TV Will Be Apple's Undoing
online.wsj.com
online.wsj.com
Since Jenkins wrote that, Adobe (ADBE) has conceded that mobile Flash doesn’t work and Apple has sold more than 100 million of those junky iPads."
> Video-content owners aren't looking for a savior and ultimately won't be satisfied with anything less than an open ecosystem accessible by any device.
Big content doesn't give a fuck about open ecosystems. They care about cash money and to a lesser extent they care about control. What they don't want is a Netflix decimating and dominating the market. They may be wary of Apple because of their dominance in iTunes, but if they can grow the market (which their app store model seems like it has a shot) then big content is happy to play ball with them.
Apple wants to sell expensive devices with a big markup which by definition not everybody will be able to afford (TV is popular with low income demographics).
Big content doesn't care about "open" in the free software sense but they want to be able to sell content to everyone which is why they still sell DVDs.
Since TV is an almost completely passive experience the only way for apple to get ahead would be either turn it into a more "active" experience or get exclusive content which would not be in the content industry's interest.
The cable companies (a) despise their customers, (b) hate to innovate, and (c) their /short term vision/ is on the order of five years.
Cable Labs? A firewall against companies that think they can intrude on the space. Want to do something new and whizzy? No problem, just pass some compliance tests . . . which takes months or years.
Also: TV is harder than you think. Think "legacy network with some interesting regulation thrown in" (e.g., handling emergency broadcast signals, batshit insane limits on use of bandwidth) and that's for starters. Comcast's back ends are running horrible software stacks, and interoperability with that stuff is really hard; you get to build your own back-end for testing, probably millions of dollars . . . and then you get to integrate with Time Warner's stuff, which is all different, and Rogers, and so on.
TV is all about smiling people circling each other with knives. It's full of entrenched players who are happy to screw anyone, including big companies who think they can do end-runs around carefully erected defenses. TV is war.
Well fuck that. Just do it all over the internet. The ideal system would be one where you don't purchase channel subscriptions, but individual shows. Then you can watch the shows you've purchased as many times as you want, on any devices you own. Of course, you will get "live" broadcasts in the form of being able to play it live when it normally airs for the first time on TV.
This is exactly what Apple's vision is, and I hope they find a way to make it happen, but I'm not very optimistic.
- You have to get content. Those people want to be paid. You are in competition for this.
- The cable companies control your air supply -- the bandwidth to your customers -- and unless you make them happy, your customers are screwed if they watch your stuff. Bandwidth caps on the order of 25GB / month are just crazy small for any amount of TV watching.
Apple could probably afford to buy Comcast (and Warner). That would suddenly be interesting.
That's why I said I'm not optimistic. I have the confidence that Apple can do an excellent job of creating a solid and intuitive UI and service. I have very little confidence that they will be able to make the sort of content deals necessary to make it have practical value.
I don't think the bandwidth caps are a big issue, because 720p video is probably 1 GB/hour. You would have to watch 8 hours/day to hit a 250 GB limit.
From my experience the MSO's put the priority on control and know that with the control they will make money. They would probably feel at least as threatened by Apple as Netflix.
The content producers care about cash money but with the best content the best money is to be made from exclusive regional deals. This is a bidding war the MSO's are in position to win (and still make a profit) and new entrants don't have the scale to make a profit if they bid enough to win. Apple could win the bidding but until they get the scale it won't pay them back.
The interesting thing about Apple is they are the first ones with a credible shot to outbid MSOs. Not that it will be easy, but no one parts customers from their cash like Apple.
Content creators are looking for rents (recurrent economic gain) on intellectual property. In their eyes, they've manufactured a property, and now they're looking to make a return by way of charging people (not always customers directly, but somebody) to use it. At its simplest, this is no different from how a real estate developer builds a property, then seeks ROI by leasing the office space or apartment buildings.
Putting aside the age-old debate about whether IP is actually something tangible, or whether the system is worthwhile, we can certainly agree that studios and networks are clinging violently to their current ways of earning those economic rents on IP.
What would it take to get them to overturn the current model? What would it take to get them to see the value in an "open ecosystem"? Well, we'd need to convince TV studios and production companies that there's more money to be made in open distribution than there is in direct distribution to TV networks.
TV networks are relatively safe, cash-rich (sometimes cash-stupid, even) places to "lay off" a property. They're willing, one-stop buyers for the IP the studios have been investing in and developing. Apple, Microsoft, Netflix, Amazon, Google, et al., will need, collectively or individually, to represent a distributed market for content that is at least as economically attractive as the TV networks, if not moreso, before we'll see a lot of movement.
