Et Tu, Apple?

By now, everyone has heard about today’s big bombshell that Apple wants to eat cable’s lunch by offering a TV subscription service for about $30 per month. The service would work on multiple Apple devices, but the big elephant in the living room is Apple TV, which execs have always called a “hobby” but which many have suspected is really just cover for: “Yeah, it’s our one unsuccessful product, and we’re a little bit embarrassed.” To be sure, if any company was going to operate a viable “over-the-top” service that rode broadband pipes to deliver high-quality TV content, it would be Apple. It already has a practical monopoly when it comes to iTunes and music. It hasn’t forged the same kind of dominance on the video side, despite its best efforts—partly a result of Hulu’s entry into the marketplace. Now that Hulu plans to switch to a subscription service next year, Apple’s ambitions to create a similar subscription model through iTunes seem perhaps a bit more realistic. Some 75 million people already patronize the iTunes store, and it’s plausible to imagine a large portion of them plunking down $230 for the box and then another $30 per month to get a cable-like service over broadband. They already have a billing relationship through iTunes—and Apple just makes it so, so easy to buy stuff.

 

In a way, cable operators have set themselves up for this scenario by failing to get away from the leased set-top model despite years of talk about it. Tru2Way is supposed to help, but now—after years of work developing the spec—some are starting to question whether even that’s already obsolete. Unbelievable. VOD navigation through cable set tops is an increasingly frustrating experience, made more so by the availability of alternatives like gaming consoles and, yes… Apple TV. This dichotomy has unfortunately created an impression in consumers’ minds: Cable set-tops are clunky; third party set-tops are cool. Cable operators are of course rolling out newer and better set tops (if nothing else, to compete with AT&T and Verizon), but most consumers are still coping with old boxes that almost seem transplanted out of the 1970s at this point.

 

So what does any of this have to do with Apple’s attempts to create a TV subscription service? Everything. That’s because Apple is the all-time master of image and consumer marketing. Imagine the TV commercials. Maybe Apple will hire John Hodgman (the guy who plays “PC” in those hilarious ads) to play the cable guy, hawking his archaic set-top box with the red display. On second thought, don’t imagine that. It’s too painful.

 

But here’s the good news: While Apple is a force that can’t be ignored, cable operators and their satellite and telco competitors all have a number of things going for them in this potential fight. For one thing, programmers aren’t stupid. They aren’t about to jeopardize existing license fees just to latch their brands onto the Apple cool-wagon. At $30 per month, Apple is going to discover the cruel economics of the cable business as it tries to get expensive but popular nets to play ball. Add a few consumer gotta-haves to the service, and the license fees add up to $30 or more pretty darned quickly. Not only that, but Apple faces other complications—namely, the existence of soon-to-be-subscription service Hulu and its partners NBCU, News Corp. and Disney. If Apple can’t convince those companies to succumb, it might as well keep selling Apple TV as a really nice VOD and streaming-personal-media-from-the-computer service. And for now, that’s truly a hobby. If it wants to turn Apple TV into a big business, it needs to get big programmers on board. And with TV Everywhere still in flux, Comcast about to buy NBCU, Hulu planning its own subscription service and content providers generally reluctant to screw up their traditional dual-revenue stream, Apple faces an uphill battle to get this done any time soon. But then again, no one thought Steve Jobs would convince dinosaur record labels to embrace iTunes in the wake of the Napster disaster. And he did. Perhaps anything is possible.

(Michael Grebb is executive editor of CableFAX).