Apple and the TV industry
cdixon.org
cdixon.org
Content - An Apple television would present some cool options for new apps and games, but the lean back experience would be no different than with a current TV. People want their Madmen, football, Nascar, Walking Dead, etc. and you will need to buy that through cable companies (for now). If Apple makes a TV it will look awesome and have some neat tricks, but it will be a "Dumb Screen" for whatever comes through the set top box. That seems like a losing solution for Apple.
I think a more likely scenario is that Apple buys a Cable provider like Comcast and replaces the horrible set top box with an Apple version. Why?
Apple's huge cash position - Apple has more than $50B in free cash and are adding ~$10B a quarter. They have made repeated statements about keeping that money available for one or more major strategic investments. They could conceivably have enough money to buy Comcast by the end of this year.
Why this works:
- Fits their vertically integrated model perfectly. Now Apple will own the customer experience from end to end.
- Creates a wedge that will force other carriers to offer an Apple set top box.
- Forces all the content providers to play ball with Apple. If Apple owns the pipes the content co's will lose a lot of negotiating power.
- It is a great high margin business, well suited to the Tim Cook era where device innovation might be slower.
- It is a hedge against Net Neutrality. If the cable co's get their way it could negatively impact the Apple UX, especially for iPad.
In this scenario Apple can take on a high margin business with a host of barriers to entry and milk it while they reimagine what the TV experience should be for the next 20 years. I have no doubt that we will see a beautiful aluminum TV made by Apple at some point, but if they don't figure out the infrastructure foundation first it will not work.
(That said, I don't think there's any way Apple wants to get anywhere near Comcast's awful customer service reputation.)
http://www.asymco.com/2011/01/19/20-billionyr-apples-cash-gr...
It actually might not be that bad for Apple. There's no place to go but up in terms of Comcast's customer service, and Apple could always present it like it is a serious uphill battle (which it is), so if they don't kick its ass out of the gate, it'll just be one of those things Apple tried but couldn't do. Of course they'd still be left with this huge service albatross if it doesn't work out, and that's where the risk is.
Whilst I agree with you, it didn't stop them from partnering with AT&T. So there's that data point.
AOL bought Time Warner. Google bought DoubleClick and Admob. Adobe bought Macromedia. Oracle bought Sun. AT&T bought Cingular. Anti-competitive acquisitions happen all the time.
There is plenty of room to improve my lean back TV experience.
• When I turn it on, why does it take 10 seconds for my LCD TV to show me a picture? Why does it take 3 seconds just to decide I actually told it to turn on and make a beep? Close your laptop, open it, how long did the LCD take to come on?
• When the children stop watching, why does it sit there burning 300 watts all night long displaying a blank screen. (Why the children can not be made to understand the difference between turning off the TV and stopping the video is a different question. I'll work on that when they get the difference between a computer and a monitor.)
• Why am I seeing a movie letter boxed in both dimensions for an image that is smaller on my 42" LCD than it was on the 26" Trinitron I replaced? (Why are none of the zoom modes right to keep the aspect ratio and make it fit without losing chunks? Isn't there a computer in there with a digital frame buffer that should notice these things and take care of them?)
• In my letter boxed movie, why are the subtitles drawn on top of the action instead of the black areas?
• Why is my TV unable to remember the volume I use on the U-verse, the Apple TV, broadcast, and the video game? Changing inputs shouldn't send the children running for cover. (Three of those could go away into a good tele vision delivery device.)
• Why does it take my TV many seconds to sync when I change from one HDMI input to another? Sometimes it fails completely on the U-verse and I have to go around again.
• Go around again? I have dozens of buttons on my remote. I want "on/off", "volume", "input select", (and channels for when I watch broadcast). I don't get input select though, just "next in cycle", which I can't just mash 4 times to go around because it has to sync and show me what is on the inputs I don't want to watch before I can move forward again.
• Infrared remotes? Really? Is that so I have to display my equipment prominently for my friends to see?