I am fairly confident that that will happen. And relatively soon. I work in the entertainment business, on the creative and production side. I can't tell you how many big names in talent, writing, producing, etc., are f-ing sick of the network system. Or how many big and small production companies are sick of it, and realize how much richer the open ecosystem could be. But nobody's doing anything major about it -- not yet, at any rate -- because the current cash cow (sale to networks) is still the best and easiest in town.
I don't necessarily believe that Apple will, or should, get into the content development game. It's a crapshoot, and it's not suited to Apple's business model. But I do believe that production companies will, increasingly, start selling their content to everyone, and not just the networks.
Conversely, I don't think the networks will change their tune. Not willingly. They will not be the first to change, at any rate. They'll resist, kicking and screaming, because their business models are inherently predicated on maintaining very tight control over distribution of the properties they've acquired. Unfortunately for them, they're stuck holding a piece of the overall content value chain that is increasingly outdated.
What I've already noticed is that there are a lot more players in the sales/pitch stage than there used to be. As little as 5 or 6 years ago, you basically took your show to the only buyers in town: the big 4 networks, and if you struck out there, the basic cable networks. A few incremental changes have taken place. 1) These days, the big 4 networks are seldom the only destination in the primary pitch stage. They're still the preferred destination, but basic cable is pulling numbers as big -- and sometimes bigger -- than networks, and usually offers greater creative control. 2) People are starting to pitch to Netflix and Amazon at the same time as the networks, or even in lieu of them. 3) Big companies are getting into the content buying game, in the so-called "branded entertainment" wave that's hitting Hollywood right now. These companies will typically help finance a show in exchange for product placements or other financial ancillaries.
I believe all of these things are leading indicators of more change and evolution to come. The marketplace is expanding. And the buying power of the big 4 nets has diminished in the face of the new buyers in the marketplace.
If this change accelerates, then the oligopsony on the buy side of the market crumbles, and the path is paved for broader and less channel-exclusive distribution deals.
Of course, B doesn't necessarily follow from A. It's entirely possible that we replace the current oligopsony with a new oligopsony, or even a new quasi-monopsony (i.e., Apple in the music business). But I think the smarter folks in the production game are leery of trading one total master for another, and they won't be as eager to set up a new boss, same as the old boss. Accordingly, terms on the sell side will be written increasingly in favor of the sellers.
> Video-content owners, including...the NFL and Major League Baseball...aren't looking for a savior and ultimately won't be satisfied with anything less than an open ecosystem accessible by any device.
Well, MLB is already on the Apple TV, along with the NHL and the NBA.
> Apple's rejection of Google's superior maps is an obvious example, but it goes with the turf. Apple's spectacular success with devices naturally led to the temptation of a network-effects empire. To such empires, maps are just too important as a way to gather information about users and hit them with ads and e-commerce opportunities.
Does anyone else really believe that Apple switched from Google maps because they want to build a "network-effects empire" in order to show people more ads? Google is in the ad business; Apple is in the selling-you-devices business.
> Let it be said that some techies see evidence of a more rational impulse within Apple. They say Apple's browser and HTML5 support are conspicuously superior to Android's. Within Apple apparently there are teams committed to making sure Apple devices are competitive in the open-ecosystem world that is coming.
This...I don't even know. Steve Jobs himself said (albeit in relation to Flash) "New open standards created in the mobile era, such as HTML5, will win on mobile devices (and PCs too)."
Apple won't come undone because their TV doesn't sell; Apple will come undone when competitors can consistently make markedly better products.
Also, they never "rejected" Google's maps. They simply chose not to distribute it as a default app anymore and now Google has not yet gotten their new Map App ready.
Just one of the many examples where the author clearly twists and distorts reality in the article to fit into a very loose chain of arguments.
They've had so many, it's hard to keep track.
My instinct is that the TV is a stalking horse. Zero doubt that they're working on something, and it looks like a TV, but it has to be something a whole lot more than iTunes+flatscreen+Siri. I know what I'm hoping for...
But if I'm wrong, or if it fails, or both...it will hardly be Apple's undoing. Their most profitable product lines are still growing fast, and the others are doing respectably well. They'll need a new product line in the next few years to maintain growth, yes, and there are other threats. I'm not worried about this one.
I really don't like the dichotomous 'X is king'/'X will lose the war' mindset - it's lazy and it leads to sloppy thinking and bad decisions. Yes, content is important, but so is infrastructure, and execution, and ease of use, and so on. In fact if I were to come up with a single reason for Apple's success, it's that they understand this - they do the hardware, AND the software, AND the online ecosystem. Apple doesn't do hardware or software per se - they do SYSTEMS.
Nobody has got the Internet/TV meld right yet. Seen a Google TV recently? Certainly it will be tough for Apple to get it right, but dismissing them like this is just nonsense.
Umm, xbox?
