at the edge of the cozy suburban Table View neighborhood in Cape Town, just a few blocks down from a Burger King and a community library. Upon stepping inside, visitors’ feet squelch on a mat submerged in antibacterial liquid—one of the first signs this isn’t just another shop on the street.

A few steps further down the main hallway, a cacophony of discordant brays and honks fill the air. A couple more strides reveal the source of these guttarall calls: African penguins.

Welcome to the nonprofit Southern African Foundation for the Conservation Of Coastal Birds’ hatchery and nursery, where hundreds of these birds are hand-reared after being injured or abandoned in the wild.

While this conservation center is a flourishing refuge for African penguins, the species as a whole is in dire straits. Over the past century, African penguin populations have plummeted, dropping from around one million breeding pairs in the early 1900s to less than 10,000 in 2023 as environmental conditions have worsened due to increased fishing pressure and climate change, which have both decreased fish populations on which penguins rely.

The climate crisis has also fueled more frequent and severe weather events in South Africa such as floods and heat waves, resulting in an increased number of penguin parents abandoning their eggs to seek refuge.

The staff at the Foundation is working to hand-rear penguins with the goal to release most of them back into one of the threatened Cape colonies they came from. But some of these penguins are destined for a different destination: a rocky outcropping along the Eastern Cape of South Africa within the De Hoop Nature Reserve.

There, scientists and conservationists are working to establish a new penguin colony, which they hope will become a stronghold for the entire African penguin species.

The ecological trap

It’s difficult to pin a single threat to the demise of African penguins; oil spills, avian flu and extreme weather events have wreaked havoc on colonies across South Africa. These chronic issues combine with freak incidents: In 2021, a swarm of bees killed more than 60 African penguins on the popular Boulders Beach in Cape Town and, a year later, two huskies killed 19 penguins in the same area.

However, scientists say that one of the main causes of the seabirds’ decline is the intense fishing pressure on sardines and anchovies, the penguin’s main diet.

Fighting unemployment, low-income people fish around coastal beaches to support themselves, said Shanet Rutgers, an animal health technician at the Two Oceans Aquarium in South Africa, and there is a large commercial industry for purse-seine fishing, in which a wall of netting is cast around a school of fish.

“When they pull out too much fish in the ocean, they leave the colonies with almost little to nothing to feed on,” she said.

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it’s-“shakeout”-time-as-losses-of-netflix-rivals-top-$5-billion

It’s “shakeout” time as losses of Netflix rivals top $5 billion

Not so great for consumers —

Disney, Warner, Comcast, and Paramount are contemplating cuts, possible mergers.

An NBC peacock logo is on the loose and hiding behind the corner of a brick building.

The world’s largest traditional entertainment companies face a reckoning in 2024 after losing more than $5 billion in the past year from the streaming services they built to compete with Netflix.

Disney, Warner Bros Discovery, Comcast and Paramount—US entertainment conglomerates that have been growing ever larger for decades—are facing pressure to shrink or sell legacy businesses, scale back production and slash costs following billions in losses from their digital platforms.

Shari Redstone, Paramount’s billionaire controlling shareholder, has effectively put the company on the block in recent weeks. She has held talks about selling the Hollywood studio to Skydance, the production company behind Top Gun: Maverick, people familiar with the matter say.

Paramount chief executive Bob Bakish also discussed a possible combination over lunch with Warner CEO David Zaslav in mid-December. In both cases the discussions were said to be at an early stage and people familiar with the talks cautioned that a deal might not materialize.

Beyond their streaming losses, the traditional media groups are facing a weak advertising market, declining television revenues and higher production costs following the Hollywood strikes.

Rich Greenfield, an analyst at LightShed Partners, said Paramount’s deal discussions were a reflection of the “complete and utter panic” in the industry.

“TV advertising is falling far short, cord-cutting is continuing to accelerate, sports costs are going up and the movie business is not performing,” he said. “Everything is going wrong that can go wrong. The only thing [the companies] know how to do to survive is try to merge and cut costs.”

