Make no mistake, Apple is in the process of staging a coup. That’s what a very close look at the new Apple TV reveals. Despite its somewhat innocuous appearance and diminutive stature, it’s a weapon of war. The opponent? The entrenched cable and satellite service providers.


Make no mistake: Apple is in the process of staging a coup. That’s what a very close look at the new Apple TV reveals. Despite its somewhat innocuous appearance and diminutive stature, it’s a weapon of war. The opponent? The entrenched cable and satellite TV service providers.

That’s not the surprise, though. Even just by introducing video purchases and rentals in iTunes, Apple was ostensibly taking aim at traditional means of TV distribution, so they’ve been contending with cable and satellite for quite a while now. The difference now is that the Apple TV could be the weapon that sways the balance overwhelmingly toward Apple’s side, guaranteeing the company victory.

Now, I don’t own one of the new Apple TVs. In fact, I went to great lengths to describe the reasons why I probably never would. But that was before a couple of things came to light:

  1. The Apple TV shows signs of supporting apps
  2. The extent to which AirPlay would be supported across apps became apparent

Alone, either of those would be enough to have Time Warner Cable, et. al. shaking in their boots. Taken together, it amounts to advance warning of an imminent invasion, which is why the aforementioned Time Warner is being coy about 99-cent rentals. Grasping the outstretched hand of your obvious successor isn’t really an easy thing to do, especially when doing so would speed along your demise.

But 99-cent rentals aren’t the real beachhead. They’re a gamble for more interim revenue, and possibly even an olive branch, but it’s not something Apple’s banking on in the long-term, because they have a means of cutting out the networks and cable providers altogether if they won’t play nice. That means is AirPlay, and to a lesser extent, apps.

AirPlay will allow anyone to play whatever content they can view on their iOS device on their Apple TV. Where that once still represented a relatively limited content pool, Apple’s recent relaxation of App Store restrictions has allowed apps like CineXPlayer and VLC onto the iPad, which means playback of more video formats is here and set to improve in the future. While Cupertino would probably rather you still get your media the legit way from its iTunes store, it’s becoming more apparent that if it means selling more hardware, the company is willing to look the other way regarding how users acquire what they watch, especially if it can’t strong-arm TV and movie content providers into playing by its rules.

By avoiding having actual apps on the Apple TV initially, Cupertino is hoping to have its cake and eat it too. AirPlay allows them to access the media content of any app, in theory, which also has the advantage of encouraging iOS device sales. At the same time, it keeps the Apple TV platform relatively closed, something which should appease the content providers and avoid direct conflict for the time being. Now, if providers pull out in protest of Apple’s growing dominance over distribution, it has AirPlay and a more format-friendly iOS in its pocket to force them to make nice, lest iOS users turn to less legitimate sources for their content.

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  1. The networks and the content providers (cable specifically) need some fresh competition. The cable pricing model and forcing channels onto everyone’s monthly bill is patently unfair. I understand that production is expensive, but just because you have an idea called the “Bowling Ball Channel” doesn’t mean that I should have to pay for it along with the other channels I do watch.

    Cable used to be advertisement free (yes, a long time ago). They quickly realized that was dumb, and moved to the same model as broadcast.

    Paying for what we use is a fairer system. I love the fact that I can pay for only those songs I care to listen to rather than shelling out $16 for 16 songs, only one or two of which I like.

    The world is changing. Apple is bold to make the change. Others can complain, but change is inevitable in the digital world. Network execs need to look at this from somewhere other than their 2.5 hour lunch at their favorite trendy restaurant (for once).

  2. This is all well and good, but until you can watch the latest episode of network TV shows AT THE SAME TIME IT AIRS ON CABLE, it’s simply never going to take off.

    The average user doesn’t want to wait an entire season to watch the episode of House or the Monday Night Football game that cable users watched last night on TV.

    Until that time, Hulu, Apple TV, Google TV and all the rest are just a geek toy.

    1. Really Great write up here.
      Darrell, unlike most of the regurgitated information masked as articles dominating the the web these days, this is a sincerely refreshing article with thought and originality, nice work.

