The cable television industry may be in for a makeover, whether it likes it or not. One possible role model could be Apple Inc., notes a February 2010 article from The Wall Street Journal. Here’s why:
Currently, TV networks provide shows and channels to cable operators for a fee. Cable operators then bundle the content together as part of a cable TV package, and recoup their expenses from consumer subscriptions and in some cases advertising.
The problem is, consumers aren’t happy paying for packages that include shows on networks they don’t really watch or even want in the first place. In fact, media research firm Nielsen estimates that in 2008, households only viewed 18 channels on average, out of the 130 that come with their cable TV subscription.
Likewise, the Internet is a growing threat to the cable television industry’s current distribution model. Not only can viewers now watch shows for free or at a low cost online and on web-enabled devices, but the ubiquity of the Internet could also increase the risk for pirated shows, especially as consumers look for cheaper alternatives.
One possible solution, notes The Wall Street Journal, is for cable operators to ditch their role as content middleman and to simply focus on selling access to their pipes, allowing TV networks to then sell content directly to consumers. This, notes the paper, is similar to how Apple Inc.’s new e-book store for the iPad (dubbed “iBooks”) operates — by acting as a storefront (or a dumb pipe) for publishers to sell their books, in exchange for a fee.
To read the full Wall Street Journal article, click here.
Steve Jobs famously referred to the Apple TV — Apple’s “set-top box,” which allows viewers to play digital content from their computers on their TV sets — as a “hobby.” Why? “A lot of people have tried and failed to make [the “set-top box”] a business,” says the Apple CEO, at the 2007 AllThingsD conference in California. “It’s a business that’s hundreds of thousands of units per year, but it hasn’t crested to be millions of units per year. But I think if we improve things we can crack that.”
Well, Apple is now apparently trying to “crack that,” using the same strategy it used to sell millions of iPods and iPhones — “software” before “hardware.” In other words, offering an impressive range of content first, and hardware sales will follow.
The tech giant is currently on a mission to convince TV networks to make their shows available on iTunes, Apple’s software-based online digital media store, reports All Things Digital’s Peter Kafka. These TV shows would be part of a $30-a-month subscription service planned for sometime next year. And while Apple is not pushing to make the service exclusive on Apple TV, the service could still potentially boost sales of Apple’s beleaguered set-top box. That is, if Apple’s plan succeeds.
Who’s likely to bite?
Consumers who download or stream shows online, for one. According to research firm comScore, a record-breaking 168 million users in the U.S. watched videos via Web-based services like YouTube and Hulu this past September. And while it’s easy to find free content, the theory is: viewers who want to be assured of watching their favorite shows in good quality might not mind paying a minimal fee — especially if it beats the steep price of a cable subscription, which often includes bundled-in shows that are of little interest to many viewers.
“With it being so easy to get the things they want for free online, why should consumers be obliged to spend $90 a month for 500 channels, 490 of them that are never, ever watched?” writes LA Times’ BrandX blogger, Richard Metzger. “Paying just $30 for the things you do want to watch is a no-brainer. You won't need the DVR either, saving you an additional $12 a month.”
What’s more, Apple already has a built-in market it could target — the more than 100 million users who already have iTunes accounts.
Content providers looking for additional sources of revenue may also be interested in Apple’s proposition. Interested but cautious, that is. “Cable networks, for instance, don't want to threaten existing relationships and subscription fees from cable providers like Comcast,” says Kafka. “And programmers are also worried about the effect a subscription service would have on advertising revenue: Even if the service didn't distribute TV programs until after their initial air date, that could cut into ratings, which now measure viewership over the course of several days.”
Who will get bitten?
As mentioned, cable companies who depend on paid subscriptions may be threatened, if Apple comes out with a cheaper “unbundled” alternative that allows viewers to “buy” only the networks and shows they want, not a package of often “irrelevant” programming. But other players in the digital media chain may also find themselves on the losing end — such as brick-and-mortar retailers who sell DVRs and DVDs, and rent DVDs (like Blockbuster).
"The challenge is: Why do you need to have a physical retailer in the midst of a transaction between the content owner and the ultimate consumer?" Colin McGranahan, analyst at investment research firm Sanford C. Bernstein & Co, tells The Los Angeles Times.
Still more to chew on, however:
Even if Apple succeeds in getting consumers and content providers to bite, the company may still have other potential hurdles to face, such as, how to efficiently deliver video that will take up increasing Internet bandwidth. “Streaming your nightly TV is going to take lots of bandwidth, something broadband providers like cable and DSL companies are trying to limit, not open up,” writes Dan Moren, associate editor at MacWorld.com. To some extent, Apple’s success may rely on the very people they’re trying to disintermediate, the cable companies who control the “pipe” to the customers.