But as the traditional media owners struggle, Netflix, the tech group that pioneered the streaming model over a decade ago, has emerged as the winner of the battle to reshape video distribution.

“For much of the past four years, the entertainment industry spent money like drunken sailors to fight the first salvos of the streaming wars,” analyst Michael Nathanson wrote in November. “Now, we are finally starting to feel the hangover and the weight of the unpaid bar bill.”

For companies that have been trying to compete with Netflix, Nathanson added, “the shakeout has begun.”

After a bumpy 2022, Netflix has set itself apart from rivals—most notably by being profitable. Earnings for its most recent quarter soared past Wall Street’s expectations as it added 9 million new subscribers—the strongest rise since early 2020, when Covid-19 lockdowns led to a jump.

“Netflix has pulled away,” says John Martin, co-founder of Pugilist Capital and former chief executive of Turner Broadcasting. For its rivals, he said, the question is “how do you create a viable streaming service with a viable business model? Because they’re not working.”

The leading streaming services aggressively raised prices in 2023. Now, analysts, investors and executives predict that consolidation could be ahead next year as some of the smaller services combine or bow out of the streaming wars.

Warner, home to HBO and the Warner Bros movie studio, has made a small profit at its US streaming services this year, in part by raising prices, aggressively culling some series and licensing others to Netflix. However, this has come at a price: Warner lost more than 2 million streaming subscribers in its two most recent quarters.

The company, which merged with rival Discovery last year, has long been rumored as a potential takeover candidate, with Comcast seen as the most likely buyer. But Zaslav in November hinted that his group wanted to be an acquirer instead of a target.

“There are a lot of . . . excess players in the market. So, this will give us a chance not only to fight to grow in the next year, but to have the kind of balance sheet and the kind of stability . . . that we could be really opportunistic over the next 12 to 24 months,” he said on an earnings call.

The terms of the Warner-Discovery merger barred the group from dealmaking for two years. That period expires on April 8.

Disney, the largest traditional media company, is in the midst of a gutting restructuring that has featured 7,000 job cuts and attacks from activist investors. It lost more than $1.6 billion from its streaming businesses in the first nine months of 2023, during which its Disney+ service gained 8 million subscribers. The company says it will turn a profit in streaming in late 2024.

Bob Iger, Disney chief executive, this year openly pondered whether some of its assets still fit within the company, prompting speculation that he was considering disposals. But no deals emerged, leading some investors to conclude there is little appetite among private equity or tech companies for acquiring legacy businesses.

Paramount’s shares have risen almost 40 percent since early November as sale speculation mounted. The stock rose sharply after the Skydance talks were reported, but both Paramount and Warner shares fell after news of their discussions came to light.

Analysts said the two companies’ high debt levels were an immediate concern for investors. “We suspect investors will focus on pro forma leverage above all else,” Citi analysts wrote in a note last week. They estimated that an all-stock combination of Warner and Paramount could yield at least $1 billion of synergies.

But Greenfield said merging two companies with lossmaking streaming services and large portfolios of declining television assets was not the answer to their problems.

“The right answer should be, let’s stop trying to be in the streaming business,” he said. “The answer is, let’s get smaller and focused and stop trying to be a huge company. Let’s dramatically shrink.”

© 2023 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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big-tech-is-spending-more-than-vc-firms-on-ai-startups

Big Tech is spending more than VC firms on AI startups

money cannon —

Microsoft, Google, and Amazon haved crowded out traditional Silicon Valley investors.

A string of deals by Microsoft, Google and Amazon amounted to two-thirds of the $27 billion raised by fledgling AI companies in 2023,

Enlarge / A string of deals by Microsoft, Google and Amazon amounted to two-thirds of the $27 billion raised by fledgling AI companies in 2023,

FT montage/Dreamstime

Big tech companies have vastly outspent venture capital groups with investments in generative AI startups this year, as established giants use their financial muscle to dominate the much-hyped sector.

