In the weeks leading up to every Apple media event there seems to be one product that the rumor mill focuses all of its speculative attention on. This time around that surely was the Apple TV. The rumors ranged from price, the operating system and app store availability all the way to some serious speculation about the possibilities of a multi-touch controller to accompany this game changing reiteration of the Apple TV.
Of course the hype always comes to a sudden halt when Steve Jobs actually unveiles the device. This time I’d argue that the hype already ended the moment Jobs transformed his famous “One more thing…” slide into a much more humble “One more hobby…” headline. Expectations were about to be crushed. And Jobs knew it.
Don’t get me wrong. The new Apple TV is a nice little refresh. But it’s not a game changer. Why isn’t it a game changer though? Is it the price? That remote? The lack of 1080p? Or is it something else entirely? Let’s have a look why there seems to be to such a dramatic drift between expectation and reality of the new Apple TV.
The Price of Apple TV
Let’s start on a good note. The new Apple TV costs $99. Let me state that one more time: $99! That’s $150 cheaper than the previous model and by far the best feature of the device. At $99 it almost doesn’t matter if a gadget’s a game changer or not. It’s such a tempting impulse buy that you may just pick one up next time you visit the Apple Store for a pair of fresh headsets. It’ll also make for a great gift this holiday season. Hence, I believe that pricing was the most important feature that Apple wanted to address with the new Apple TV: a sleek set-up box for less than a 100 bucks. I’ll come back to this point in a moment, but for now let’s just keep in mind that $99 is DIRT CHEAP!
Apple TV’s Ugly Step-Child: The Remote
Okay. Let’s not beat around the bush on this one. It’s easily the most disappointing feature of the day, with all the hype about the crazy, innovative Apple Remotes yet to come. It almost feels as if your parents promised your three year old self Disneyland and then end up taking you to Knott’s Berry Farm to meet … Snoopy. Yeah, I know, right? Believe me, I’ve been there!
I think most of us can agree, that the remote isn’t just disappointing in a bland sort of way, but that it also seems a bit under-featured and ugly at the same time. Once again we must navigate our Apple TV’s with 4 arrows and two measly buttons. And this isn’t even Bluetooth we’re talking about here. This is infrared. From 1978!!! NEXT! (To be fair, Apple does allow control via their iPhone remote App.)
1080p vs. 720p: The Reality
I have a feeling that I’m about to open a can of worms. For some reason the 720p vs. 1080p debate can get quite emotional, so please don’t hate me when I say that I completely understand why Apple only supports 720p video on the new Apple TV. According to Apple 720p allows them to strike a balance between quality and bandwidth. I tend to agree with them. Of course 1080p is better than 720p — especially on 50″ TV or larger — but the harsh reality is that most US households can barely cope with the delivery of 720p content as it is.
Sure, Apple could’ve easily compressed the hell out of 1080p in order to squeeze the additional pixels into smaller data rates, but honestly, if I wanted that I could have subscribed to cable or satellite TV years ago. I much prefer Apple’s choice. 720p content can look great if compressed right and most consumers wouldn’t be able to tell the difference. At least Apple is honest about what they’ll provide us with, instead of promising enormous pixels without telling us about the crappy compression.
Bottom line: I don’t believe 720p to be a deal-breaker here.
Applications for Apple TV
What about those Apps though? Remember how Engadget promised Apps for Apple TV? Even though the device seems to be building on iOS as a platform according to Daring Fireball’s John Gruber, the App store idea clearly didn’t come through.
The device is running iOS, though, trust me. So it’s possible that some sort of SDK is coming in the future. But I’m not going to hold my breath. Judging from the demo today, I think the fact that it’s running iOS under the hood is just an implementation detail.
And while we could argue for hours if Apps on a TV even make sense, I think that they absolutely would. I simply can’t help but wonder about all the missed opportunities. How about a quick game of ‘F.A.S.T Flight Control’ on the big screen, or one of the many racing simulations out there for example? Sure sounds fun, doesn’t it? Of course this brings us right back to the remote control dilemma. Can’t do much with that sad stick of a remote, really. I still believe that we’ll get apps for the Apple TV eventually. Apple simply may not have figured out the bet way to control them yet.