• If I tried to describe what an abomination U-verse's DVR experience is, my head would explode. Somewhere they did minimize software development costs, well done AT&T.
So Apple, do an iPod. Take an eraser to the "minimum required bullet list" for televisions and give me one that only does what I want. I don't care if it has less space than a nomad, just don't make me be its servant.
If Apple seeks content, the target is Disney - hands down the only halo brand in content, and it provides a sports network and deep market penetration worldwide.
assuming that Apple wanted to be in that type of business, they could achieve a similar end by buying Frontier/Echostar/DISH. In addition to the satellite assets, they get Frontier's LTE licenses (which cover a very large part, but not all, of CONUS).
Just like the iPhone it would be a game changer. Give AT&T a few years of exclusivity on U-Verse and the cable operators will be begging for an Apple set top to replace their (mostly) vintage mid-90s Motorola/Cisco set tops. By this point they will already have made the jump to IP which will massively simplify the work Apple needs to do to support cable. The FCC has been looking at IP gateways as a replacement for CableCARD which plays right into this strategy. Eventually Apple could sell one IP set top that works with every provider.
It would also not preclude Apple from keeping the current carrier-independent Apple TV product around with reduced functionality. This strikes the right balance between hardcore TV watchers who demand 800 channels and casual TV watchers who are happy to pay a couple of bucks per episode.
But it's a whole different story with regards to movies. a great movie discovery like jinni.com + access to a large niche mainstream + niche movie library can make a huge difference in the viewing experience.
Think about all of the Wiis and XBoxes out there -- those people would gladly buy an iTV for their existing TV if Apple would embrace the gaming market. Integration with your iPhone and iPad and computer would give amazing opportunities -- much more than the Wiimote and maybe even Kinect.
This should be their entry into the TV space. I don't know why they don't see this -- probably because their senior management is too old to take the gaming space seriously.
And moving the gaming market away from PCs / XBox / Nintendo and to Mac and iOS -- it could have great ramifications for several Apple lines of business.
I don't think prior mistakes (or general ignorance of the games market) are the reason there aren't apps on the Apple TV now. Maybe it's a hardware thing (A4 can't drive games at HD resolution)? Maybe it's a chicken/egg issue (not enough Apple TVs to warrant developer attention)?
Doing games on the AppleTV wouldn't be that unattractive for Apple, consumers or developers: 1) The asking price of the Apple TV is very competitive ($129AUD last time I checked) compared to most consoles on the market. You can buy three or four of them for the price of a XBox 360, Playstation 3 or a Wii. 2) Apple currently market the iPod Touch as a portable gaming system and there are a lot of children/teenagers who have bought one because the games are cheap and addictive - theres no need to go to the store or use their parents credit card to purchase. 3) The amount of hit games first sold on the AppStore is testament to the amount of work Apple have done to make their platform an attractive target to game developers. 4) The current Apple TV uses the same SoC that the iPad currently does. While I am no hardware expert, I'd imagine that later revisions of this SoC would be at least as powerful as Nintendo's Wii. While the Wii is "underpowered" compared to the PS3 or XBox 360 it has been a roaring success because the content, not the technical capability, has drawn in casual gamers.
It's not an issue of age, Apple has never been interested in games; just look at Electronic Arts (founded by an former Apple employee in 1982 because of Jobs/Apple's disinterest in games on computers).
I bought one in the late 80s as an impulse buy for $5, was quite amazing for it's time.
- It'd need to be powerful hardware so that'd push the price into the $300-$400 range. And that's just a guess based on the ipad2 hardware - it might be more expensive to drive a 1080p screen. Suddenly its very expensive for people who simply want to watch media through it compared to a set top box.
- It would be more likely than ever before that people would already own controllers. But if you didn't you're talking a $200 controller. It's already a bit debatable how good the touch screen is as a game controller, if you need to buy $800 worth of controllers just so you're friends can play with you somethings gone pretty wrong. It is possible Apple just says suck it up on this one - and tries to make iOS devices ubiquitous.