Microsoft, Google and Amazon last year struck a series of blockbuster deals, amounting to two-thirds of the $27 billion raised by fledgling AI companies in 2023, according to new data from private market researchers PitchBook.

The huge outlay, which exploded after the launch of OpenAI’s ChatGPT in November 2022, highlights how the biggest Silicon Valley groups are crowding out traditional tech investors for the biggest deals in the industry.

The rise of generative AI—systems capable of producing humanlike video, text, image and audio in seconds—have also attracted top Silicon Valley investors. But VCs have been outmatched, having been forced to slow down their spending as they adjust to higher interest rates and falling valuations for their portfolio companies.

“Over the past year, we’ve seen the market quickly consolidate around a handful of foundation models, with large tech players coming in and pouring billions of dollars into companies like OpenAI, Cohere, Anthropic and Mistral,” said Nina Achadjian, a partner at US venture firm Index Ventures referring to some of the top AI startups.

“For traditional VCs, you had to be in early and you had to have conviction—which meant being in the know on the latest AI research and knowing which teams were spinning out of Google DeepMind, Meta and others,” she added.

Financial Times

A string of deals, such as Microsoft’s $10 billion investment in OpenAI as well as billions of dollars raised by San Francisco-based Anthropic from both Google and Amazon, helped push overall spending on AI groups to nearly three times as much as the previous record of $11 billion set two years ago.

Venture investing in tech hit record levels in 2021, as investors took advantage of ultra-low interest rates to raise and deploy vast sums across a range of industries, particularly those most disrupted by Covid-19.

Microsoft has also committed $1.3 billion to Inflection, another generative AI start-up, as it looks to steal a march on rivals such as Google and Amazon.

Building and training generative AI tools is an intensive process, requiring immense computing power and cash. As a result, start-ups have preferred to partner with Big Tech companies which can provide cloud infrastructure and access to the most powerful chips as well as dollars.

That has rapidly pushed up the valuations of private start-ups in the space, making it harder for VCs to bet on the companies at the forefront of the technology. An employee stock sale at OpenAI is seeking to value the company at $86 billion, almost treble the valuation it received earlier this year.

“Even the world’s top venture investors, with tens of billions under management, can’t compete to keep these AI companies independent and create new challengers that unseat the Big Tech incumbents,” said Patrick Murphy, founding partner at Tapestry VC, an early-stage venture capital firm.

“In this AI platform shift, most of the potentially one-in-a-million companies to appear so far have been captured by the Big Tech incumbents already.”

VCs are not absent from the market, however. Thrive Capital, Josh Kushner’s New York-based firm, is the lead investor in OpenAI’s employee stock sale, having already backed the company earlier this year. Thrive has continued to invest throughout a downturn in venture spending in 2023.

Paris-based Mistral raised around $500 million from investors including venture firms Andreessen Horowitz and General Catalyst, and chipmaker Nvidia since it was founded in May this year.

Some VCs are seeking to invest in companies building applications that are being built over so-called “foundation models” developed by OpenAI and Anthropic, in much the same way apps began being developed on mobile devices in the years after smartphones were introduced.

“There is this myth that only the foundation model companies matter,” said Sarah Guo, founder of AI-focused venture firm Conviction. “There is a huge space of still-unexplored application domains for AI, and a lot of the most valuable AI companies will be fundamentally new.”

Additional reporting by Tim Bradshaw.

© 2023 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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No last-minute reprieve, US ban on some Apple Watch sales now in effect

no joy for Apple —

Watch Series 9 and Watch Ultra 2 blood oxygen sensors are patent-infringing.

The Apple Watch Ultra 2.

Enlarge / The Apple Watch Ultra 2.

Apple

Apple is banned from selling the Watch Series 9 and Watch Ultra 2 in the US after President Joe Biden’s administration refused to grant a reprieve from a trade tribunal’s decision that it had infringed another company’s patents.

Apple confirmed on Tuesday it had appealed against the earlier ruling from the US International Trade Commission, which stems from a patent dispute with health technology company Masimo.

