Over the last several months, Apple’s vision for television has become clearer.Thanks to work by Wall Street analyst Gene Munster on the hardware side and the New York Post’s Claire Atkinson on the content and cable side, we now have a pretty good picture of what Apple wants to do:
- Build a TV set that is much cooler and easier to use than anything else out there
- Charge twice as much for it
- Assemble a “virtual cable company” with boatloads of great content by cutting deals with content providers
- Pay the content providers practically nothing
- Reduce cable companies to “dumb pipes” by redesigning and taking control over the television interface
- Capture a subscription revenue stream that the cable companies now own
That seems to be the vision.
Whether Apple will actually be able to execute this vision, of course, is a different story.
According to Claire Atkinson of the Post, Apple’s Eddie Cue recently approached cable companies to try to get them to dump their ugly cable boxes and let Apple redesign the “accessibility and look” of the TV interface and help manage “bandwidth” usage over the cable networks.
The cable companies, not surprisingly, assumed that Cue and Apple were smoking crack and told them to get lost.
Apple has also been meeting directly with content companies (some of which are owned by cable companies) to try to cut content-delivery deals. Apple’s pitch is that it will transform the channels into apps that will be available across all of its devices.
It’s not clear whether Apple would charge for each app, or bundle them like a cable company. It’s also not clear whether the apps would be “channels” or individual “shows.” (The latter would be much better for consumers, but it would scare the bejesus out of content networks, which make money by packaging lots of shows into a network that they charge for.)
According to Atkinson’s sources at the content companies, Apple’s negotiating stance is as follows:
“We decide the price, we decide what content.”… They want everything for nothing.
In other words, Apple appears to be approaching content providers in the TV industry the same way it approached content providers in the music and book-publishing worlds. Namely:
- Give us your content and let us package it in the way we (and consumers) want
- Let us charge what we want for it
- Take what we give you
Similarly, Apple is approaching TV distributors—cable companies—the same way it approached magazine and newspaper publishers. Namely:
- Let us take over your relationships with your customers
- Let us redesign and control the interface through which your customers get your service
- Let us otherwise gradually convert you into a “dumb pipe.”
Meanwhile, Apple is building a TV set that analyst Gene Munster thinks will be “the biggest thing in consumer electronics since the smartphone.”
This TV, Gene says, will change the way consumers consume content. To picture what it looks like, he tells us to “imagine a sheet of glass,” with “no bevels or edges.” This TV, Gene has previously said, will cost twice as much as a regular TV.So…
Apple’s dream appears to be very close to every consumer’s dream, which is “Let me watch what I want to watch when I want to watch it without paying an arm and a leg for it.”
Because this dream is powerful and logical, consumers will support it. And we have no doubt that, eventually, the dream will become reality.
However, standing in the way of the dream becoming reality is the massive, extremely rich, and extremely threatened TV industry, one that has resources and power that the puny music companies, book publishers, and magazine and newspaper publishers can only, well, dream of.
Unless Apple is willing to fork over billions and billions of dollars in content fees, we think Apple will face fierce resistance from content providers in its plan to transform their content into “apps.”
Unless Apple is willing to allow cable companies to keep control of their customers, we think it will face fierce resistance from cable companies in its plan to change the “accessibility and look” of the TV interface.
And, unless Apple figures out how to win over both content providers AND cable companies, we think consumers may well resist paying twice as much for Apple TVs as they pay for regular TVs, regardless of how cool the Apple TVs look (Yes, a “sheet of glass” with no bevels or edges sounds really cool. But TVs already look pretty cool).
Now, Apple doesn’t have to win this war all at once, of course.And winning all at once is presumably not its plan.
Also, Apple has a huge, secret weapon in this war, a weapon that gets stronger all the time.
What’s that weapon?
Hundreds of millions of iPhone and iPad owners, all of whom would love to watch TV content on their iPhones and iPads and don’t currently have convenient ways to do it.
In the next year or two, Apple can sell a few million TVs, cut some content deals, offer an “alternative” interface that the cable companies can’t control and start to try to win over consumers and build up negotiating leverage that way.
And, in a few years, when Apple’s tens of millions of TV customers can be lumped together with hundreds of millions of iPhone and iPad users, and consumers have gotten used to “what I want when I want it,” Apple will have some serious negotiating leverage.
That’s probably Apple’s plan.
And it’s a smart plan.
But if Apple manages to execute that plan, it will destroy the economics and power of today’s TV industry, both on the content side and the distribution side.
And don’t think the TV industry doesn’t know that.