Firstly it is not a standard in any meaningful sense but a platform that happens to be owned by the main free channels and the telcos. It's actually a bit like Android except Youview can push updates without even the manufacturers approval!
The rest of Europe has adopted HBBTV as a standard already and much of the world is adopting similar HTML based solutions if not HBBTV itself.
As it currently stands a hard disk is required and that is unlikely to be bundled into many TVs in the near future. Spinning rust is too bulky, it adds cost. Flash is too expensive still for the Youview minimum of 250MB (or is it even more than that).
For the major TV manufacturers the loss of control of the TV UI is a major issue and they are unlikely to do that unless they really have to. For the UK alone it is very unlikely. I'm surprised that some have gone the GoogleTV route to be honest but I think they were imagining it would take off like Android has. Also going the Youview route removes their potential revenues from operating their on online platforms.
So for the above reasons Youview as it currently stands will not make any impact outside the UK (and it won't actually make much inside either) and won't make a major part of any TV manufacturers line up.
"A similar miscalculation led Microsoft to treat Netscape as a mortal threat and into a self-defeating tussle with a reciprocally purblind Justice Department. The Web did indeed create enormous opportunities that were seized by companies other than Microsoft, but Microsoft is still around and doing fine."
That is some serious revisionist history going on there. The author seems to forget that Netscape was a huge threat to Microsoft. Microsoft then shifted their strategy to focus on the web in, what I would argue, is one of the more impressive pivots by a large company. That pivot led to Internet Explorer crushing Netscape and becoming the number 1 browser. It also led to a radical reinvention of the Microsoft developer toolset to focus on the web - ASP, ASP.NET, etc. These technologies may now be passe, but they were pretty cutting edge at the time. And even though Microsoft has now, in my opinion, fallen really far behind in the world (missing most of mobile, etc), you can't say that it was a miscalculation to go after Netscape - think of where they'd be if they'd not gone after them.
Shame they fell so far behind, though.
You are quite correct it was a hugely impressive pivot for Microsoft, even though they claimed there was no such pivot since the web was part of the plan. Funny that Win95 didn't initially ship with a browser nor did it install TCP/IP by default but they tried to convince people that it was a "web OS" from the beginning. Then they did their typical thing for the time; create a browser that they eventually released for free, then make it required for Windows, start duplicating other Netscape products to undercut them, and then claim it was their intention from the beginning the whole time. Netscape's demise was just a natural outcome of their superior planning and execution. The Dept of Justice eventually disagreed with them but Netscape was already dead in the water by then.
Now, considering that the result of all this was the era of IE6 that we are just now starting to get out of over 10 years later, I would say that the Internet would have been better off without their pivot. Granted the tools you mentioned are nice but there's no reason to think that Netscape, or someone else, wouldn't have done similar things and possibly better since they most likely wouldn't have tied them to a specific OS. These days hardly anyone makes web tools tied to one OS, mostly Microsoft does that.
As for Microsoft, where would they be today if they hadn't crushed Netscape? I would say that, because of the competition, they would have made better products and be stronger overall. Once they crushed Netscape they stagnated a great deal that eventually caused them to fall behind, as you point out. Their complacency allowed others to step in to become serious competitors that finally resulted in the web tools you mentioned.
I would even say that because of them crushing Netscape with tactics, used elsewhere as well, that resulted in huge problems with governments around the world caused them to be reluctant to be aggressive; which resulted in them missing the mobile window. They are just now seriously trying to get into that game.
Of course, most of this is based on hindsight, which is easy to comment on.
TV won't be Apple's undoing but it also isn't obvious that they can win big there.
It is a complicated business with a number of interlocking players at different levels and vested business interests. It is also a global business with rights packaged up at a very national level and sold with exclusive deals.
While the biggest MSO's in each country (cable, satellite and terrestrial operators depending on the market) have the scale to lock in key content/channels to exclusive deals it will be fairly hard to break into the market in a devastating way. At the moment they have the scale and the revenues to do exclusive deals with the content creators (that they don't already own) to keep a large proportion of their customers from leaving. They (not the content creators/owners) are the big bullies in the market and would be hard and expensive to topple.
An AppleTV (including screen) if it does happen will need to be a good enough content offer for most people or it will not be a massive success. If they still have to use their cable box it can't be a game changing user interface because you are looking at the STB interface most of the time.
It's not impossible for Apple but it also won't be easy, particularly to go global. It will cost money to get content which might break Apple's principles and set a bad precedents for them. They also can't go that expensive because while I'm sure the UI will be better Samsung/Sony and some of the others really aren't that bad and the cosmetic designs don't leave that much room for minimalist improvement.
The business case for Apple is far from clear for me at this point but it would be a way to take the war to Samsung that would cost Samsung far more than a billion dollars even for an Apple relative flop. The collateral damage might kill Sharp unless they supplied the panels and would be another knife in Sony/Panasonic/Toshiba that they could do without.
