Apple TV, HBO Now, and the Potential for Something More

Though most of the focus this week has been on Apple’s Watch announcement and, to a lesser extent, the new MacBook and ResearchKit, I wanted to take some time to talk through the other announcement from Monday’s event — Apple’s deal with HBO to be the exclusive partner for HBO Now for the first three months.

Two possible solutions to solving the app fragmentation problem

A few months back, I wrote a piece about what I thought Apple could do to finally take the Apple TV device beyond a hobby. In a nutshell, I proposed Apple would need to create a fully-fledged TV service of its own to really turn the device into something more compelling. But I also talked about other interim steps Apple could potentially take to overcome a major problem that’s emerging in online TV services: fragmentation. As I put it in that piece:

Apple TV does now carry lots of apps which allow you to watch a variety of content without switching inputs on your TV, but that’s only a partial solution. You’re still having to hop between apps, with no universal search to allow you to locate shows across them (unlike Roku). But there are other hassles too – people still have to maintain multiple subscriptions and authenticate themselves to the various apps they want to use.

I still think the best solution to all this would be Apple creating and launching a service of its own, because that’s the only way Apple will be able to exert the kind of end-to-end control necessary to create a truly Apple experience. However, either as a stopgap or even as a more realistic alternative, the other possibility has always been that Apple could simply bring together the disparate elements of the current app-based approach in a more integrated fashion, and I think the implementation of HBO Now is an indicator this might be possible.

One app doesn’t make much difference, but could be the beginning

To be clear, HBO Now is for the time being yet another app on the Apple TV. As such, it adds to rather than subtracts from the fragmentation problem. But in other ways, the HBO Now implementation is different from how other apps have been implemented in the past and in a way that gets at some of my criticisms of how the Apple TV has worked until now. The key element is that Apple will bill for and manage the user relationship of HBO Now rather than that relationship being managed by HBO itself separately and then authenticated on Apple TV. That may seem like a subtle change and it is when we’re only talking about a single service. But where this starts to get really interesting is where Apple becomes the key customer interface for several of these services. In that way, even though the customer subscribes to multiple different services, Apple becomes an aggregator of sorts, such that customers only pay one bill, have one user account, and use a single user interface to interact with all this content.

Beyond that, Apple could then add universal search similar to what Roku offers today on its boxes, allowing users to search content within those several services rather than having to dip in and out of each of them. It could layer on recommendations and personalization which would work across these different services too, so that you could have a single hub on the Apple TV to go to in order to figure out what to watch – a key issue with the current fragmented approach.

From version 1 to version 2 of TV services on Apple TV

In some ways, the current model for most apps could be considered version 1 of TV content on the Apple TV, with each app its own silo, mostly as an instantiation on the Apple TV of a service subscribed to elsewhere, with no integration between them, different billing relationships (and TV Everywhere authentication requirements) for each, and so on. Version 2 could be beginning with HBO Now and could begin to unify a set of services built with Apple devices and this sort of integration specifically in mind. To me, this would overcome many of the risks of the current fragmentation problem in online TV.

Significant benefits to this model

The other major benefit to Apple from doing this is it would be able to steer clear of the thorny issue of advertising, which is such a key component of the business model for live, linear TV today, and which I’ve written about previously here and here. With more of an aggregation relationship than a service creation relationship with content owners, Apple could forgo this role entirely, leaving it to the individual content providers to manage however they wish. It would also leave the pricing of individual elements as a decision between content providers and their end customers, which would enable Apple to stay out of the messy affiliate fees disputes which occasionally disrupt service on pay TV platforms.

Some downsides too

The downside to all this? Apple wouldn’t enjoy the same degree of control over the whole thing as if it controlled and owned it end-to-end. Individual content providers would want to implement their own offerings differently and that would cause some inconsistencies and some degree of fragmentation (though arguably less than at present). Of course, many of them would also extend the same services to other platforms beyond Apple’s, just as HBO will do three months from now. But Apple’s advantage would be its ability to pull these things together and provide the integration layer across all of this.

