Blog Post

Guest Opinion: Apple TV a Game-Changer

Walt Mossberg yesterday praised the Apple TV device today in his Wall Street Journal Column, while David Pogue raved about its simplicity in today’s New York Times. One of the reasons that Walt liked the device so much was its simple-minded utility:


Apple TV display

Apple is hoping that, just as the iPod trumped earlier, but geekier, rivals, Apple TV can do the same by making a complex task really simple.

Part of the secret of Apple TV is that, like most of Apple’s products, it doesn’t try to do everything and thus become a mess of complexity. It can’t receive or record cable or satellite TV, so it isn’t meant as a replacement for your cable or satellite box, or for a digital video recorder like a TiVo. It can’t play DVDs, so it doesn’t replace your DVD player. Its sole function is to bring to the TV digital content stored on your computer or drawn from the Internet.

Technically, the Apple TV may be simple, but its effect on the TV industry will be anything but. Why? Because TV business models that have thrived for the past thirty to fifty years that relied on:

  • Advertising-supported TV. From Kraft Theater and the Hallmark Hall of Fame in the 1950s to Mobil-sponsored Masterpiece Theater in the 1980s and 90s, advertisers, not consumers, have always been the ones who paid for broadcasts. That meant that they determined what consumers got to see — and what got left on the cutting room floor.
  • Prime-time programming. Broadcasters place the best shows in 9 and 10 p.m. prime-time slots, hoping to get consumers to schedule their lives around the next episode of Lost or American Idol. But this also means that what good content a TV network offers is scheduled at the same time as other networks’ prime content. Appointment-based TV also conflicts with real-world consumer activities like business dinners and PTA meetings.
  • Bundled content. Cable companies (and now telcos like ATT and Verizon) have been able to charge high monthly prices by pointing at the value of hundreds of channels for one price. Never mind that 50 percent of those channels are running infomercials that deliver revenue to the cable operator or 75 percent of the audience will never watch a single show on the Golf Channel. Rather than miss the opportunity to watch an occasional program of Iron Chef on the Food Channel, consumers have just accepted content bundles as the way things are.

Apple TV is about to attack the fundamental assumptions underpinning the TV business just as the iPod cut the legs out from under CDs and radio stations. How? Because with Apple TV combining the flexibility of the Internet with a living-room, big-screen experience, consumers now will:

  • Vote for programming with consumer dollars. When a consumer buys an episode of Grey’s Anatomy from the iTunes Store, that revenue flows directly to the distributor of the program. Who cares whether Proctor & Gamble liked the show and felt it was worthy of their sponsorship — iTunes cuts out the middleman and let’s the consumer’s voice speak in the language of business: in cash. A side benefit of actually paying for programming is that the consumer buys time as well; an hour show like Studio 60 plays back on Apple TV in just 44 minutes, with no need to skip commercials as they would on a TiVO.
  • Watch what they want, when and where they want it. Want to watch American Idol on Wednesdays at 6 pm? Apple TV makes that just as easy as watching on Monday nights. Want to watch both Battlestar Galactica and Desperate Housewives, despite the fact they are both scheduled for Sunday nights? Just buy both shows and watch them whenever you want. Viewers can even take them to work to watch over lunch on their iPods if they want. Try that with a TiVO show.
  • Enjoy TV programming a la carte. With Apple TV and iTunes, senior citizens don’t pay for Disney movies and families don’t pay for R-rated movies when Apple TV makes every show a conscious purchase. Does this mean a lot of niche channels will see subscriptions drop? Absolutely. But that just means their cable subscription numbers weren’t real anyway — customers who won’t actually pay for a product aren’t really customers.

Cable companies like Comcast and Time Warner and TV-deploying telcos like Verizon and AT&T are going to be hurt the most by this Apple’s new entry into the living room. Their entire business models are predicated on ever-rising average revenues per subscriber (ARPUs). But with average cable bills rising past the $100 mark and actual TV watching declining due to the flood of too many channels, consumers will defect to Apple’s a la carte pricing model where they can control their monthly bill. That trend will call into question the returns on investment expected for $200 billion fiber rollouts.

Will we see these business changes overnight? Not a chance. The iPod took five years before it was an international phenomenon. I expect Apple TV to have a similarly long gestation period before it becomes a icon in living rooms and a part of the American consumer lifestyle. But in the process, we will see time-strapped consumers move away from today’s bundled TV models that waste their time and toward Apple’s pay-for-what-you-get model. Apple and iTunes will become what I predicted it would 18 months ago: a new pay-TV network for the consumer, including both free video podcasts and pay TV shows and movies.

Apple TV may be a simple consumer electronics device, but it is one that will, nonetheless change the TV business. Today, Apple ads contrast “I’m a Mac” with “I’m a PC”. In five years, they will compare “I have Apple TV” and “I have cable TV”. Cable and telco executives will be asking themselves, “How did we let this happen?” The answer to that is simple: they gave the customer everything they could think of, while Apple TV gave customers what they wanted. And in business, that’s a huge difference.

Carl Howe writes about the intersection of marketing, communications, and technology for Blackfriars Communications, Inc. Before he co-founded Blackfriars, Carl was a principal analyst with Forrester Research and was named one of the top 20 analysts in the U.S. by Technology Marketing magazine. An extended bio is available here.

