Apple TV’s next moves?
Before the Christmas holiday, rumors of Apple’s overtures to the networks abounded like so many visions of sugar plums. Journalists and bloggers posited about the effect of Apple’s entrance into the subscription television market. Most of the analysis was solid. The Seeking Alpha blog featured this succinct write up. Most expect a successful Apple offering would threaten cable and satellite subscription models. Others note that an invigorated Apple TV could put the pinch on the Netflix Roku service. Light Reading’s Cable Digital News noted the following.
While cable operators likely won’t face an immediate threat from the subscription service Apple Inc. (Nasdaq: AAPL) is purportedly pitching to major content suppliers, the offering may instead put the hurt on over-the-top video service providers like Boxee and Roku Inc.
It should be noted that Apple TV employs a hard disk. Content is downloaded before it’s played. Roku receives streams, so it’s a lower cost, lower footprint device. Most importantly streaming allows more delivery flexibility. Netflix doesn’t care whether I watch my content on a PC or a TV. Apple TV is anchored to a television. While an iTunes account can be managed from multiple devices, content needs to be downloaded to each to play it. Even with improved progressive download performance, this model has its limitations. One blog noted that a full season of an HD network television series can take up to 50 GB of hard disk space. So there’s a limit to how much content can be delivered to an Apple TV.
For Apple to leverage the strong iTunes brand it has to unhitch content from the device – a fundamental change in business model for a device manufacturer. But if any company has shown the ability to adapt to the digital media marketplace of the early 21st century, it’s Apple. If Apple succeeds at getting content deals in place, I expect a next-generation Apple TV to emerge shortly thereafter.
Is Apple TV a 21st century Newton?
I’m beginning to think so. While I love my Apple TV hardware and the software that powers it, it’s beginning to feel like a dead end product. The business model just isn’t there. The economics of buying or renting movies and TV shows on iTunes doesn’t make sense – $2.99 – $4.99 for a 24-hour rental just doesn’t cut it for most consumers.
Sure, downloading is the future and DVDs are the past. But in 2008 the DVD is remains more flexible than an MP4 file with DRM. The DVD I receive from Netflix can be played in my living room, my bedroom, my PC, and my car. Netflix’s terms are far more flexible than a $5 rental that times out in 24 hours whether I view it or not. Throw in Netflix’s instant watching option and iTunes doesn’t compete.
Obviously iTune’s cumbersome and costly movie rental model is not all Apple’s fault. The studios won’t allow Apple to rent (or sell) at better terms. (After watching Apple strongarm the record labels into a single price model, the studios were understandably wary, but their caution is costing them.)
Today my Apple TV sits in the family room, it serves up my music quite nicely. But I could always stick m iPod in a dock and feed it through the home theater just as nicely. It doesn’t serve much video beyond the occaisional YouTube break. What video is stored on it is overflow from the DVR, and it’s a good amount of manual labor to get those programs properly encoded – not work for the average television viewer.
For Apple TV (and Apple) to succeed in the video distribution space, Apple TV has to replace something — my Netflix acocunt, my DVR rentals, or a few cable channels. TO date, it’s done noe of that. I have set top box and subscription fatigue, and I’m not alone among consumers. I want fewer devices — not more.
For a while it looked like Joost had a reasonable chance at becoming IPTV’s killer app. With the announcement that Joost is dropping its standalone client to focus on browser-based playback, it’s in danger of becoming just another web video service with nifty distribution technology.
Apple and Joost need each other. Together they can bring IPTV to the masses. Separately they are both teetering on the precipice of irrelevance.
Apple TV, Open Television Network, and the independent
As a consumer device, Apple TV is a typical first generation technology endeavor. Basically Apple took the iPod formula and applied it to IPTV — create a basic, no frills piece of hardware in an elegant wrapper, but give it a best in class UI.
This approach worked for the iPod because an easy to use MP3 player had an easily understandable value proposition to consumers. People wanted these devices, but the market was doing a terrible job meeting those needs. The iPod swooped in and took control of the market.
There’s not a lot of pent up demand for an IPTV device because
- No one knows what IPTV is.
- Very few people want another set top box (STB) clutter their living rooms.
- Video on demand (VOD) and pay per view (PPV) are doing a solid job of filling Apple TV’s niche.
- There’s always NetFlix.
Mike Curtis over at ProVideoCoalition.com did a nice review on the latest Apple TV update, and linked to some interesting information on Apple TV as a consumer device. No need to recap that. Instead, let’s look at what Apple TV’s success or failure means to independent content creators.
IPTV can be the great equalizer for independents. It has the potential to distribution affordable for even the smallest players. Unfortunately the iTunes store is not independent-friendly. Apple’s been unwilling to adopt the Amazon and Yahoo! models of renting space to retailers. If you’re not big media, you’re not welcome in iTunes — unless you’re willing to give your content away. That means adopting an ad-based model, and that means more work for the independent producer.