      James, I disagree to a point. The concept you speak of is quite ingrained in the psyche of tv watchers everywhere, ie instant gratification, yet that is changing with the entire “time-shifting” technology that has been around a while. Viewers are becoming more forgiving with “time-shifting” there viewing habits with most content. Yet this only applies to movies and TV shows. Sports, cable news and premiers will always give Kabletown the advantage of a “live” feed viewership. But the writing is on the wall. A-la-carte creep is occurring and it is offered, not by Kabletown, but by Google, Apple, Netflix, Hulu, BBC to name a few (and most are next day). Air-share will be a “wow” factor that could make this more mainstream. And with the addition of Apps (i.e. more content, HBO anyone?) and the possibility of casual gaming, cable and verizon will become the dumb pipe they were always meant to be. Middle man out! Fu-geti-bout-it.

      1. Apple needs to buy some programming or develop some in order to jumpstart an openness in the set top box market.

        NFL rights, HBO, ……, in-house exclusive shows, etc.

        AMC is showing the industry how to develop high quality shows on lower budgets.

  3. Aitan Roubini Friday, October 1, 2010

    Darrell, what I find amazing is that on top of what you’re suggesting, consider AirPlay + Game Center and all of the games that are being upgraded to take advantage of the retina display on the iPhone.

    With AirPlay, our iPhone has basically turned into a six-axis touchscreen motion-sensing joypad with internet and near-field multiplayer functionality that streams HD game output to your TV via the AppleTV!

    Processor load too high on the iPhones to take care of all that? Nevermind…offload the video and rendering component to a free companion app on the AppleTV.

    The console market is about to get a shake up too, big time. Apple is putting us back in front of the TV with a brand new paradigm that could never have been predicted.

    1. What’s the new paradigm? A set-top box with controllers?

      Such synchronicity is a nice value-add for existing customers, but the “shake up” you’re describing requires the purchase of at least two devices, where a new controller for this “console” is $200.

      1. A set-top box with dynamic multi-touch controllers and where one of the devices is an iPod or iPhone that people would already have.

        What’s the problem with a controller that cost $200 when you consider all the other stuff it can do.

  4. AppleTV is only a threat IF they secure the broadcast rights to the NFL and/or the NBA. Those are the key to the switch-over to online TV replacing broadcast and cable TV. That will drive the viewers to online TV.

    And GoogleTV could do the above just as well and has even deeper pockets to do it.

    The above is what NewTeeVee should keep an eye on. NewTeeVee reporters should be asking AppleTV and GoogleTV when they will make a bid for the NFL and/or the NBA. If either or both give a possible date (no matter how far out), that will sign the end of broadcast and cable TV.

  5. Right, like Google was going to fight for net neutrality. I don’t see it. The cable companies are too entrenched and people are too dependent on their exclusive content to give that all up. People are going to play Angry Birds on their HDTV instead of watching the latest episode of “Mad Men?” I don’t think so.

  6. That’s great until you want to watch a sports event. The NFL (let’s face it, this is the big one) has an exclusive deal with DirecTV that will outlast almost all past/present Apple hardware.

    1. Excellent + correct.

      1. DirecTv’s deal with the NFL expires after the 2011 season. All apple has to do is ante’s up some of it’s $40 Billion + on hand cash to outbid directTV for the rights to stream rather than broadcast NFL…..and they can do the same with NBA, MLB, the NCAA and whoever else they want to

    2. gvslim – Very interesting idea. That would certainly upset the apple cart ;-)

      1. gvslim is also incorrect. The DirecTV deal runs through 2014.

  7. “The networks and the content providers (cable specifically) need some fresh competition.”

    Actually, one thing that is kind of sad is that back in 1970s and 1980s, the FCC regulated the broadcast networks such that they could not own or be financially involved with the studios that produced programming. Some of you remember the syndication market in the 1980s where stations would buy programming–this is where “Star Trek: The Next Generation” got it’s start. Paramount sold it directly to stations.

    In the 1990s, you got quite a bit of consolidation. Part of the reason for this, of course, was Cable TV’s effect on the Big Three networks. Because ABC, CBS, and NBC did not produce their own programming (they weren’t allowed to), they made all of their money from advertising. It was the studios that made money on the programs–first run from the networks and, after that, from syndication. As viewership shrank at the Big Three due to Cable TV, they weren’t making as much money. So in the mid-90s, the government dropped the rule that networks couldn’t produce their own programs. The networks were promptly swallowed up by the studios. Now the studios controlled both the production and distribution of programming. To me, this is where our problem lies.

    Studios create programming for their own distribution system. Yes, they’ll try to sell it to other ones, but the vast majority of programming you see on network television is owned by the studio that owns the network. Look at ABC–most of the programming is owned either partially or wholly by Disney. Same with NBC and Universal, FOX and 20th Century Fox, and CBS and Paramount. The problem is that they have a big financial incentive to feed their own distribution system because their distribution system costs them money.