Biden’s administration had 60 days from the ITC decision, which was handed down in October, to decide whether to allow it to take effect. The authority to decide whether to intervene was delegated by the White House to the US trade representative, Katherine Tai.

“After careful consultations, Ambassador Tai decided not to reverse the ITC’s determination and the ITC’s decision became final on December 26 2023,” Tai’s office said in a statement on Tuesday.

In a statement, Apple said it strongly disagreed with the ITC’s decision and exclusion order and was “taking all measures to return Apple Watch Series 9 and Apple Watch Ultra 2 to customers in the US as soon as possible.”

Ahead of a final decision from the White House, Apple had said it would preemptively halt sales of the affected models in the US on its website from December 21, and in physical stores from December 24.

It is exceptionally rare for the White House to wade into such cases, although the Obama administration vetoed a patent ban on iPhones and iPads in 2013 during the company’s legal dispute with Samsung.

The ruling deals a blow to Apple, which is already facing a slowdown in hardware sales this year. Earlier models of the Apple Watch remain available in the US, and Apple says the ban will have no impact on service for customers who have already bought the new models.

The case stems from a legal dispute between Apple and Irvine, California-headquartered Masimo over patents on the technology for measuring blood oxygen levels on the devices. The method, known as pulse oximetry, measures oxygen in the blood by shining light into the wrist.

Apple first introduced the technology in 2020, in an effort to draw in more consumers and give them the incentive to upgrade with new features on the device. Masimo said Apple copied its patented technology.

The US International Trade Commission ruled in Masimo’s favor, issuing a “limited exclusion order” against Apple’s products.

Masimo has separately sued Apple in federal court alleging trade secret violations. A trial in that case ended with a hung jury in May.

Apple is similarly embroiled in litigation with medical wearables company AliveCor over the heart rate monitoring technology on its watches. In December 2022 the ITC upheld a judge’s ruling that Apple violated AliveCor’s patents.

But that same month, the US Patent Trial and Appeal Board invalidated the AliveCor patents at the center of the dispute, putting any potential ban on hold pending appeals.

© 2023 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

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us-agency-tasked-with-curbing-risks-of-ai-lacks-funding-to-do-the-job

US agency tasked with curbing risks of AI lacks funding to do the job

more dollars needed —

Lawmakers fear the NIST will have to rely on companies developing the technology.

They know...

Enlarge / They know…

Aurich / Getty

US president Joe Biden’s plan for containing the dangers of artificial intelligencealready risks being derailed by congressional bean counters.

A White House executive order on AI announced in October calls on the US to develop new standards for stress-testing AI systems to uncover their biases, hidden threats, and rogue tendencies. But the agency tasked with setting these standards, the National Institute of Standards and Technology (NIST), lacks the budget needed to complete that work independently by the July 26, 2024, deadline, according to several people with knowledge of the work.

Speaking at the NeurIPS AI conference in New Orleans last week, Elham Tabassi, associate director for emerging technologies at NIST, described this as “an almost impossible deadline” for the agency.

Some members of Congress have grown concerned that NIST will be forced to rely heavily on AI expertise from private companies that, due to their own AI projects, have a vested interest in shaping standards.

The US government has already tapped NIST to help regulate AI. In January 2023 the agency released an AI risk management framework to guide business and government. NIST has also devised ways to measure public trust in new AI tools. But the agency, which standardizes everything from food ingredients to radioactive materials and atomic clocks, has puny resources compared to those of the companies on the forefront of AI. OpenAI, Google, and Meta each likely spent upwards of $100 million to train the powerful language models that undergird applications such as ChatGPT, Bard, and Llama 2.

NIST’s budget for 2023 was $1.6 billion, and the White House has requested that it be increased by 29 percent in 2024 for initiatives not directly related to AI. Several sources familiar with the situation at NIST say that the agency’s current budget will not stretch to figuring out AI safety testing on its own.