- I don't think Apple wants to compete with Xbox and PS on their own turf. Suddenly the iTV becomes an expensive console with no AAA titles and dodgy controllers.
Just doesn't really sound like the Apple route. I don't think they can build it into a TV. I don't think they can sell it as a console. It might work as a set-top box if they can find some way to compete/work with cable companies.
The big idea in this post: Sometimes you can't judge the viability of a truly disruptive actor by taking into account a current industry's structure, because a truly disruptive actor will change the structure!
What did Apple change? Updates directly from Apple? As others have noted other phones did that before, including Nokia. Buying phones at the Apple Store? Radio Shack and Best Buy have long had huge sales centers for phones. An app store? Those long existed to, although generally carrier provided or via 3rd parties (like Handango). So Apple provided their own app store. That might be new, but it's hardly industry structure changing.
What Apple did show is that if you make a good enough product, people will suffer through worse service.
With that said there is a HUGE opportunity here for Apple. Apple has shown it knows how to work with Samsung and the likes to make great displays and hardware. I wouldn't be at all surprised to see Apple ship the highest quality display available. Plus with their volume on phones/tablets they can probably use pressure to drive prices down on for a TV.
Next they integrate iOS into the TV. Then offer a subscription to iTunes content and AirPlay support. The cable provider is now completely out of the picture. They could charge $2500 for this TV and they'd sell 1M in the first week. 1M in TV sales for a single model, I'd imagine, would be a blockbuster.
In many ways I think this industry would be easier to take than phones.
- You can have a complete new feature without changing your phone
- You don't depend on your carrier in order to buy applications
- No crapware (sorry this advantage is available only on non-open devices)
- They opened the mobile development industry to indie and small developers
You can have a complete new feature without changing your phone
I had this with Windows Mobile seven years ago. Not as frequently as today's phones, but happened -- especially at transition points
You don't depend on your carrier in order to buy applications
That's a feature phone issue. As I noted before 3rd party app stores have existed for a long time. And for SmartPhones were the dominant way apps were purchased.
No crapware (sorry this advantage is available only on non-open devices)
If you go back far enough with smartphones they didn't have crapware either. Largely because the carriers hadn't developed any yet. But Apple did get rid of them for the newer generation of smartphones.
They opened the mobile development industry to indie and small developers
That was also the case with smartphones prior to the iPhone. Look at the apps on PalmOS and Windows Mobile. Most were written by small shops. And because of their deployment models there were a large number of enterprise apps written for them too. In fact in many ways the iPhone introduced Fortune 500 mobile apps. On WinMo and Palm you were a lot less likely to find Disneyland and Walmart apps as you are now with the iPhone.
The marketing/software side of things is handled entirely by Apple.
Quite a substantial shift.
By making applications easy to make and (extremely) easy to buy, the focus of smart phones has shifted dramatically. The industry is more interested in side-channel profits where previously they were a dead-end, used only to drive a few long-tail sales.
edit to agree with other comment: absolutely, carriers are largely untouched by this, if you ignore the massively-increased bandwidth usage (which would have happened anyway).
The industry is still all about revenue from plans, at least in the US. These revenues subsidize cell phones, including the iPhone. What's the data on profit that Apple makes from apps? I suspect that it's a small fraction of their profit on the device.
Right, I think it depends on what you mean by "industry". If you mean handsets, they've obviously completely disrupted it. Touch was not a mainstream interaction model for phones before the iPhone, the mobile software market qualitatively changed and continues to explode, phones were almost never updated after they were purchased, real web browsing wasn't really possible, etc.
If you mean carriers, the impact has been more limited. They have made extremely important inroads inasmuch as the iPhone turns the carrier into a dumb pipe. All iPhone owners have the same features regardless of carrier (with a few notable exceptions like AT&T customers getting MMS after every other market in every other country).