Enter the Open Television Network
The recently launched Open Television Network takes care of all the e-commerce infrastructure, so independents can sell content for download. Once an Open Television account has been created, to the user, it’s just like buying through iTunes. Very elegant.
The content owner supplies his or her own storage, gets a listing in the Open Television index, and is free to market independently. To date it’s the most open, elegant, and affordable means of delivering IPTV content available to content owners. Open Television takes a very reasonable 15% cut of sales. Try getting a deal like that with a traditional distributor.
Whether Open Television becomes the dominant platform or not, it has opened up IPTV to the independent.
What’s next for Apple TV?
Rumors abound regarding the future of Apple TV — Apple’s tepid foray into the set top box market. The big issue users face with Apple TV is that it’s either expensive or cumbersome to get content into the thing. Beyond movie trailers, YouTube, and podcasts available via iTunes, it’s either pay per download or rip your own from DVD.
Compare Apple TV’s value proposition to something like Slingbox’s. While the Slingbox allows the user to leverage and repurpose content he or she has already paid for, Apple TV doesn’t. (Coming soon, Slingbox Mobile for your Blackberry.) Someone already paying a $100+ for cable and $17 for Netflix won’t be compelled to drop $300 for a box that will run up the media bill further.
Apple needs to enable customers to get content into Apple TVs easily and inexpensively. Some options include:
- Adding a Blu-ray player. Saul Hansell predicted this in the NY Times Bits blog. It’s not likely. The box is already expensive enough, and Apple doesn’t stand to make money off of increased Blu-ray penetration.
- Adding rental options. Going toe to toe with Netflix is an option, but what about teaming up with Netflix? Netflix just announced an agreement with LG to allow direct-to-TV downloads from Netflix to specially equipped LG TVs. A deal with Apple would pack more punch.
- Adding DVR capabilities. I understand why Apple won’t do this. As TiVo has learned, DVRs are the domain of the cable and satellite companies. DVR software for the Mac is already available with EyeTV.
- Allowing independent producers to sell videos on iTunes. Currently everything I can get for my Apple TV on iTunes I can get cheaper elsewhere. If Apple allowed independents access to its store, content not available anywhere else would appear overnight on iTunes — you know, that long tail thing.
Obviously I like the last option. Apple’s following has grown as it’s empowered people to communicate in new ways — twenty years ago it was desktop publishing, more recently it’s been video editing. Now it has the opportunity to empower us to be distributors. If Apple TV and iTunes remain nothing more than outlets for the studios and Google, they will continue to be niche products in the IPTV market.
IPTV delays continue
Nice piece on Businessweek.com, I Want My ITV. Nothing in it is earth shaking to video pros, but it’s a nice roundup of the main characters – cable, broadcast, TiVo, and the studios – along with some mention and explanation of Apple TV and Amazon’s Unbox.
Want to know why IPTV is unknown to the masses? The answer’s in the numbers.
But what’s holding up the transition from network TV to networked TV is that any company with a little piece of control in the way things work today is unwilling to jeopardize its power and revenues until it becomes clear how the new model will pay. Every time you hear about some product that sounds great but just has one strange limitation, follow the money to understand why. Hollywood worries digital downloads could lead consumers to stop buying $24 billion of DVDs annually, and broadcasters are nervous about the fate of the $185 billion-per-year TV advertising kitty. So studios and networks alike limit how long programs are available on Web sites or restrict the shows that play on various devices.
With that much money on the line, it’s no surprise players are moving slowly. There’s more to the story, though. The real cause for the delay is perceived lack of demand in America.
Most regular people still haven’t viewed their first TV clip on a computer screen. But a survey by the Conference Board-TNS shows that 16% of American households with Web access now watch full TV broadcasts online, double the number from a year ago. And visitors to parts of Europe and Asia can see how far behind we are in personalizing our TV experience. Speedy, reliable broadband access in those regions can deliver richer video service, and because providers face real competition, they have to add Webby services to television as a selling point. Today, some 60% of all households in Hong Kong watch programming delivered over the Internet to the TV, says researcher Parks Associates. From a hotel in Seoul, I can click to do my banking on TV. A couple of friends I know live on the frozen tundra of Canada; even there, I can play games or get onscreen score alerts of favorite sports teams.
The growth rate might seem impressive, but it will hit a glass ceiling. Broadband in the US doesn’t compare to broadband in Europe and Asia. A typical 1 to 3-megabit connection shared among a few PCs in the household, won’t deliver adequate performance to satisfy on demand needs.
To gauge demand for IPTV, learn the behaviors of Verizon FIOS users as they get used to their connection. I suspect devices like Apple TV that have failed to catch on with all but the Engadget crowd will do fine once the wait times for content diminish.