On December 16, the same day Tabassi spoke at NeurIPS, six members of Congress signed a bipartisan open letter raising concern about the prospect of NIST enlisting private companies with little transparency. “We have learned that NIST intends to make grants or awards to outside organizations for extramural research,” they wrote. The letter warns that there does not appear to be any publicly available information about how those awards will be decided.

The lawmakers’ letter also claims that NIST is being rushed to define standards even though research into testing AI systems is at an early stage. As a result there is “significant disagreement” among AI experts over how to work on or even measure and define safety issues with the technology, it states. “The current state of the AI safety research field creates challenges for NIST as it navigates its leadership role on the issue,” the letter claims.

NIST spokesperson Jennifer Huergo confirmed that the agency had received the letter and said that it “will respond through the appropriate channels.”

NIST is making some moves that would increase transparency, including issuing a request for information on December 19, soliciting input from outside experts and companies on standards for evaluating and red-teaming AI models. It is unclear if this was a response to the letter sent by the members of Congress.

The concerns raised by lawmakers are shared by some AI experts who have spent years developing ways to probe AI systems. “As a nonpartisan scientific body, NIST is the best hope to cut through the hype and speculation around AI risk,” says Rumman Chowdhury, a data scientist and CEO of Parity Consultingwho specializes in testing AI models for bias and other problems. “But in order to do their job well, they need more than mandates and well wishes.”

Yacine Jernite, machine learning and society lead at Hugging Face, a company that supports open source AI projects, says big tech has far more resources than the agency given a key role in implementing the White House’s ambitious AI plan. “NIST has done amazing work on helping manage the risks of AI, but the pressure to come up with immediate solutions for long-term problems makes their mission extremely difficult,” Jernite says. “They have significantly fewer resources than the companies developing the most visible AI systems.”

Margaret Mitchell, chief ethics scientist at Hugging Face, says the growing secrecy around commercial AI models makes measurement more challenging for an organization like NIST. “We can’t improve what we can’t measure,” she says.

The White House executive order calls for NIST to perform several tasks, including establishing a new Artificial Intelligence Safety Institute to support the development of safe AI. In April, a UK taskforce focused on AI safety was announced. It will receive $126 million in seed funding.

The executive order gave NIST an aggressive deadline for coming up with, among other things, guidelines for evaluating AI models, principles for “red-teaming” (adversarially testing) models, developing a plan to get US-allied nations to agree to NIST standards, and coming up with a plan for “advancing responsible global technical standards for AI development.”

Although it isn’t clear how NIST is engaging with big tech companies, discussions on NIST’s risk management framework, which took place prior to the announcement of the executive order, involved Microsoft; Anthropic, a startup formed by ex-OpenAI employees that is building cutting-edge AI models; Partnership on AI, which represents big tech companies; and the Future of Life Institute, a nonprofit dedicated to existential risk, among others.

“As a quantitative social scientist, I’m both loving and hating that people realize that the power is in measurement,” Chowdhury says.

This story originally appeared on wired.com.

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banks-use-your-deposits-to-loan-money-to-fossil-fuel,-emissions-heavy-firms

Banks use your deposits to loan money to fossil-fuel, emissions-heavy firms

Money for something —

Your $1,000 in the bank creates emissions equal to a flight from NYC to Seattle.

High angle shot of female hand inserting her bank card into automatic cash machine in the city. Withdrawing money, paying bills, checking account balances and make a bank transfer. Privacy protection, internet and mobile banking security concept

When you drop money in the bank, it looks like it’s just sitting there, ready for you to withdraw. In reality, your institution makes money on your money by lending it elsewhere, including to the fossil fuel companies driving climate change, as well as emissions-heavy industries like manufacturing.

So just by leaving money in a bank account, you’re unwittingly contributing to worsening catastrophes around the world. According to a new analysis, for every $1,000 dollars the average American keeps in savings, each year they indirectly create emissions equivalent to flying from New York to Seattle. “We don’t really take a look at how the banks are using the money we keep in our checking account on a daily basis, where that money is really circulating,” says Jonathan Foley, executive director of Project Drawdown, which published the analysis. “But when we look under the hood, we see that there’s a lot of fossil fuels.”

