This Apple Falls Far From The Tree

Originally published at tdgresearch.com on March 19, 2015.

The Wall Street Journal recently pronounced that Apple would finally launch its long-rumored subscription TV service. While expected to be similar to Dish’s new Sling TV service, Apple’s slimmed-down bundle will (allegedly) include three of the big-four broadcast networks (NBC being the exception) and cost a bit more than Sling TV (WSJ posited a price of around $30 per month).

Like mushrooms after a rainstorm, mainstream exposés popped up everywhere, most of which (yet again) proclaimed the impending death of traditional pay-TV.

Will Apple’s alleged subscription OTT TV service be capable of competing head-to-head with legacy pay-TV offerings, or is this just one more in the growing list of mini-services likely to get stuck in a niche?

Let’s be real: Apple’s new OTT TV service is but the latest incarnation of the ‘skinny’ bundle. Though Apple is allegedly working to obtain VOD rights to most of the programming to be featured in the live service, the Journalimplied this would be difficult to do, especially in the short term. “It may be hard for Apple to get rights to all the programming it is asking for, including full seasons of shows. Many media companies have deals to license such content to outlets like Netflix and Hulu.”

Without a deep on-demand library, Apple’s new OTT TV service will be very skinny indeed. While this offering may be compelling to single twenty-somethings apprehensive about ponying up for traditional cable or satellite TV service, it is unlikely to convince a family of four to give up their current pay-TV service. There are several reasons why this is the case.

1. Convenience?—?Cobbling together a ‘virtual bundle’ to create a service comparable to legacy pay-TV offerings will be a major hassle. As currently conceived, Apple’s OTT TV service by itself will fall far short of filling the needs of most households, forcing many to add HBO Now, Netflix, Amazon Prime, Hulu Plus, or maybe even Nickelodeon’s Noggin to the mix. This requires a viewer to move back and forth from one app to another, with no overriding program guide or discovery tool to unite the services. That’s just too much work for most consumers, especially given the limited cost savings they’ll receive for making the switch.
2. Cost?—?As noted above, these plans may make sense for consumers who live alone and don’t watch a lot of TV, but not for consumers that do not live alone, especially families defined by diverse viewing habits. The costs of building a virtual bundle that meets the needs of these consumers would add up very quickly, and any cost savings realized could easily be offset by a steep reduction in convenience and a decidedly diminished user experience.
3. MVPDs Own The Internet (or at least the last mile)?—?In most US cities, MVPDs have a monopoly (or at best a duopoly) over residential broadband connections capable of supporting a live OTT TV service. That means they have all sorts of levers to pull in order to keep their customers from ‘cutting the cord.’ MVPDs can lower prices, throw in a year’s worth of free HBO, even introduce their own low(er)-priced skinny bundles. If they want to go another direction, MVPDs can raise prices for broadband-only service, make pay-TV a low-cost add-on when bundled with their highest-speed broadband service, or even implement bandwidth caps. This power and flexibility should not be underestimated, and will no doubt help MVPDs remain the dominant force in home television services for years to come.
4. No VOD, No DVR?—?MVPD VOD may not offer the most consumer-friendly interface, but at least it exists and is finally becoming more robust. And if you don’t like VOD, the MVPDs can rent you a DVR, meaning you can record and view programming on your schedule. Apple’s new TV service (allegedly) offers neither. If this remains the case, that’s two more reasons for consumers to stay with their current operator.

All that said, it would be a serious mistake to dismiss Apple’s TV service before any actual details come to the surface (or before Apple confirms that the service is in fact real). I hope the official announcement contains a great many surprises, as the product outlined in The Wall Street Journal seems pretty lackluster (and doesn’t yet feature NBC, a significant shortcoming that must be addressed).

What’s interesting about the NBC situation is that Comcast was allegedly engaged in negotiations with Apple to build out their X1 interface but things went south. Given Apple’s expertise in interface design, and Comcast’s desire to make the X1 interface the “one to rule them all,” their collaboration would likely have produced a truly original (and necessary) innovation.

More details about Apple’s TV service are sure to emerge over the next few months, so count on TDG to keep you in front of the curve.