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.