By switching to a climate-conscious bank, you could reduce those emissions by about 75 percent, the study found. In fact, if you moved $8,000 dollars—the median balance for US customers—the reduction in your indirect emissions would be twice that of the direct emissions you’d avoid if you switched to a vegetarian diet.

Put another way: You as an individual have a carbon footprint—by driving a car, eating meat, running a gas furnace instead of a heat pump—but your money also has a carbon footprint. Banking, then, is an underappreciated yet powerful avenue for climate action on a mass scale. “Not just voting every four years, or not just skipping the hamburger, but also where my money sits, that’s really important,” says Foley.

Just as you can borrow money from a bank, so too do fossil fuel companies and the companies that support that industry—think of building pipelines and other infrastructure. “Even if it’s not building new pipelines, for a fossil fuel company to be doing just its regular operations—whether that’s maintaining the network of gas stations that it owns, or maintaining existing pipelines, or paying its employees—it’s going to need funding for that,” says Paddy McCully, senior analyst at Reclaim Finance, an NGO focused on climate action.

A fossil fuel company’s need for those loans varies from year to year, given the fluctuating prices of those fuels. That’s where you, the consumer, comes in. “The money that an individual puts into their bank account makes it possible for the bank to then lend money to fossil fuel companies,” says Richard Brooks, climate finance director at Stand.earth, an environmental and climate justice advocacy group. “If you look at the top 10 banks in North America, each of them lends out between $20 billion and $40 billion to fossil fuel companies every year.”

The new report finds that on average, 11 of the largest US banks lend 19.4 percent of their portfolios to carbon-intensive industries. (The American Bankers Association did not immediately respond to a request to comment for this story.) To be very clear: Oil, gas, and coal companies wouldn’t be able to keep producing these fuels—when humanity needs to be reducing carbon emissions dramatically and rapidly—without these loans. New fossil fuel projects aren’t simply fleeting endeavors, but will operate for years, locking in a certain amount of emissions going forward.

At the same time, Brooks says, big banks are under-financing the green economy. As a civilization, we’re investing in the wrong kind of energy if we want to avoid the ever-worsening effects of climate change. Yes, 2022 was the first year that climate finance surpassed the trillion-dollar mark. “However, the alarming aspect is that climate finance must increase by at least fivefold annually, as swiftly as possible, to mitigate the worst impacts of climate change,” says Valerio Micale, senior manager of the Climate Policy Initiative. “An even more critical consideration is that this cost, which would accumulate to $266 trillion until 2050, pales in comparison to the costs of inaction, estimated at over $2,000 trillion over the same period.”

Smaller banks, at least, are less likely to be providing money for the fossil fuel industry. A credit union operates more locally, so it’s much less likely to be fronting money for, say, a new oil pipeline. “Big fossil fuel companies go to the big banks for their financing,” says Brooks. “They’re looking for loans in the realm of hundreds of millions of dollars, sometimes multibillion-dollar loans, and a credit union wouldn’t be able to provide that.”

This makes banking a uniquely powerful lever to pull when it comes to climate action, Foley says. Compared to switching to vegetarianism or veganism to avoid the extensive carbon emissions associated with animal agriculture, money is easy to move. “If large numbers of people start to tell their financial institutions that they don’t really want to participate in investing in fossil fuels, that slowly kind of drains capital away from what’s available for fossil fuels,” says Foley.

While the new report didn’t go so far as to exhaustively analyze the lending habits of the thousands of banks in the US, Foley says there’s a growing number that deliberately don’t invest in fossil fuels. If you’re not sure about what your bank is investing in, you can always ask. “I think when people hear we need to move capital out of fossil fuels into climate solutions, they probably think only Warren Buffett can do that,” says Foley. “That’s not entirely true. We can all do a little bit of that.”

This story originally appeared on wired.com.

