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How an App Store Could Revolutionize the TV Industry

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This week’s media event could finally confirm (or scuttle) rumors of a new Apple TV device. If it’s based on iOS 4, like many pundits believe, there’s strong potential for this device to feature its own App Store. If such a future came to fruition, Apple could be facing another round of tough negotiations with content producers like it faced when it introduced the world to digital music and movie downloads. If it’s successful though, Apple (s aapl) could revolutionize the television content marketplace.

The Current Marketplace

Consider how you currently watch TV, which could be through broadcast or cable television. If you watch cable, you pay a fee to a provider (like AT&T (s t)), which allows you to see certain channels based on your subscription (though that model doesn’t seem to be panning out so well anymore). The providers pay a portion of your subscription fees directly to the networks (an average of about 26 cents per channel). Networks make additional money with the ads they run on their channels as well. If a network doesn’t show ads, you can expect they charge the cable provider substantially more than 26 cents per channel, and the opposite is true if they show an average amount of ads. This is all relative and pretty much a standard business model.

How Apple Could Shake Things Up

With the introduction of the App Store, we’re starting to see how some industries are shaking up the status quo. For instance, consider the magazine industry. Wired now provides its app directly to consumers, and can sell a digital version of its magazine at a comparable price (per issue) to the newsstand price. Yet, without having to incur the printing costs behind it, and even while giving Apple 30 percent of the revenue, Wired pockets a lucrative profit.

Can the same model work for the television industry? Network providers already provide their content through iTunes, and, through negotiation, have arranged to sell content at $2-$3 per episode. Rumors of 99-cent TV shows have been rampant but unfulfilled, simply because of the tough negotiations required to make it happen. Could the solution be to simply bring an App Store directly to the TV? If so, similar to the Hulu or Netflix (s nflx) app, a network provider like HGTV (s sni) could provide its own app for free and charge within for in-app content, like episodes of a show. If it wanted to provide streaming content of the past few episodes for free, it could do so. As long as it approves of the 70/30 profit split with Apple, it would maintain a lot more control over its content and pricing. The networks would be happy, and Apple would be happy. Networks could still run ads as they wished and earn even more profit.

Who would stand to lose from this? At the outset, nobody, but if such a solution were to become mainstream, then cable providers could begin to see a dip in subscriptions. Why would most consumers pay a monthly fee of $30 to over $100 if they only want to watch a certain show or a certain network? Instead of paying for needless extra content that consumers never watch (based on their own viewing habits), they can pay for content that matters to them. The providers are aware of this, which is why many of them also provide internet service (think about Verizon (s vz), Comcast (c cmcsa) and AT&T).

I think an App Store on the TV could really revolutionize how we watch and engage with content.

What are your thoughts? A new Apple TV could revolutionize the television experience. Do you think it will take off? I’d love to hear what you think, so please share your comments!

Related GigaOM Pro Research: 3 Things Apple iTV Must Do to Succeed

11 Responses to “How an App Store Could Revolutionize the TV Industry”

  1. I agree that an App Store for AppleTV is superb idea. Don’t forget a special version of iAd optimized to play ads during video playback in order for content providers to offer ad supported content. Content providers can configure how many and when IAd breaks occur during a particular video. Apple can then sell that ad space and share the revenue with the content provider. This could also be extended to support live streaming. Networks could provide AppleTV optimized streams that encode iAd break times.

  2. Some people are obviously mistaking “Apple TV” to mean an “Apple Television Set” instead of what it already is, a little box to access content just like a Roku box.

    A new Apple TV (iTV?) with an app store built in would be great for content owners like my company because we could now build something similar to the Netflix or Hulu apps that allows individuals anywhere in the world who own an Apple TV to download the app and have access to content they were not getting before.

    Imagine someone from India now living in the USA who wants their Indian TV shows being able to download an app from a local Indian tv station and watching the latest episode or news from that night.

    That is what the app store on Apple TV opens up – local content can now be instantly international and accessible via television instead of depending on someone sitting in front of a computer monitor.

  3. App marketplaces definitely bring a revolution. Even if Apple can’t carve out a tv empire on par with its music empire, it can be a platform for Netflix, Hulu, ABC, Verizon FiOS (Verizon is making an app to bring OnDemand programming to iOS already), Amazon, others — and still carve out a fair business for itself that may have premium pricing, a few more restrictions, but a few more advantages too.

  4. If there is a new Apple TV, it will definitely have an app store and it will have huge potential. This could usher in a new era of “smart TV”, a technology that could allow advertisers to target consumers more directly and let the content producers sell their creations directly to the consumer, effectively taking the networks out of the picture. I think $.99 is a bit expensive when you consider that you can rent a movie from redbox or netflix for that price. I wouldn’t be willing to pay that price if I had to watch adds throughout the show. But the technology would enable “smart” advertising so that consumers could choose what category of ads or the number of ads they want to see. I imagine if the individual consumer is willing to sit through enough ads, the content could be provided for free. Others are happy to pay for the content in order to enjoy a commercial-free experience. And TV shows are just the beginning. A TV app store could also give us games and much much more.

  5. Aren’t we forgetting about a little something called piracy? You can’t beat free. Why would people who file-share consider paying for new content when they’re available on streaming/torrent sites for nothing (albeit a little later than the general releases)? Moreover, the amount of content (certainly for UK) that’s already free (e.g BBC iPlayer) makes me wonder how this could ever work.

  6. I think that if rumors can be believed and we do see a new apple tv update the ap store will have to be included just to set apple apart in the marketplace. The sheer number of downloadable content media players out there means that apple needs to add something to there media player to give it that apple factor.

  7. nerotozero

    I think anything that frees us from commercial tv is a good thing. Advertisers should be paying us to watch their ads. Things are backasswards in a big way where TV is concerned. I’ve already shut down my provider and am watching NetFlix exclusively over the Roku Network. If they start advertising to me without paying me, I’ll drop them too. Paying for content plus paying for advertising is downright criminal. Pay for content, fair enough, pay for receiving advertising, hell no.

  8. “…Instead of paying for needless extra content that consumers never watch (based on their own viewing habits), they can pay for content that matters to them…I think an App Store on the TV could really revolutionize how we watch and engage with content…”

    I agree completely, but the reality is that cable and satellite companies (with partners) are both content providers AND internet service providers. Thanks to complicity on the part of government and the movie and television studios that create the content, these companies have positioned themselves on a chess board in a game conceived to maintain the same revenue streams if existing content businesses are outflanked by the likes of Apple, Google, Amazon, Netflix and God forbid, Microsoft.

    The traditional media companies will protect their existing profits at all costs.

    It’s going to take some very clever product design, market positioning and leverage for computer companies to ever break up the cesspool of monopolistic practices and business relationships that limit competition for the content delivered to consumers‚ who are the pawns in this high-stakes game.

    So far (since he won the game for music), Steve Jobs’ video and movie-related chess moves all have been blocked. We soon may see if he and Apple’s brilliant PHD’s are up to the task of checkmating wary studio executives and ISP owners.

  9. I don’t think the new Apple TV will have an app store. What applicable use could a TV have? Hulu, Netflix and a few similar providers. Also, remember that all TV’s are different and trying to develop for so many different configurations on a Mac with a screen that’s much smaller will be a real pain for developers. But even if there is an app store, imagine how loud those fart apps are going to be!