Apple [AAPL] has a figured out how to play a part in the reinvention of television, and here's how it's about to do it. Meanwhile, Google's attempt to emulate Apple TV with Chromecast underlines the weakness in that firm's television strategy so far.
Apple has spent years touring content and cable firms to find common ground from which to make moves on television. These attempts have been undermined by industry dependence on advertising revenue. Few have been willing to sacrifice slices of the ads business.
This has driven Apple to propose a new partnership based business model in which the company improves user experiences while working in conjunction with incumbents in the space.
Recent publication of a patent filing in which Apple proposed allowing the capacity to skip ads in exchange for a fee within its systems suggests one way in which users may benefit from its systems while cable and broadcasting firms (and Apple) continue to get paid.
It also seems the company has been successful in leveraging its existing relationships with content providers (iTunes) in order to woo some into offering up their content as Apps. Time Warner is reportedly working to develop apps through which iOS users will be able to access its broadcast content if they already are cable subscribers.
Recent Apple TV updates saw HBO GO and WatchESPN added to the roster of available channels baked into the set top box.
"Apple has talked in-depth with other big distributors about similar apps, according to people involved in the talks. Its intent is to collect a fee from distributors in exchange for enhancing their television service and in that way, theoretically, make subscribers more likely to keep paying for cable." NYTimes.
Apple is working in partnership with existing industry incumbents to enhance the experience they offer to Apple TV users. By extension this also means any other future Apple television will also offer an enhanced (and unique) user experience to those on participating cable networks.
Working in partnership in this way, Apple's profit center may lie in device sales, OTT services and, of course, movie and TV sale/rental via iTunes.
In other words, Apple is offering partners across the spectrum of the existing industry multiple ways in which they can make money and get paid. The existence of iTunes proves the company appreciates creative industries need to make some money -- if only so they can buy Macs to do creative projects with.
Apple has already proved the value of its products. The Apple TV is available in 13 million homes and is far and away the world's leading dedicated streaming media box with 56 percent of that market (according to Frost & Sullivan). Games consoles are the leading multi-functional streaming media devices, but Apple's user base is far and away ahead of TiVo, Roku and those failed Google TV boxes.
It's precisely this installed base Google is playing catch-up to by introducing its new super low cost Chromecast device (presumably manufactured dirt cheap in a factory somewhere on the planet in which worker's human rights are heavily monitored and protected by the firm). Google knows that its offering to television must include a wide base of installed devices, as YouTube content isn't going to swing it. The company also knows Hollywood doesn't like it that much due to the ease with which surfers can find bootleg versions of new movies using its search service.
That's a liability for the search giant. Apple's history is very different -- it sells movies and TV content for studios for a price, and everyone makes money. Happy days.
AirPlay streaming has been critical to the success of Apple TV:
"Apple accounts for the majority of sales by far, despite offering relatively narrow content access – this is not (yet) a market being driven by the value proposition of a streaming TV experience. Apple TV’s AirPlay feature was strategically crafted to simplify the process of transferring laptop and tablet displays to a TV screen, and it is AirPlaying – not OTT streaming – that is the primary reason for purchase of Apple TV devices," the analysts explain.
However Apple achieved it, when it approaches content providers it can now offer up access to 13 million homes along with many more millions of iOS users. In other words, it now offers a significant potential audience.
Given the company has also delivered millions of dollars to content creators for iTunes sales and rentals, it's likely content firms will be as willing as cable firms to speak with Cupertino to find mutually beneficial deals.
It's a little known fact that Apple's HTTP Live Streaming codecs are already format of choice for operators offering OTT video services.
“The television industry fundamentally has a subsidised business model that gives everyone a set top box for free or for ten dollars a month,” noted Apple’s Steve Jobs in 2008. “That pretty much kills the opportunity for innovation, because no one is willing to buy another box….the TV is going to lose until there is a viable go to market strategy.”
Apple's offering of technologies that underpin new television technologies gives it another reason for a seat on the board.
There's one more thing:
Apple is already speaking with display manufacturers with a view to delivering UltraHD/4K video support on its screens. It's blindingly obvious part of this attempt will be in order to manufacture 4K displays for use with the next-generation Mac Pro when that system ships in Fall.
It is also clear Apple has been focusing on resolution within product release announcements since the iPad 2 made its debut.
With Final Cut, the Mac Pro and Mac displays soon capable of handling 4K content, Apple now hopes to deliver an end-to-end solution from which this high-res content can be traded, bought and sold.
That's where iTunes will come into its own -- and where Apple's purported plan to launch an Apple television will find its secret sauce.
You'll be able to plug your Apple television into your choice of cable provider, and you'll be able to access the services you pay for. You'll do so through an Apple-designed user interface, including apps and gesture, and Siri remote control support. You'll be able to download apps that give your devices access to at least some of the content you're already paying your cable provider for, and you'll be able to add some international channels to your experience by subscribing to them via the App Store (and your cable co will probably get a slice of that income). You'll be able to skip ads on what you're watching for a fee…and you'll be able to rent iTunes Movies in UltraHD (a lovely high-resolution format) for display on your shiny new screen.
As 4K movies proliferate, the quantity of movies you'll be able to access in UltraHD will increase. Your cable provider will be getting a slice of all this action somewhere down the line, and Apple hopes that taking a partnership approach will enable everyone to make some money and stay happy, while giving the TV industry a chance to reinvent itself a little.
I imagine that after the inevitable failure of Chromecast (loads will buy one, few will use one, in common with the rest of the Android 'experience'), Google will be driven to do something similar, though when it tries to do so it will be hard-pressed to deliver a viable business plan with which to please the very content providers who have been litigating against the company's search services for the last few years.
Apple has a plan for television. I think it will switch it on.
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