Funny, the said the exact same thing about mobile...
Carriers were essentially indistinguishable from a customer viewpoint. There was no significantly different content depending on which carrier you used or at least nothing that you would care about if you had an iPhone. This does not apply between broadcast platforms. The exclusive deals any carriers had for content were small scale apps or information services not multi-billion deals for packages of content for particular countries.
Apple played divide and rule between the carriers brilliantly working with a single operator in each country. In some countries that might work for TV where there are well balanced alternative platforms but in others it won't work because there is a dominant player who won't give up control and the challengers are too weak to help Apple much.
In TV there are the content originators (movie studios, sports leagues, independent production companies), one level of aggregators that commission and purchase from the originators and bundle it into channels and another level of aggregation by the service/delivery/billing platforms (MSOs). And then it is sold to the customer. These divisions are not clear and ownerships ofter cross levels.
In mobile it was fairly simple with carriers being the clear centre of the business, buying and subsidising phones and running the infrastructure. There were a couple of platforms running across different phones such as BREW and JavaME but they were more feature tickboxes than major market players.
This doesn't mean it was easy for Apple but the fact they had at the time a truly revolutionary product and reality distorting leader AND there was level competition between the carriers meant that they could pull off an amazing industry changing deal. They had to pull off this deal once in each country not with dozens of different rights holding players (they don't need them all but one deal per country would only be enough with the dominant MSO and probably wouldn't be on good terms as the MSO would know that there is a risk that Apple would want to cut them out when they were big enough).
I also didn't say that it was impossible for Apple to break into the TV market in a massive way but I certainly don't think it is easy or that there is a clear route to massive success. I certainly don't believe it is possible at their current margin levels for either hardware or content but it will be interesting to watch.
I used to do what was really a Business Development and Product Planning role for Sony's European TV Business so I have met with many cable, and a few terrestrial and satellite operators in Europe to persuade them to make their content available over their networks to consumers TVs with CI+ (think European CableCard but not quite such a broken model). Later I worked with many channel operators to bring them onto Sony's Internet TV platform so I do have some understanding of the TV business.
Funny, they said the exact same thing about mobile...
> Video-content owners aren't looking for a savior and ultimately won't be satisfied with anything less than an open ecosystem accessible by any device.
If they wanted an open ecosystem, they could have had it years ago. It's called the web. You might have heard of it.
Did the networks see Youtube and say, "oh, we could have people pay to log in to a web site and watch TV! It would work on any web-capable device anywhere in the world! Hooray!"
Heck no, they didn't. They don't want an open ecosystem, they want one that they control. Rather than build one that satisfies consumers, they've tried to destroy or control anyone else who builds one.
This is not about openness; it's about control.
> Television is about to demonstrate the inadequacy of Apple's own business model.
Doesn't that sound a bit gloating?
> How TV content owners in the future will get paid is but the flip side of the question of how pipe providers will get paid.
This doesn't even make sense. We already know how "pipe providers" get paid: ISPs get paid by customers and peering agreements, and content providers get paid by viewers and listeners. The end.
What's holding up the future is not Apple or Netflix or Google; it's content providers who want to keep getting paid for channels nobody watches, distributed and restricted under complex international agreements, when they could just offer on-demand content, for money, over IP, to anyone in the world.
> Expect the TV and broadband businesses both to reorganize themselves almost overnight.
You mean like, "hey, your cable TV is now an internet connection, so just click the programs you want to see. The bandwidth we used to spend sending 100 channels while you only watched one is enough to send the 1 show you actually want in higher resolution. Enjoy!"
I guess they'll do that overnight as soon as the internet gets invented.
Apple sells content for it's devices, Amazon sells devices for it's content. In the content marketplace Apple has significantly less invested than Amazon, so really the article would be better suited there. And it'd still be a terrible article.
Apple might do pretty well by just bringing to market an easy to navigate device which would enable people to easily buy content from the networks (or whoever owns the content). Just like we do on iPad.
The same strategy won't work with TV because they saw the piracy danger coming and made serious efforts to squash it and continue to do so before it threatens their business model. They're sitting on a much strong position and are unlikely to offer Apple favorable terms for distribution.
The way I see it, the only way to disrupt TV now is to build an alternate production model in addition to utilizing new consumption models. I'm hoping Netflix will see success with its original content and pave the way for other companies, like Apple, to follow suit.
Not even remotely true for anyone who's used ICS. And it's not "Apple's browser" it's the rendering engine from the KDE(GNU) world which Apple improved, and Google improved just as much. Safari is so overrated it's not even slightly funny. Chrome, Firefox and Opera are light-years ahead of Safari.
Huh?