They might be able to do the same with TV, but they might not choose to partner with cable companies.
If they are indeed building an iTV, they might partner with the major networks... or maybe just one to start... ABC. The networks might be motivated by dropping revenues from their current channels. Apple might promise them an AdSense style platform for selling TV ads. They would now be able to monetize content that very niche audience would be interested in. If they promised them the same 70/30 split or higher, it might be enough to get the networks to take the risk of pissing off their local affiliates. I don't think they currently get that high of a split from their affiliates.
There are a number of ways they could potentially get the networks on board (though it'll be super difficult.) Regardless, I think the thing that they have to crack is the demand side. How do they make a TV that is so much better than current TVs that it redefines the category and get's people to give up their current TVs. I have an awesome Pioneer plasma screen from 3 years ago. It's going strong and I see no good reason to throw out the $$$$ that I put out for it. However, if anyone can make me do, it's Apple but it would have to be a fantastic product.
Part of the mix might be incorporating the gaming advantage that iPhone and iPad has benefited from. If they just used their other iOS devices as controllers & remotes, they would have a gaming platform that could rival XBOX & Playstation. The only thing it would need to match it is a konnect style device. Who knows if they'll go there with the first few versions.
They also would need to offer a new modality to TV that really changes the game. I would hope that at the least, they would offer a hulu + netflix style service.
If Apple released a TV, they'd soon find themselves with a large installed base of outdated hardware and customers in no hurry to upgrade because the main functionality is still entirely adequate.
It's to Apple's advantage to sell easily-replaced $99 external boxes that attach to whatever TV the consumer already owns. In one or two years, the consumer can replace it with the latest Apple product, with its faster CPU and GPU, additional storage, and new features, without too much pain.
People just aren't going to want to replace 60" TVs as often as they replace a cell phone or a laptop or a game console.
Cable painted themselves into a corner -- they leveraged their monopoly of the home entertainment dollar by adding more and more channels that people didn't necessarily want under the guise of "choice," then subsidized those unwanted channels by raising the monthly price. That worked until technology caught up and the internet became a viable distributor of content. Consumers are wising up to this, and cable is shedding half a million subscribers a quarter.
I think the best way for Apple (and others) to really put their boots on cable's neck is either to poach content or compete on content. It'll be interesting to see how House of Cards does on Netflix, for instance.
From the user perspective, people need simple access to the following types of content: * real-time (think ESPN, Speed Channel and breaking news) * near real-time content (talk shows, nightly news, first-run TV shows) * archived content (moves on DVDs)
The archived content problem is solved by Netflix. The near-real-time problem is solved by Hulu (some networks, like HBO and Showtime are not there yet but will be once paid subscription becomes relevantly popular). The real-time problem is not solved -- flash-based players on news sites do not count. Apple might be able to to the third one, the way the newspapers are now published on the iPod.
In my view the opportunity is to bring all 3 types of content into one box, under one UI and wrap it into the nice user experience. Add IP-only delivery and a-la-carte subscription (e.g. I want monthly pass to 3 shows from Showtime and one show from HBO, but not the whole network), and users will ditch their $150/month settop boxes in droves.
1. Consumers don't upgrade their TV as often as they do their laptops, cell phones, and other gadgets.
2. Apple can't make an all-in-one TV. HDTV's need to interact with receivers, equipment supplied by the cable operators, blu-ray players, game consoles, etc. Apple usually prefers to keep such interactions to a minimum.
3. TV's require service at the customer's home, which Apple isn't currently geared for.
He also offers some points I disagree with.
1. Apple serves the high-end market in order to have high margins. How big is the high-end TV market?
I think the same could've been said about the smartphone market prior to the iPhone. As Apple showed, high-end does not equate high prices. Get the price right on a quality product and you can capture a significant share of the market. Better yet, disrupt the market by re-imagining the product (think capacitive touch screens).
