When Steve Jobs announced Apple's iPad last week, talk of revolution was in the air. The jury's still out on whether the iPad will change the publishing industry or even pose a threat to Amazon's popular Kindle e-Reader. (For a great analysis of the iPad, check out this Ad Age article from C3's own Ilya Vedrashko.) We've come to expect an exciting kind of innovation from Apple. Apple doesn't give us the newest technology--there were MP3 players before the iPod and smart phones before the iPhone. Apple's true revolutions come in the form of innovative digital business models. The iTunes store changed the way we think about buying music and the App Store made cell phones into anything a third party developer could imagine and create. As someone who studies and writes about the television industry, I think it's valuable to think about why Apple hasn't been able to similarly revolutionize the television business. Sure, selling shows in the iTunes store has brought in some revenue for TV networks. But if Apple (or any other over-the-top connected device manufacturer) changes TV it will be in spite of--and not because of--the television industry.
Apple has certainly been trying to get into the TV business:
- When the Video iPod was released in 2005, Apple was able to broker a deal with ABC to make shows available for download in the iTunes store. TV downloads have been a fairly lucrative for both Apple and networks, but free sites like Hulu have undoubtedly cut into iTunes TV revenues.
- Released in 2007, Apple's over-the-top television device, Apple TV, has hardly gained any traction. In fact, Steve Jobs recently commented that Apple TV is still "experimental" and a "hobby." The device will only stream shows from the iTunes store or a user's media library. With no support for Netflix streaming or Hulu, the Apple TV is much less attractive than other options like Xbox 360 and Roku, which have Netflix support. Boxee can run on AppleTV, but with considerable effort that some might consider hacking.
- There have been rumors of an Apple TV subscription plan. Apple would charge $30 a month for a "Best of TV" package that would include popular shows from broadcasters and cable networks. These rumors started in November, but the plan hasn't come to fruition yet.
The list above suggests two key reasons Apple hasn't revolutionized the television industry: first, cable companies and TV networks see connected devices as a threat to business models rather than an opportunity to create new revenue streams; and second Apple has been trying to set its own terms with an industry that has a history of not allowing outside players to set their own terms.
Multichannel video program distributors (The term MVPD includes cable companies, satellite companies, and telco TV providers) have been reluctant to give device manufacturers like Apple access to live television distribution technologies. MVPDs make a lot of money by renting their own set-top boxes to customers, so they see third-party manufacturers like Apple as a threat to their business. Some third-party devices like HD TiVo can run on MVPD networks, but users still need to rent tuner cards from the cable company for the TiVo to work.
Further, TV networks have been reluctant to sell content through the iTunes store and they're now equally reluctant to join Apple's TV subscription plan . Though iTunes downloads have made some money, TV networks still fear that downloads will cannibalize revenue from ad sales on linear TV, online platforms like Hulu, and their own authentication (or "TV Everywhere") initiatives. Apple's subscription service would reportedly be ad-free, which means that Apple is asking networks to abandon what has always been their main source of revenue.
Over the past few weeks, Apple has been putting pressure on networks to lower the price of TV shows on iTunes by half, from $1.99 to $0.99. Networks have not been responding positively to this pressure because (again) they fear that cheaper downloads would cannibalize DVD sales and linear TV.
So what can Apple do? Are MVPDs and TV networks missing out by not brokering more aggressive deals with Apple? Should Apple even bother to get into the TV business? Next week I'll be posting some strategies that could help Apple successfully move into the TV business. In the meantime, tell us what you think in the comments below or @shelila!