The Last Piece of Apple’s TV Puzzle: Local and Sports

Apple CEO Tim Cook said on this week’s earnings call:

I think we’re on the early stages of just major, major changes in media that are going to be really great for consumers, and I think Apple could be a part of that.

Two weeks ago, I wrote about Apple’s potential to change the subscription music market. But, given these remarks were made in the context of HBO Now, I suspect what Tim Cook was really referring to was the expansion of HBO Now and Apple’s potential to do a TV service. I’ve written several pieces about this already on Tech.pinions. For a quick recap, see:

The last piece about this, for now, is regarding local TV and sports content. This is easily the hardest part of Apple’s TV service and has a few implications for what Apple might build.

Local broadcasting market structure

The big challenge here is, whereas cable networks are single entities and for the most part owned by single companies, the value chain and market structure in local broadcasting is more complex. Although the major national networks do own some local broadcasting stations themselves, many others are owned by independent companies such as Gannett, Graham Holdings, Clear Channel, and Sinclair. The owned-and-operated stations are the simple part of this equation, but the stations held by independent companies are where the complexities come in. The national networks only supply a portion of the programming these stations broadcast each week, with the rest filled in with local content, re-runs, regional sports, and other content that doesn’t come from ABC, NBC, CBS or Fox. This is why CBS, which now runs its own over-the-top TV service in the form of CBS All Access, can’t provide it nationally. As you can see from this page, one of the first things you have to do when you try to sign up for the service is enter your zip code, so CBS can check whether it can provide the service to you (where I live, in Utah, the service isn’t available, because the local station is owned by Sinclair Broadcasting).

I go into all this because it’s critical to understanding the challenges Apple will encounter in launching a Pay TV service along the lines of what people are used to. As part of the classic pay TV bundle, people are accustomed to getting all the live local channels as part of the basic tier. But this is only possible because their local pay TV provider has contracted with the local broadcasters to deliver this service. If Apple were to provide a national rollout for its TV service (and I’d assume it would want to), it would have to sign contracts (directly or indirectly) with all the local broadcasters wherever it wanted to provide service.

There are over 200 CBS affiliates alone around the country, only 16 of which are owned by CBS itself. A number are obviously owned by groups such as Sinclair, but it still means doing lots of individual deals and managing the streams from all these providers across the country. And that’s just for CBS. It could potentially deal with these groups and with CBS as intermediaries, but that only makes the problem slightly more manageable.

Sports rights another wrinkle

Another challenging problem is sports content. It appears Apple has a deal in place (or at least in the works) with Disney, which would likely provide ESPN channels as it already does to Sling TV. However, a great deal of sports content in the US is fragmented across many other channels, including local broadcast channels, other cable networks such as TNT and TBS, and regional sports networks in many individual markets. Traditional NFL TV rights alone are complex, split between the four major national broadcasters, some of their affiliates (in the case of preseason broadcasts), ESPN, and the NFL Network. Baseball, basketball and other sports are even more fragmented because their audiences are more localized. Certain mobile rights for the NFL are owned by Verizon Wireless, which further complicates the picture for any service that is to be available across platforms and devices.

The role of live

Overall, consumption of live, linear content is in steady and rapid decline. Once the totality of traditional TV viewing, it’s now dropped to less than half and is likely to continue to fall. Two factors drive this: the convenience of watching at a time of one’s choosing rather than an arbitrary air time, and the ability to skip advertising. Advertising is the one element of the traditional TV business which hasn’t been officially disrupted despite all the other changes which have been forced on the industry as it has first seen threats such as TiVo, Slingbox, and piracy emerge, and then slowly adapted to provide some of the same value propositions. The TV industry is addicted to advertising, but there are several major alternatives to traditional TV now which eschew advertising, including Netflix, Amazon Instant Video, HBO Now, and of course electronic sell through offerings such as Apple’s own iTunes. Despite all this, the traditional TV industry remains heavily dependent on advertising as a revenue stream, as I demonstrated in this piece. However, these advertising revenue streams are under threat as viewing shifts from live to delayed and on-demand, where there are lower ad loads (or ads are skipped), and where the audience often can’t be accurately measured or monetized. Apple can help with measurement and monetization, but live viewing is the one form of TV where ads can’t really be avoided. This is where we come back to sports – other than a handful of reality TV shows with live voting and news programs that fewer and fewer people watch, sports remains the major form of content people still watch live. Even as everything else moves to DVR, on-demand and online viewing, sports refuses to be time-shifted.

Possible strategies for Apple

Now that we’ve reviewed some of the challenges for local, live and sports programming, let’s look at some possible ways Apple could address all of this:

  1. Exclude live TV. The HBO Now model is interesting because it doesn’t include a live component. Other than the occasional boxing match, HBO’s content isn’t particularly time sensitive, so this doesn’t matter a great deal. On-demand is fine for essentially all its content and it typically makes shows available through the app almost immediately after they begin airing, which is almost the same as live. One possible model for Apple to pursue is to create a bundle of similar services, as I hinted it might in my piece on the HBO Now announcement. Thus, instead of the classic bundle of channels with live TV being primary and on-demand and DVR functionality secondary, on-demand would be the only method to watch something and the service would differentiate itself to content owners on the basis of allowing them to properly measure and monetize that viewing, which in turn would require unskippable ads on most channels. Given the shift to on-demand viewing, this would fit many people’s existing patterns but it wouldn’t get rid of ads, as many other services do, nor provide a back door for skipping them such as a DVR. The other big downside is it would have to leave out sports which, as noted, was the major category of live viewing that’s resistant to time shifting.
  2. Exclude sports. Of course, one way to overcome this problem is to provide packages that simply don’t have a sports component, instead leaving the sports element of the bundle to existing apps such as MLB TV. This is an imperfect substitute given blackout policies and other limitations on viewing through those apps but it might be a somewhat adequate way to fill in at least some of the gaps.

