Big change in TV distribution is in the wind, if the Wall Street Journal’s reporting on Apple’s (s aapl) “all you can eat” iTunes television plan is true. According to the WSJ, CBS (s cbs) and Disney (s dis) are considering allowing their entire television lineup to be sold on a single-fee, all-access subscription basis. Consumers will love this, but many traditional cable companies will probably feel as though Apple shoved coal in their stockings.
Apple’s subscription strategy makes the most sense when viewed alongside the introduction of a larger screen iPod device. Some will buy the “iPod Tablet” because it’s new and exciting, but at an average of $25 or more per season per show, iTunes as it currently exists won’t be replacing your cable company anytime soon. However, with a network-wide subscription service, the balance changes.
More devices means the same content in more places for the same monthly fee. Your Apple TV becomes the digital hub Steve always imagined it to be and, hopefully, gets upgraded by Apple to handle it’s new role as a set-top box. Your iPod Tablet becomes your TV anywhere device; not as good as your home TV, but much better than your iPhone.
Back in June, I wrote how cable companies and Apple were on a collision course, and the WSJ’s article only reinforces the points I made then. It’s not just cable companies of course; DirecTV (s dtv), AT&T (s att) Uverse and other traditional media distribution companies will feel just as threatened. Cable companies, though, are the most established in the field and have the most to lose. Combined free HD over-the-air local broadcasts and a iTunes network subscription for premium content, and Apple really starts looking like a spoiler to Comcast (s cmsca) and the like.
Cable companies bundle content to increase revenue. Subscribers can’t pick and choose channels a la carte. If you want ESPN, you often have to pay for Disney and ABC Family. To be fair, the networks, not the media distribution companies, are sometimes the ones forcing these packages down our throats. Want SyFy? Then NBC/Universal can make the cable company carry other owned stations such as MSNBC and Bravo. The cost of the additional channels is passed along to the consumer.
Pricing a few shows from the same network on iTunes today, I find it’s often cheaper to just buy the next tier with your provider rather than subscribe “per show” via iTunes. Apple’s new plan changes these traditional rules. According the the WSJ article, networks actually make more money by removing the cable company middleman. It’s the cable providers and local affiliates that are left hurting.
Not only do the traditional cable companies lose subscriber money, but they also lose their fringe revenue sources. All of a sudden people aren’t renting expensive DVR. They also lose lucrative “On Demand,” opportunities as well as local advertising dollars as consumers downgrade their channel lineup or drop their subscription altogether.
Is it any surprise that Comcast wants to buy NBC/Universal? Do they see where Apple is going? Probably. The value isn’t in the pipe providing content, but the content itself. Time shifting and place shifting are empowering consumers and raising expectations. Hulu, Boxee, Slingbox, iTunes, and Netflix allow us to watch our TV shows practically anywhere. Live sports is one area Apple hasn’t quite figured out, but it’s only a matter of time. Considering Steve Job’s relationship with Disney, which owns ESPN, I expect some innovative method of providing live content to the forthcoming tablet.
Apple pushed the music industry hard to allow digital distribution — and won. First, they got a majority of labels to provide content to iTunes, and then convinced them to drop the DRM. Does Apple have the muscle to push the TV industry while fighting local franchise authorities? Even with Steve Jobs on the board of Disney, I think Apple bit off more than they can chew.
Expect the hardest pushback from companies that provide both TV and internet service. Some will even employ internet bandwidth restrictions or tactics that violate the principles of net neutrality. They’ll also claim that since Apple isn’t a Multiple System Operator as defined by the FCC, Apple is an unfair competitor. Unlike cable companies, Apple isn’t bound by “Must Carry” rules, and the cable companies will cry foul.
Who will win? In reality, the networks and the cable companies are already at war, Apple just decided to choose sides. I want Apple to win so I can ditch the cable company, but I think the deck is stacked against the Mac maker, and the backlash of any small victories will prevent other networks from signing on. Only the Ghost of Christmas Future knows the outcome.