Apple is on the cusp of launching a “a new far reaching cloud-based service” focused on video, writes Jefferies analyst Peter Misek in a big report this morning.
Misek says Apple will use its new massive data centre in North Carolina to offer an advanced web-based video subscription product that rivals Netflix.
This will allow Apple to take advantage of its iOS lock-in and increase device sales.
The report seems to be informed speculation more than hard fact. But, it makes a lot of sense for Apple to attack the video market as a way to differentiate itself from rivals.
Here’s the big highlights of his report:
- Apple’s North Carolina data centre is going live soon, if it hasn’t already. In addition to the one data centre, Apple appears to be planning to build a second one right next to the original.
- Apple could be building a few other data centres elsewhere in the U.S. and then in Europe. Misek writes, “We can envision Apple creating the service first in the United States and then rolling it out internationally.”
- These “super data centres” are going to be used to deliver video to Apple devices. The reason Misek believes these data centres are for video? They’re too big to be for music, which is much smaller files.
- Further supporting his overall video hypothesis, Misek says, “We find it notable that the content companies, citing a lack of domain licence, asked Cablevision to remove channels from its iPad app. We believe these same companies are negotiating some sort of deal with Apple.”
- Here’s Misek’s thoughts on how it could work: “In terms of content we think some sort of subscription model also makes sense … We believe Apple has learned much from having Netflix on the Apple TV and we cannot help but feel Apple will try to improve on this model somehow. So how does Apple convince Hollywood and other content creators to licence it? In our view, the best way to do that would be the model they use for App developers: let them take the vast majority of the revenue while you use the content to drive device sales and monetise it that way. We are huge fans of iTunes, but that cannot be it from Apple. There is another level coming here and we see this as one of the most fruitful potential uses of Apple’s enormous cash hoard.”
- Misek also speculates Jobs could be stepping down soon, and wants to revolutionise video as a final act.
- The big advantage of building an inclusive video service for Apple: It can drive sales of iPads, iPhones, and other Apple gadgets. If it works, it’s an Apple-specific software service that Google can’t offer with Android.
- This is rough news for wireless networks and cable providers. It would be more bandwidth consumption for both. For cable providers it would be another “cord-cutting” style threat.
- Jefferies believes Apple will launch either a new set top box or an actual television in 2012 or 2013. While the TV business is usually pretty crappy from a margins perspective, Misek argues Apple’s years of supply chain management, software and hardware design could be a big advantage.