We were fascinated this week with the idea being floated by a variety of US news and blog sources (Geek, CNET, PCWorld) that Apple may have its own TV channels streamed from iTunes in mid 2010.
Some went further and said this was a direct attack on pay TV platforms such as satellite and cable, and that Apple would charge $30 a month. Suddenly it all makes sense.
We’ve heard this TV and Apple idea for some time, in various formats, but usually it was about a new device, like a new Apple TV set. Now we can see that the TV channel(s) perform the lock in for Apple hardware which iTunes originally did over music. It wouldn’t work unless Apple had a major viewing platform, so it may well launch a tablet viewing device, as well as a TV set, as well as a new version of Apple TV (the hardware device) to go with wi-fi delivered video to iPhones and the iPod Touch, not forgetting all Macs, PCs and netbooks which use Apple iTunes software.
A set of TV channels without sufficient breadth of devices ‘ to include multiple sizes of internet TVs for the living room ‘ would have been tough to push, and Apple might have produced it, but not with a lock in for its own devices ‘ it would have had to offer other devices a way to watch its programming and that’s just not Apple’s way.
This will obviously be helped by the power that Steve Jobs exerts as the largest shareholder at Disney, which also owns ABC, and it does no harm that Apple is allowing companies like BSkyB in the UK to place streaming content onto the iPhone and the iPod Touch under one of Sky’s Apps (see separate story this week).
The next stage would be that once Apple has sufficient leverage (a global iPhone TV channel would be easily sufficient leverage) and then there is little limit to what it can do. It could begin commissioning content in the same way that the US broadcasters and cable companies do. It could act as a route to the TV set for YouTube or even set out to become its own YouTube by offering uploads on iTunes, for its TV channel.
Apple CEO, Steve Jobs is thought to be tied up in long meetings with US broadcasting companies with the aim of creating iTunes TV, to be delivered in just 8 months time. Like iTunes, that is likely to happen first in the US, and later, after a lot of content licensing work, outside the US.
Jobs has always been brilliant at working out where the sweet spot is in any market. For music he realized that people wanted to keep their record collections forever and be able to buy them one track at a time, and that gave birth to iTunes. Now while trying to revolutionize TV he realizes that in the US, most people pay $30 or more each month to get cable TV, so he’s trying to create a similar, but better experience through iTunes, over the internet.
This is the typical, go it alone, cut out the middleman, approach, that Apple loves. The big broadcasters ABC, NBC, Fox and CBS are losing viewers all the time, with a resultant fall in their advertising revenues. The recession has speeded up this decline. These channels are available all over the US but only around 20% of homes can get them broadcast to an antenna, because they have them carried as part of a cable TV or satellite TV paid service, which they currently feel they cannot opt out of. If Apple can bring the same TV channels over the internet, broadcasters can cut out the middleman (cable TV) and take the lion’s share of the subscription revenue, because Apple would make the service so that it only works with Apple hardware and keep a small slice of the content revenues, but all of the hardware sales.
Apple’s long term content delivery partner is Akamai, and it has been saying for some time that it can stream HD video all over the world, so we are assuming that these channels are streamed rather than buffered.
iTunes TV would need to have local channel favorites internationally and it could also add a number of movie channels, either through its relationship with Disney, or by simple negotiation. Pretty soon Apple would have a genuine new video accelerator on selling its hardware and people who still see no appeal in the iPhone, will almost certainly see some merit in owning an Apple TV viewing device of some flavour or other.
Jobs has to convince the US broadcasters, who in many cases also own studios (NBC owns Universal Studios, Disney owns ABC, Fox own 20th Century Fox, CBS used to be part of the group with Paramount Studios in) why this is better than Hulu, but since Hulu is losing money, it might not be too tough a deal to swing. This would come to fruition just as Hulu begins to show masses of advertising, a move that Apple won’t have to follow.
Apple first has to make all this work in the US, where there are over 100 million pay TV homes before looking further afield. And to do that it has to convince content owners (who it is already friendly with through iTunes) and broadcasters (ditto) to go with the plan, and make sure the financial formula leaves them better off than they are today.