2. Retail TV stores need a large display area, which isn't a good fit with Apple's existing stores.
No need for a large display area if you're selling just one model.
I'd need a pretty compelling reason to buy a new TV even every five years.
Consumer behavior isn't set in stone.
Source: http://www.in-stat.com/press.asp?ID=1366&sku=IN0502148ID
Quite a few, I'd imagine.
Let's look at apple tv compared to a traditional cable box: Netflix is pretty good but doesn't have the same level of "appointment" or "water cooler" shows as cable. Cable is far superior with live sports, apple tv just has MLB streaming with probably the NBA and NHL soon to follow.
Already for some audiences that might be enough to kill the cable bill entirely or (more likely) to reduce the package they have. Throw in the fact that it can also play the stuff that's on the your iPhone or iPod, has built in pay per view mechanism, and a prettier interface and I think you might have some freaked out cable/ satellite providers.
Apple TV is definitely not as good as cable but it's getting close to being good enough.
We've used the AppleTV rentals several times in the past few months where we might have instead watched Cable on-demand.
What if they are able to have cheaper subscription rates for shows (entire season, maybe?), entire NFL season etc. I chose what I watch and when I watch and the experience can hardly get any better.
Of course I am not saying that iTunes is at its peak of innovation, but just saying that perhaps Apple is not bringing innovation to TV but bringing TV to a host of innovative devices.
For me every bit of TV watching happens online and I would like to believe that that is the trend the industry is witnessing. What else defines YouTube buying rights for streaming live IPL matches for India, a country where TV sets definitely outshine the web streamers.
Instead, he concludes that Apple might make a disruptive television. It's interesting - displays are already vital to their other products so it's not a big stretch.
2) integrating into other TVs, or 3) Apple creating its own TV
How many devices have you seen in the last decade which include an Apple logo AND another manufacturer's logo? I can think of one: the Apple/Nike+ http://www.apple.com/ipod/nike/ . The Apple logo and the Nike swoosh are cited as two of the most recognized logos in the world. I suspect that's about the only caliber of partnered branding Jobs would allow on an Apple product at this point.
Edit: Another point I just thought of and wanted to add: Neither Nike+ nor the HP iPod are or were ever mission critical for Apple. Nike+ is nice to have but if it disappeared from the face of the Earth tomorrow Apple wouldn't really be any worse off. Co-branding is apperantly something Apple does when the products have already become stupendously succesful. (Nike+ was added to iPods at their peak.)
You can see pieces of it in place already.
- content: The recent apps from TimeWarner and Comcast. iTunes is obviously another source. Games are another source of content.
- AirPlay: Extending AirPlay to support video out doesn't seem to farfetched. This would only really be needed for non-video applications (ie: games).
- Integration with TVs: Presently, you need an adaptor (the AppleTV), but it would not be farfetched to see the AirPlay functionality built into the TVs (like the Samsung TVs with wifi and apps already). There is precedence for this on the music streaming side with AirPlay.
> The problem with innovation in the TV industry is the go-to-market strategy. The TV industry has a subsidized model that gives everyone a set top box for free.
Competing with free is hard, and replacing existing top-box means replacing free operator-provided set-top boxes.
Replacing top-box is what AppleTV does, and Jobs very much says it won't achieve mass-acceptance ever, hence his conclusion that:
> I’m sure smarter people than us will figure this out, but that’s why we say Apple TV is a hobby.
That said, I don't really see problems with giving away the AppleTV for free with a one or two-year subscription; the iPhone is already available for free on contract in a lot of countries, and the AppleTV is a lot cheaper to produce.
I've got Freeview for live digital TV, the AppleTV could then take care of all non-live watching.
However, having a set top box in your home theater stack at home is not as usefully trendy as carrying an iPhone. It's also more setup hassle and has to work with other devices made by other manufacturers, something at which Apple has never been good (wanting to control the whole ecosystem).
John "Claim Chowder" Gruber, could learn a thing or two from Mr Dixon.