12 Responses to “Guest Opinion: Apple TV a Game-Changer”

  1. Êàê óâåëè÷èòü ÷ëåí – âîïðîñ íå íîâûé. Ýòèì âîïðîñîì èíòåðåñîâàëèñü ìíîãî ëåò íàçàä. Íàøè ñïåöèàëèñòû èçó÷èëè ðîññèéñêèé è çàðóáåæíûé îïûò è, áëàãîäàðÿ ýòîìó, ìû èìååì íà ñåãîäíÿøíèé ìîìåíò ìåòîäèêó, êîòîðàÿ ïðîâåðåíà ãîäàìè è íåñ¸ò â ñåáå æå ãîòîâûå ÏÐÀÊÒÈ×ÅÑÊÈÅ ÐÅÇÓËÜÒÀÒÛ.

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  2. so, basically i want to entertain myself by reading other people’s mail on myspace. im a very bored military wife and this is how i’d enjoy spending some hours of my days. is there anyone who can break it down barney style on how to go about getting ones email and password? as im reading above, i see that a lot of people are asking the same thing and am wondering if they ever got help. either way, im bored now and this is amusing me. so, feel free to maybe help. im hoping somebody can just get me headed in the right direction.

  3. Jughead: iTunes has offered Season Passes of TV shows for a while now.

    David: I tend to disagree with most of your points. While breaking news and sports are better when live there is no reason that the CBS Evening news can not be consumed on a time-shifted basis. You need to move past the traditional consumption of a 30 minute network news cast. With online video you will be able to customize your news cast with a mix of local, network/national and global clips. Think of RSS feeds for video.

    When you move away from a live feed the net can and does handle mass time-shifted downloads.

    This is where bittorrent comes in. Rumors are that Apple will include a bittorrent like client in the next Mac OS. Think back to Sun’s old slogan, “The network is the computer”.

    Speaking of Mac OS…if you still have problems with crashes, drivers (?! please!), and viruses then please go buy a Mac.

    Time shifting is the way to go. I rarely watch live TV. I watch hockey games of my favorite team 2 hours after start time, after the kids are off to sleep.

    I do agree that it is a few years away. We have 3 tivos in our house. My children do not understand that some people can not rewind their TV. My kids have grown up with Tivo and timeshifting. They don’t understand when we go to grandma’s that we can’t just go the the menu and put on Blue’s Clues.

    Their generation will basically never be slave to network programming schedules. 100% of their viewing will be ondemand.

  4. This analysis is quite speculative IMO. We are unfortunately many (5 or more) years away from the point where we can tell cable operators to shove it.

    Some points/rebuttals below in no particular order:

    The web’s infrastructure lacks the capacity to deliver high quality video to a large number of people. A live broadcast of say, the CBS Evening News, much less the Super Bowl, even in a highly compressed format would bring the entire internet to its knees. Then there’s high-definition, which requires even more bandwidth. Many ISPs cannot consistently deliver anything higher than 500KB/sec.

    Consumers perceive computers and televisions as fundamentally separate. According to Forrester, Jupiter, and similar studies I’ve read, interest in products or devices that allow for full-on convergence is extremely low.

    Computers are still expensive, unreliable, require constant attention in the form of driver, OS, browser, Flash etc updates, and are susceptible to viruses, hacking, etc.

    Overall television viewing is NOT declining. It has actually been growing in recent years, albeit slowly according to Nielsen. Nielsen HAS been recording declines among younger viewers however, so maybe this is the point of confusion.

    Finally, while the writer objects to the idea of fixed program schedules (and I do too), the hours of prime time were not conjured out of thin air! More people watch television from 8 to 11 than during other times of the day, so that’s when you want to schedule something you want the largest number of people to see.

  5. Excellent points. Very thought provoking.

    Here’s some more thoughts on Apple TV.

    It would make sense to begin offering a “season pass” to individual shows like Lost, Desperate Housewives, CSI, etc as the studios and Apple would immediately lock in the profit and the content could easily be delivered similarly to a podcast subscription each week after the shows aired on TV.

    Speaking of podcasts, I think people are grossly underestimating their impact on the viewing habits of those with access to Apple TV.

    Consider:

    There are now hundreds and and soon thousands of decently produced college lectures freely available as video and audio podcasts. These lectures represent true “edutainment” in the sense that they will be available to watch sitting on your couch. People will be soaking up some very interesting content. This category of content was never available to the general public before. How much of an impact do these college lecture podcasts have to have before affecting other programming?

    Now that any person with a camcorder, and a good idea can create a video podcast, how many creatives will begin developing semi-professional content specifically for distribution as a podcast on the Apple TV via iTunes? There is no FCC to govern what is displayed. It’s the wild west as far as content development. Think it’s a joke? Look at Joost, Blinx, Blip TV. Podcasts like Galacticast use a greenscreen to great affect producing “The SuperMarios”. Tiki Bar TV is funnier than most of the crap on TV now!

    With little barriers to entry and small production costs, there is no limit on the content (domestically as well as internationally) that will becoming online as audio and video podcasts. Musicians and bands can now go directly to their audiences’ big screen TV’s with recorded audio and video podcasts of their performances. Podcast concerts are going to be phenomenally huge on Apple TV.

  6. Rick Hanley

    Carl

    Very good. I would just add that Apple TV will not be alone. For example, Sony Bravia TV’s, due out this coming June or July allow the connection of Internet broadband directly to the TV for watching Internet video on the TV.

  7. Apple absolutely must offer pay-per-view TV and movies to have any success whatsoever. The current prices are too high and people really only want to watch most movies/tv once.

    And, Apple would be wise to figure out how it can get the ABC/CBS/etc free streaming to route through iTunes to improve the viewer experience which is currently pretty miserable.