    The solution? Cut those ties like they used to be. Studios produce programming but are not allowed to own the distribution method. Which means studios will be willing to sign deals to get that programming out in whatever way will make them the most money. At that point, we’ll see if 69 cents per view without commercials makes the content creators more than what they would get from a network which includes commercials.

  8. My digital cable subscription, with DVR, is a little over $65/month, with no premium channels. That’s a little over $2/day for as many shows as we can watch or record. My household watches more than 3 shows a day – meaning Apple’s $0.99 “rentals” would be MORE EXPENSIVE than cable!

    1. Excellent point. My guess is many folks are considering a new generation of media consumer who consider YouTube a primary place to watch video. So the “video” part of the cable bill – no matter how affordable or not – seems unnecessary. What that will do to the Mad Men, Rescue Me, It’s Always Sunny in Philadelphia, et al, in the long run is undetermined.

      1. For people who only watch a little television but still subscribe to cable, Apple TV may end costing less or close to the same while also getting to watch content when they want and w/o commercials. These are also Apple’s best customers – they are doing something with their time and it probably includes things like listening to music, surfing the net, Youtube, video games, etc.

        These folks also match the demographics most desired by advertisers. What happens to cable when this small but very desirable group leave? The thing is, people who watch the most tv are actually the least desirable to advertisers. Instead of being out and spending money, they remain at home on the couch. Typical Apple – target the most profitable segment of the market.

    2. Well no $#!^ it would be more expensive than cable, because cable is paid for by ad’s!!!!! People don’t seem to understand this. Today you pay for your TV twice. Once by watching the Ad’s and once for the delivery to your house.

      I ended my subscription to TV almost 2 years ago and have purchased all TV through iTunes. My monthly bill for a single HD DVR with no premium channels via DirectTV was $85/month. My family watches 25 new season shows per year with each having upto 25 episodes. That is 625 shows at $1.99/episode or $1250/year and I own the shows. Or I could have spent $1020 on directTV and still had to watch commercials (even fast forwarding you still watch them). Not to mention all the banners, logos and other garbage the networks always popup over top of what I’m watching. What is even better is most of those shows are closer to $35/season and you can purchase iTunes gift cards at about a 10% discount. So do the math and you are looking at $875 less 10% or about $800 (note this is for SD not HD). I have 1.5TB of re-runs I can watch on any TV with an Apple TV, any computer (up to 5) on my network and any iPhone, iPod or iPad connected to any of those computers. COMMERCIAL FREE!!

      The networks are correct $.99 does not make sense to rent their content, it is way to freaking expensive at that price.

    3. We’ve seen this argument before, and the resulting outcome, with the major recorded music labels clinging to their old ways. They refused to un-bundle content, even when it became apparent that mass-market distribution thinking was alienating the key influencers.

      Fast-forward to today: with the support of content producers the traditional pay-TV industry have resisted a-la-carte channel selection — forcing all subscribers to subsidize over-priced channels, like ESPN in the U.S. market.

      That said, some video content producers (include Hollywood studios) are no longer willing to sustain the myopic one-size-fit-all legacy business model, at all costs. Granted, some will choose to hold-out to the very end, and lose market share in the process.

      That said, industry analysts are already telling those that hold the securities of big-media companies to unload any stock that is led by a company who has a CEO that’s trapped by denial that a market segmentation and multi-thread distribution strategy is now essential.

  9. I must say that when you run plex media center on a new Mac mini you’ll get a pretty awesome system, adding to that you’ll can the stream all your movies from your plex media server to your plex iPad app It works GREAT !. So why do we need Apple Tv ? Everything you need is already here today ! Mac mini is also a really good computer.

  10. I think Apple TV, and all the other media streaming devices for that matter, play perfectly into the strategy of the legacy cable/satellite providers, especially now that the content providers are becoming the content producers (e.g. Comcast-NBC).

    All they have to do is withhold content, forcing these devices to remain entrenched in the realm of the hobbyest, while companies like Apple, Google, and Boxee hash out all the technical details of what consumers want in a media streamer and for what they’re willing to pay.

    Then, the cable companies can offer consumers their own streaming solution flush with content in some kind of bundled package used to retain customers.

    Unless the content available to today’s generation of media streamers quickly approaches the level of content available from cable/satellite companies, they don’t have much chance of mainstream success.

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