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Why Pay for What ABC and CBS Already Give Away for Free?

The industry is abuzz with news that Disney (s DIS) and CBS (s CBS) are in the early stages of negotiations with Apple (s AAPL) to join an online video subscription service that could launch as part of iTunes as early as next year, as reported by the Wall Street Journal. But while certain outlets are already dancing on the grave of the cable industry, there’s little indication that what Apple, Disney or CBS would be offering is particularly innovative.

See, the devil is in the details, but there are few details to be had. For instance, will the proposed subscription service include linear television programming, or just a collection of on-demand titles from the networks’ libraries? How will the content offered be different from what’s already available on, Hulu or CBS’ Will broadcasters be willing to give up ad revenue for a monthly fee of $2 or $4 per subscriber? And most importantly, will the service be available only through Apple products, like iTunes or the Apple TV?

Here’s the problem as I see it: The offering will likely have too little content, cost too much, and will likely be tied to a proprietary software application or hardware device sold by Apple.

Sure, $30 a month — the amount that Apple was rumored to be charging the first time the news hit the industry — is less than what I pay for FiOS TV, but not substantially less than what I pay for my TV service when one considers that it’s bundled with my Internet and phone — and I’d still have to pay for each of those individually.

Also, it’s difficult to believe Apple will be able to negotiate rights for content that’s substantially different from what’s already available on demand from Hulu or similar sites. The service might have longer windows for some shows — i.e., you might be able to watch an entire season of Lost, as opposed to just the last five episodes — but there’s limited value in that. And in a world where broadcasters are already giving their content away for free, why would I pay $30 a month to watch the same content on iTunes?

Maybe I would if I could avoid ads. But even the WSJ story points out that “some executives are… concerned that the Apple service wouldn’t include advertising, at least in some of Apple’s proposals.” So there’s a possibility that Apple might be forced to include ads anyway.

And maybe I would subscribe to the service if it included live, linear programming, but that too is unlikely to happen. For one thing, for some content that I’d most like to watch live — NFL games, for instance — many broadcasters don’t have streaming rights. And even if they did, they’d not likely alienate their advertisers by making those shows available through an online outlet that they’re not able to monetize as well.

And all of that is before trying to make the service available on a TV. To do that, subscribers will either have to hook their laptops up to their television sets, or they’ll have to purchase a piece of Apple hardware. The current incarnation of the Apple TV is $229, and a next-gen product isn’t likely to cost significantly less. When one considers the cost of a Roku box (starting at $79, but with somewhat limited content), or the estimated price of the upcoming Boxee box ($200, but with a wide range of unlicensed Internet content), purchasing an Apple TV for more than $200 just to pay an additional $30 a month for a limited library doesn’t seem like a great value proposition.

So here’s my prediction for Apple’s subscription service in 2010: a lot of hype, not a lot of content — and in the end, not a lot of value for consumers.

10 Responses to “Why Pay for What ABC and CBS Already Give Away for Free?”

  1. THe article misses the mark in its closing paragraph. TVs with built in internet streaming are in stores NOW. Give it 2 years and most sets will come with this built in as standard. We won’t need special devices. If they tether their service to a device, it will fail in the face of this.

  2. I agree with you Ryan. The problem will be getting premium content providers to allow Apple to carry their content. No way Comcast/NBC will allow Apple to carry The Office or 30 Rock or other NBCU shows – and I doubt many consumers will give that up.

    One potentially disruptive (and admittedly unlikely) option however would be a AppleTV with terrestrial reception capabilities and a nice UI that allows integration of both Internet streamed and terrestrial broadcast. Terrestrial HD content would allow Apple to side-step, potentially, the inability to license content such as that from NBCU.

  3. Because I want more control of my time.

    Consumers sense the huge loss of personal productivity that’s required of them when they watch visual broadcast and cable media regularly — even if they often don’t act on that knowledge. Also, the coercive approach to marketing which huge entertainment companies have used has become a trust-eroding dynamic for both the companies and their consumers. These aspects of traditional TV content delivery have set the stage for a change in how TV companies offer their products to consumers.

    At the moment, the web is a very democratic content delivery method. It returns control of consumption time commitments to the consumer. It offers many choices — with minimal to no delivery service time constraints — allowing consumers to schedule their consumption of content at times when it best suits them. Cost of content delivery is low, per consumer. Costs are averaged over a massive pool of connections and consumers. The non-cable broadband infrastructure is relatively is flexible, robust and multipurpose, compared with broadcast and cable infrastructure. Content possibilities are rich at the moment: competition and innovation are vivid, powerful, and the marketplace is fragmented, providing more niches to occupy — more opportunity — and it can be entered at relatively low startup cost points.

    These qualities of the web are pretty transparent to consumers. Tensions between content servers and consumers are low, overall, because the web isn’t felt as a coercive force. Web-delivered entertainment has the potential for much higher consumer satisfaction and loyalty than that currently felt towards tradition TV.

    The web has now become the best place to go for connections and served content related to business, arts, social interaction, politics, news, opinion. The web has always modeled a sense of common interconnectness that suits the human psyche, and it does this better than vertical product offerings, like traditional TV, do.

    Broadcast and cable guys who bet their futures on a web-delivered model are sync’d with growing consumer preferences, which will continue to grow and persist because web content offerings and delivery methods emulate human society interactions more faithfully than older content delivery modalities do, so they feel more comfortable to consumers who’ve learned how they work.

    I gave up traditional TV 18 months ago. When I want to see something that’s TV-originated, I find it online or do without it. I have too much of an acute sense of the high cost, loss of productivity, and limited consumption space flexibility of broadcast and cable TV, to ever do the traditional TV thing again. My main source of TV-originated web-served content is Hulu. When Hulu goes subscription, I’ll pay, as they’ve given me a clear sense of the value they offer to me, by running a premium-quality operation that fits my web-modality life style.

    • michael mcnabb

      I think Heath has done a nice job of framing the issues and opportunities.

      Too much of the discussion here is about mapping the current industry distribution model to an IP based network. Free versus subscription? There is very little innovation flowing from this well spring.

      The interesting questions are:

      1) what new program models and format will emerge from the new distribution platforms?

      2) will OTT delivered video and advanced cable systems drive companion applications that enhance programming?

      3) will the IP based distributors move to an a la carte model which optimizes consumer benefit rather than the current “packaged model” which distorts the economics of the individual (yes over 50% of your bill goes to sports programmers).

      4) How do local broadcatser fare in this new On Demand world with no access to Network content and a limited offer of weather, local sports and local news?

      5) How will linear programmers fare? The world is moving to On Demand and many of us in the industry feel that linear is dying. How does it play out?

      There is a lot more going on in our industry than Hulu.It would be great Ryan if you could dive into some of the more interesting and stategic issues.