Apple recently introduced a new file format called iFrame which is based on the H.264 video codec and AAC for audio, and has a resolution of 960 x 540, perfect for viewing on a PC, Netbook or standard definition or better, or a TV, plus perhaps its yet to be released tablet. The resolution could be halved on an iPhone or iPod Touch.
At present cable operators in the US are telling content companies and broadcasters that they should allow their subscribers to view their content for free over the internet if they are already a cable subscriber. This initiative is called TV Everywhere and really it brings little or nothing new to the broadcasters. But in any Apple deal, the subscription would be instead of cable, and the bulk of that money might go to the broadcasters and studios directly. However the cable operators in the US have so much content buying power and they would be very upset if their biggest suppliers ganged up on them and partnered with Apple.
Here are a couple of thoughts on why this has come about. We know that broadcasters like Fox and NBC have been getting together to speak about building momentum in the broadcast mobile TV market ‘ their mission is not to pursue a particular technology line but get TV onto mobiles. So they sat about, said how nice ATSC M/H would be once it arrives and some idiot at the back said, ‘It’s a shame we can’t put this on the iPhone,’ and then something said ‘brilliant,’ and called Apple.
The Apple TV service would almost certainly only work with wi-fi, in which case this is not technologically difficult. Apple iPhones have the benefit of wi-fi offload to the massive AT&T wi-fi network in the US, so anyone caught at work, or at home or in a city centre, could watch TV that way.
This might conceivably upset AT&T with its U-Verse IPTV service, but then again if Sky can offer an App on the AppStore to deliver major sporting events to the iPhone, then why can’t AT&T do the same. But AT&T would also have the power to deliver that stream to plenty of other phones, so why would it limit itself just to an App Store version (Sky in the UK has similar services on other phones). Whereas we cannot imagine Apple allowing its own content off its platforms.
Just sit for a while and think about just how disruptive Apple might be acting as broadcasting’s friend and cable’s enemy. While we don’t think it will happen, can you imagine how much more potent the online service at Netflix might be if it could partner with Apple. And the best way we can think of enabling that partnership is if Apple buys Netflix. It’s market capitalization is only $3 billion right now, and for a 50% premium $4.5 billion could secure Netflix. That’s less than 9 months cash generation for Apple.
An Apple iTunes TV services PLUS a Netflix film sub would be fantastic. The reason this would not work however is that Netflix wishes to partner with all devices, and Apple wants only to deliver service to its own devices.
But look at the devastation that any kind of successful entry into home and portable TV channels by Apple would cause.
It could KILL other forms of mobile TV (including MediaFLO and ATSC M/H) in the US. It would also obviate the need for Place shifting and EchoStar’s Sling business would find itself in reverse gear. But of course it cannot cause this problem you say because there are about 230 million people who have phones in the US which are NOT iPhones. We don’t think this is a problem. Because when you Add the number of people that have an iPod Touch, and Add the number of people who have iTunes on ANY device and ADD the number of people who will rush out and buy an Apple branded TV, viewing tablet or the existing Apple TV internet device, then two things happen.
The first is relatively innocuous. First off all the other handset makers or cellular operators or both add TV channels to their services, and we are not talking about small screen, cellular streamed services, but high speed wi-fi delivery. Verizon might try Droid TV (which might be cellular since it has a much better network than AT&T). Nokia Ovi TV, Moto TV, Samsung TV, U-Verse Mobile and T(V) ‘Mobile. Of course these deliver to the home OR the mobile.
Collectively they put pressure on US pay TV and perhaps 10% of subscriptions of cable and satellite fall away over the next four or five years. Given the heavy debt burdens of many of the US cable operators that would leave their stock price in the basement, and future debt hard to come by. All of which would be ideal for AT&T. The cable industry might default on as much as $100 billion of debt, causing yet another US financial mini-crisis in the process. Result TV Armageddon. We think this scenario might appeal to Steve Jobs, and leave his dual business interests of video entertainment and consumer electronics, at his continued mercy.