Apple also may need to make sure iTunes TV syncs properly with other systems and devices. A recent iTunes update that allowed users to connect their iTunes library to their Apple TV 3.0 box has led to synchronization glitches for PalmPre users, for example. “Apple has screwed some of its iTunes users,” writes tech reporter Mark Everett Hall in TGDaily.com. That kind of negative feedback can hurt Apple’s credibility and sales.
And of course, Apple would still have to fend off competition from similar subscription-based services, such as Amazon’s Video on Demand, Internet-ready HDTVs and Blu-ray players, Roku’s Netflix player, and game consoles like XBox 360 and Playstation 3, which now allow users to stream Netflix movies and TV shows, says PCWorld.
Is Apple planning to take on Google Maps? ComputerWorld recently reported that Apple bought online mapping service Placebase.com back in July, for an undisclosed sum.
Apple hasn’t released an official statement, so its intentions are unclear. But in light of its recent rejection of Google Latitude — a “location-aware” app that allows users to see friends’ locations — for the iPhone, and Google CEO Eric Schmidt’s departure from Apple’s Board of Directors in August, there are those in the industry, like TechCrunch and ZDNet, that wonder if this Placebase acquisition signals another potential rivalry between Apple and Google. Indeed, as the two technology giants expand their market reach, more and more of their products overlap, if not directly compete. Think Android OS vs. iPhone OS, for example, or the upcoming Google Chrome OS vs. Mac OS X.
Currently, Apple uses Google Maps on the iPhone, iPod Touch and its iPhoto software. Placebase — founded in 2005 by Jaron Waldman, who’s now part of Apple’s mysterious and unexplained “Geo Team” — can potentially allow Apple to create its own digital mapping service. After all, Placebase held its own against Google Maps for several years by offering customization features, and by integrating layers of data sets, including demographics, commercial info and crime data onto its maps, notes a 2008 GigaOM report.
So if Apple were indeed planning on a Google Maps replacement, would it be a wise move? It would probably be easier to simply add value to Google Maps than to replace it, says PCWorld writer David Coursey. “If Apple is good enough, people will switch and eventually the rest can be moved over by force, if necessary,” Coursey notes. “But, only after Apple Maps does everything that Google Maps does — and then some.”
That’s quite a tall order. Currently, Google Maps is the de facto online mapping service for most users. Web analytics firm Compete notes that as of September, Google Maps had 57 million unique visitors, up 47 percent from a year ago. Mapquest.com, another online mapping service, had 44 million unique visitors and is on the decline. Other mapping services, like Yahoo! Maps and Bing Maps, are trailing far behind.
Google is also continuing to invest in its mapping service. It recently added improvements, such as Google Earth buildings, Street View, and a crowdsourcing function, which allows users to point out gaps or report mapping errors. Google also improved the overall aesthetics of its maps, making them more legible and easier to follow. What’s more, in response to strong consumer demand, Google just unveiled “Google Maps Navigation,” a free, browser-based GPS navigation tool for its Android 2.0 devices. Currently in beta, it includes useful features like 3D views, turn-by-turn voice driving instructions and automatic rerouting.
No doubt, Google Maps is a formidable opponent. But maybe Apple is not seeking to challenge Google per se, but is simply looking to incorporate geo-savvy features to its own products, such as a triangulation feature that would approximate the latitude or longitude of a Mac, says Wired reporter Brian X. Chen. That’s certainly a possibility. After all, AppleInsider notes that Apple has filed a number of location-based patents for its products with the U.S. Patent & Trademark Office, among them an automated home screen providing local info based on an iPhone’s location.
Whatever course Apple plans to chart for the future, one thing is for sure: being geo-savvy is fast-becoming a key factor for getting more ad dollars, especially at a time when advertising is on a decline and users are responding better to a targeted approach [see our previous post on mobile ads].
As a recent study by marketing research firm comScore shows, 10 percent of display ads across four major markets — Atlanta, Chicago, San Francisco and Washington, D.C. — are locally targeted. "Locally targeted ads are an increasingly important component of the digital ad landscape because they represent a more efficient allocation of ad dollars," said comScore Vice President Brian Jurutka.
Integrating location-aware features into one’s products, whether through in-house or rented technology, and enabling hyperlocal or targeted marketing, as Google Maps has done and as Apple seems keen to do, can help a company to remain competitive.