What about apps for ‘Hulu’, ‘Pandora’, ‘AirVideo’, ‘MLB.com At Bat’ and the like, though? After all, Netflix made it on the box. Why won’t they allow other third party media apps on the device? I think, the answer can be summarized in two words: Business Strategy! I’ll explain below.
Dude, Where Is My Content?
I believe Apple missed the opportunity to introduce a game-changing device when they announced the initial availability of just two TV networks with rental prices of $0.99 per episode. Only offering content from ABC (in which Steve Jobs is a shareholder through the Disney Company) and FOX is a bit underwhelming to say the least. And rentals at $0.99 an episode — while cheaper than a $1.99 purchase — still isn’t cheap enough if you think of it in terms of an entire season, which generally runs 22 episodes long on networks and 10-13 on cable.
This may not be fair, but most audiences are used to a free TV experience either through ad supported services or bit torrent. It’s a reality. And at least you get the feeling of unlimited access when you pony up that cable bill at the beginning of every month. Content on the Apple TV is neither free nor unlimited. It’s simply not tempting enough to be a game changer. But why isn’t it?
Before I tie all my loose ends back together, let me quickly explain the relationship between TV Networks, Cable providers, and how Apple doesn’t fit into this mess:
TV Networks and Studios generally produce the content we watch. They then either broadcast it on their own channels or sell it to other TV stations (i.e. Fox produces Modern Family, but they sell it to air on ABC). Cable and Satellite providers then pipe the content to your home for which they can charge you anywhere from $40 – $250 depending on the package you chose.
What some people don’t realize it that the cable providers actually have to pay the TV networks for the rights to their content. We’re not talking peanuts here, either. According to industry analyst SNL Kagan (via All Things D) ‘ESPN HD’, for example, charges cable providers $4.08 per subscriber, per month for including the channel in their line-up. ‘Fox Sports Net’ costs them $2.37. Most of the other networks can range anywhere from $0.01 to $0.99 with an average of $0.20 per channel, per subscriber, per month. Take a look at the chart below if you’re interested in the detailed breakdown.
These fees, of course, are a nice source of income for the TV networks on top of the revenue they already earn through advertising. Hence, the networks are terrified to unsettle this holy equilibrium for mainly two reasons:
1) They are afraid to lose the cable providers with their big wallets if they offer better content deals to Apple.
2) What if audiences can freely choose among TV shows and networks, and their network or shows aren’t among the chosen few?
So here is where it all ties back together: TV networks can’t afford to lose the cable companies’ subscription money. At least, not while the alternative is an Apple TV with an undisclosed (read: extremely low) installation base compared to the millions and millions of cable boxes out there. This is Apple’s problem. Steve Jobs can’t convince the networks to give you a great deal, because the networks don’t have a strong enough economic alternative to the cable providers.
But what if Steve could offer the networks an installation base that nearly matches the installation base of all the cable boxes out there? Would that give Apple the negotiating power they need to close some great content deals? I believe that’s what Apple is playing for. That’s what they’re after!
Remember my “cheap is Apple TV’s best feature” argument from the beginning of this article? And the strategic reason for which Apple wants to keep Hulu & Co off their playground? I think this is why! Apple wants to move as many units as humanly possible without strengthening one of their other players along the way. They want that strong foothold they currently have with the music industry so that they can muscle their way into the TV industry in much the same way.
Once they reach that sweet spot of Apple TV market share, Jobs may be able to convince the content providers to offer much better choices to his customers, us! Imagine a channel subscription model, for example, that includes every TV show from the networks YOU choose. Or a show subscription model that lets you pick the shows you want to watch — including their back catalogues — for as long as you’re subscribing, no matter what network they’re on.
Apple wants to offer those deals. It would allow them to sell more advanced units, at higher prices, with greater profit margins.
But before any of this can happen, Apple needs to deploy a large enough installation base of Apple TV’s. Will the customers bite without the content deals in place first? It’s a catch-22 for Apple. Chicken or egg. Who will come first?
Apple hopes that at $99 you will! So, forget about the remote, forget about 1080p, forget about all of those amazing Apps. It’s that 21st century content subscription strategy, that could turn the Apple TV into an industry wide game changer. You know it, Apple knows it, the TV networks know it, and unfortunately the cable providers know it as well.
Let’s sit back and see how it plays out.