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apple-wants-ai-to-run-directly-on-its-hardware-instead-of-in-the-cloud

Apple wants AI to run directly on its hardware instead of in the cloud

Making Siri smarter —

iPhone maker wants to catch up to its rivals when it comes to AI.

The iPhone 15 Pro.

Enlarge / The iPhone 15 Pro.

Apple

Apple’s latest research about running large language models on smartphones offers the clearest signal yet that the iPhone maker plans to catch up with its Silicon Valley rivals in generative artificial intelligence.

The paper, entitled “LLM in a Flash,” offers a “solution to a current computational bottleneck,” its researchers write.

Its approach “paves the way for effective inference of LLMs on devices with limited memory,” they said. Inference refers to how large language models, the large data repositories that power apps like ChatGPT, respond to users’ queries. Chatbots and LLMs normally run in vast data centers with much greater computing power than an iPhone.

The paper was published on December 12 but caught wider attention after Hugging Face, a popular site for AI researchers to showcase their work, highlighted it late on Wednesday. It is the second Apple paper on generative AI this month and follows earlier moves to enable image-generating models such as Stable Diffusion to run on its custom chips.

Device manufacturers and chipmakers are hoping that new AI features will help revive the smartphone market, which has had its worst year in a decade, with shipments falling an estimated 5 percent, according to Counterpoint Research.

Despite launching one of the first virtual assistants, Siri, back in 2011, Apple has been largely left out of the wave of excitement about generative AI that has swept through Silicon Valley in the year since OpenAI launched its breakthrough chatbot ChatGPT. Apple has been viewed by many in the AI community as lagging behind its Big Tech rivals, despite hiring Google’s top AI executive, John Giannandrea, in 2018.

While Microsoft and Google have largely focused on delivering chatbots and other generative AI services over the Internet from their vast cloud computing platforms, Apple’s research suggests that it will instead focus on AI that can run directly on an iPhone.

Apple’s rivals, such as Samsung, are gearing up to launch a new kind of “AI smartphone” next year. Counterpoint estimated more than 100 million AI-focused smartphones would be shipped in 2024, with 40 percent of new devices offering such capabilities by 2027.

The head of the world’s largest mobile chipmaker, Qualcomm chief executive Cristiano Amon, forecast that bringing AI to smartphones would create a whole new experience for consumers and reverse declining mobile sales.

“You’re going to see devices launch in early 2024 with a number of generative AI use cases,” he told the Financial Times in a recent interview. “As those things get scaled up, they start to make a meaningful change in the user experience and enable new innovation which has the potential to create a new upgrade cycle in smartphones.”

More sophisticated virtual assistants will be able to anticipate users’ actions such as texting or scheduling a meeting, he said, while devices will also be capable of new kinds of photo editing techniques.

Google this month unveiled a version of its new Gemini LLM that will run “natively” on its Pixel smartphones.

Running the kind of large AI model that powers ChatGPT or Google’s Bard on a personal device brings formidable technical challenges, because smartphones lack the huge computing resources and energy available in a data center. Solving this problem could mean that AI assistants respond more quickly than they do from the cloud and even work offline.

Ensuring that queries are answered on an individual’s own device without sending data to the cloud is also likely to bring privacy benefits, a key differentiator for Apple in recent years.

“Our experiment is designed to optimize inference efficiency on personal devices,” its researchers said. Apple tested its approach on models including Falcon 7B, a smaller version of an open source LLM originally developed by the Technology Innovation Institute in Abu Dhabi.

Optimizing LLMs to run on battery-powered devices has been a growing focus for AI researchers. Academic papers are not a direct indicator of how Apple intends to add new features to its products, but they offer a rare glimpse into its secretive research labs and the company’s latest technical breakthroughs.

“Our work not only provides a solution to a current computational bottleneck but also sets a precedent for future research,” wrote Apple’s researchers in the conclusion to their paper. “We believe as LLMs continue to grow in size and complexity, approaches like this work will be essential for harnessing their full potential in a wide range of devices and applications.”

Apple did not immediately respond to a request for comment.

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