The next few months could see more partners

I have no inside information that Apple is planning this and it may well not come about. But in the context of such a move, discounting the Apple TV by $30 makes sense – seeding the biggest possible base for future services delivered to the Apple TV, which will then become the major revenue generator for Apple, rather than the device itself. And it would also make sense of several Apple executives’ remarks on Monday that HBO Now is the beginning of something bigger. The big question now is: who’s next? Sling TV could easily become another similar partner – Apple TV was conspicuously absent as a launch partner for that service, but perhaps because Apple has something deeper than just another version 1 app in mind. CBS would be another, with Netflix, Hulu, and other potential future partners if they choose to play ball. Over the next few months, we should see whether HBO Now is a one-off, or the start of something bigger.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

13 thoughts on “Apple TV, HBO Now, and the Potential for Something More”

  1. It does appear that the traditional model of TV service is starting to see some real competition from online TV. But for most people Internet service comes from their cable company, so “cutting the cord” only means telling your cable company you no longer want TV service. If enough consumers do that, they may find the price of Internet service going up.

    1. Likely true. But, the underlying reason is that the Telcos have under-invested in their networks since the 90s and still offer a poor alternative to cable broadband service….which would keep prices more in line. Google is truly an alternative, but like FIOS, only an option in a few locations.

      1. Between FiOS and AT&T’s U-verse, there’s competition for cable in quite a few places. But it’s only a duopoly in most cases, with neither having a really strong incentive to discount heavily.

        1. Jan, I think it would be illuminating if you could share stats for Comcast, Verizon, and U-Verse in terms of what % of their customers can truly get broadband (25 Mbps and higher as per the FCC) downstream-speeds. U-verse in particular advertises speeds that are distance limited and only available to those close to their COs. At least Verizon had a good technical, though less desirable financial solution.

          1. Yeah, unfortunately the companies don’t share those numbers, and I actually think 25Mbit/s is still a little high as the bar. Vast majority of what most people use BB for is 5Mbit/s or less, so even with multiple simultaneous streams you’re talking 10-15Mbit/s. But over time 25 will become more meaningful. FiOS potential households (pretty much all of which will get that 25+ speed) is around 18m, IIRC. U-verse is tougher, but one stat I have is that 45+ is available to 2/3 of their base, and they’re moving to roll out 75 next. But their LTE-based stuff for extending coverage for broadband will deliver 15-20Mbit/s tops, at least for now.

    2. Certainly the cable companies would (and are) constantly raising prices to the degree the market will accept, whether or not people drop TV service. It’s hard to say they would be more successful in doing this if they lose TV customers, but of course, they would try. Unlike utilities, though, who have to raise prices when demand drops because of their cost structures, cable companies’ marginal costs are very low. They could be profitable within a wide range of prices, including prices well below today’s levels.

      The result either way, for now, is that we pay excessive prices for mediocre service to some of the worst companies (customer satisfaction; business practices) out there.

  2. Good thoughts. I could see Beats playing a key role here as well – not only music streaming but also video in the form of genre or even artist channels

  3. Jan,

    HBO Now is a 3 month exclusive w/ Apple. I’m hoping that there’s another 3 month exclusive beginning soon after this one ends with some major content provider (Disney, ESPN?). And perhaps a series of 3 months exclusives over several years. The rolling exclusives would benefit Apple and the exclusive-providers equally in market visibility.

    1. Yes, it certainly helps Apple get some of the best and most valuable customers when the service first launches, and would be equally useful for others. Not sure they’ll replicate this exactly, but provides nice incentives on both sides.

  4. I would like to see cable companies compete with each other through this over the top or IPTV method. It is two expensive to build out competing infrastructure to compete but they can compete by offering programming via the internet through Apps on Apple TV and Roku.
    Imagine if Cox, TWC, Comcast, Verizon, ATT, Charter, Google each had an App with various levels of program content. Microsoft and Amazon could could create their own respective services and Apple would create the AppleTV specific programming. For me this is the really benefit of net neutrality because it would prohibit cable companies from slowing down these types of services because it directly competes with them. Much easier to slow everyone else to an unusable picture quality, than to compete with them.

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