The iTV might be the most anticipated product that Apple has ever yet to launch, and it seems like everyone has an opinion about what’s going to make the device a winning proposition for consumers. The most recent prognostication comes from Sterne Agee analyst Shaw Wu, who believes that Apple needs to get into the content licensing game in order to win over TV buyers. But frankly, I don’t think it’s content deals that will make consumers want to buy the device. Instead, Apple will win in TV the same way it won with the iPhone — by having a compelling platform for app developers.
The case for content
In his research note, Wu argues that it’s not the technology which is holding back Apple from shipping product, but striking content deals that will make an Apple television a more compelling competitor in the smart TV market. In short, Wu argues that whatever content Apple licenses will be key in driving consumer adoption. He even suggests that Apple could truly differentiate its product by offering an a la carte model for choosing packages of shows or channels.
Of course, Wu isn’t alone. We’ve also seen the suggestion floated that Apple could drive hardware sales by pulling a Netflix and jumping into original content creation or exclusive licensing of certain programming.
The reality of the situation
For those waiting for Apple to create its own virtual TV service, or to allow users to pick and choose their favorite channels or TV shows: don’t hold your breath. Apple has reportedly been trying to strike licensing deals that would allow it to roll out its own subscription-based video offering for years, to no avail. And the most obvious reason it’s been unable to make something work is that the economics just don’t make sense.
As for a la carte: There is absolutely no incentive for content creators to unbundle their programming in this way, especially not for an unlaunched, unproven product in the nascent connected TV market. Even if they did, licensing terms for individual subscriptions of certain networks would be egregiously expensive, to the point where it would be difficult for Apple to profitably create such an offering.
And finally, before anyone even thinks about original programming, they have to build audience first. Look at Netflix, or any of the basic cable networks that have started licensing exclusive TV shows. In all cases they were “rerun TV” long before they reached a large enough audience to justify building their own original content.
Where Apple can provide value
If Apple is smart, it won’t set out to disrupt the programming industry by creating a la carte packages of licensed content. Think of it as “If you can’t beat ‘em, join ‘em.” Apple is not going to be able to disrupt the TV industry, so it might as well give the TV industry the tools it needs to improve their offerings for consumers.
Apple should look to content providers as developers, trusting in the strength of its platform to prove compelling enough for them to build differentiated user experiences. In the same way that Apple opened up developer tools for its mobile and tablet platforms, having a software development kit and app store on the iTV (and most likely the Apple TV set-top box) will allow content partners to create their own applications on top of the iOS platform.
What’s more, the timing for such a plan is finally coming together: The TV industry has come to accept that over-the-top apps will be paramount to their success in the future. That’s why you see pay TV operators like Comcast, Verizon, Time Warner Cable and others building applications for game consoles like Microsoft’s Xbox 360 and for connected TVs. That’s why, with the launch of the iTV, Apple won’t necessarily have to appeal to the industry to get on board with where it’s going — networks and operators are already moving toward an app-centric approach to video access and delivery.
Death of the set-top and second-screen opportunities
So why would a content provider build an app for iTV? For one thing, because doing so would allow it to get rid of costly set-top boxes and deliver a dynamic user interface directly for the TV set. I’ve written extensively about the death of the set-top box, so won’t go into too much detail here, but there’s a real opportunity for operators to save big in a world where customers can provide their own equipment for video search and navigation. By building an app for the iTV, for instance, Verizon or any other operator would have one less piece of equipment to provide, and one less need for a truck roll to a customer’s home.
But it goes beyond that: Due to the vast ecosystem of Apple devices, there’s a real opportunity for operators and networks to create compelling cross-device experiences in a living room where users have an iTV, iPhone and iPad all at once. Until now, the second-screen experience has been incredibly fragmented because there are few really compelling ways to sync up what you’re watching on TV with the app you’re using on your iPad. But imagine a world where watching HBO Go on the iTV while having the mobile app open would let the network provide an enhanced experience on the second screen.
In conclusion, let’s face it — striking content deals has never been a core competency for Apple in video. But providing a robust platform for developers to build engaging experiences on has been one of its key differentiators. When launching the iTV, Apple shouldn’t stray from that and try to be something it’s not good at, like a media company. Instead, it should offer up the tools to allow content creators to create compelling reasons for consumers to buy its new product.