    On the other hand, for people who don’t care about sports, which is the group most likely to cut the TV cord anyway, this likely doesn’t matter. However, if Apple wants to do a deal with Disney, excluding ESPN from the bundle seems like something of a deal breaker, especially given the current spat between Verizon and ESPN over just this issue.

  3. Offer regional rather than national service. One possible solution to the local channels problem is to regionalize the service and roll it out by local market. This is the strategy Sony has adopted with its Vue service and I suspect the difficulty of getting local channels on board was part of the reason. This would be a major departure for Apple, since it has always provided its products at least on a national basis in the US (in contrast to Google and Amazon, which each have certain services or features only available in certain geographic areas). Instinctively, this feels like an un-Apple thing to do, but it’s one of the few options for overcoming the enormous challenges associated with providing live, local, and sports programming.
  4. Bite the bullet and do the deals. Despite all the obstacles, given the problems associated with each of the other approaches outlined above, Apple may just decide to bite the bullet and do the deals necessary to provide national service from day one, including local, live, and sports programming. It’s obviously been done before by DISH and DirecTV, which both provide services nationally, unlike the other pay TV providers which operate only on a regional basis. But this approach would be a heck of a lot of work and it will become increasingly difficult to keep the details under wraps as more and more parties become involved. But I have to think that, on balance, this is the most likely route, which may well be why we’re hearing about the service despite the fact there’s no sign of an imminent launch.

I continue to be fascinated by the potential for an Apple TV service. There are challenges aplenty, as I’ve outlined in my various pieces here on Tech.pinions over the last few weeks, but I think there’s a huge opportunity no company but Apple from outside the traditional pay TV space can likely tap into.

Published by

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.

30 thoughts on “The Last Piece of Apple’s TV Puzzle: Local and Sports”

  1. Also, outside the US, content will be a lot of work to negotiate too, at least by country if not by state/länder in US-like federal countries.

    1. Indeed – outside the US is a whole different ballgame, as it were 🙂

      I don’t doubt that in time Apple may try to do similar things in other countries, but it’ll be a very piecemeal process.

  2. I know this may sound silly, but AppleTV’s interface is, for me, the biggest obstacle to using it. All those icons for all the channels/content providers/whatever-you-call-them are getting to be a big disorganized mess.

    1. I wondered if literacy is so bad that an alphabetical list would be found too confusing.
      Namaste and care,
      mhikl

  3. “CBS, which now runs its own over-the-top TV service in the form of CBS All Access, can’t provide it nationally.”

    Jan, if All Access is over-the-top, why does it matter who owns local stations? Internet access usually comes from cable companies.

    The only reason I can see why CBS wouldn’t be able to provide All Access in a town is if the local station (owned by an independent company) threatened not to carry CBS if they did.

    1. I doubt the agreement between CBS and the local affiliate is quite so one sided, unless there is another network available for the local affiliate to jump ship to. Few (and there are some) local affiliates have a strong enough independent brand that they can drop the network they are associated with.

      Joe

        1. Sure, but there aren’t too many local broadcast stations that do well enough without network affiliation. TBS (now Peachtree TV) is one. WGN in Chicago is another I can think of off the top of my head.

          Joe

    2. There’s no such thing as a CBS TV service per se – only each local CBS broadcaster’s channel. As I said in the piece, CBS itself only provides a fraction of the total programming on a given TV station, and the local station provides the rest. As such, pay TV providers always offer the local station’s version of the broadcast, and Apple would presumably do the same.

      1. I’m sorry – you said CBS All Access is over-the-top. That means INTERNET. I don’t see how local stations are involved with it at all, unless they tell CBS they’ll cut them off if All Access is offered in their town.

        Maybe I’m not seeing some piece of the jungle of vines that is the TV business.

        1. It is Internet, and it is over the top, but it’s also live TV, which means it has a 24-hour schedule. CBS itself doesn’t provide a 24-hour schedule of programming, but provides a few hours per day to each local CBS broadcaster. They, in turn, turn that into a 24-hour schedule with local news and other content, re-runs, other syndicated programming and so on. There is no such thing as *the* CBS channel, just two hundred different versions of CBS from around the country. Even if you’re doing online, the rights are structured such that you’ll be getting the local CBS affiliate’s version, if it’s available, but nothing if it’s not. Make sense?

          1. I’m just trying to learn, and thank you for your patience with me. If I get online and go to cbs.com anytime of day or night, will I see programming? If yes, am I seeing the local CBS affiliate’s version?

          2. You might! I’ve noticed on Hulu they are able to put my local affiliates watermark logo on the screen while viewing. That blew my mind when I realized I wasn’t watching an OTA channel. I don’t think CBS does that, yet, and CBS is no longer on Hulu.

            Joe

        2. I have no doubt there is some form of local or other geographic exclusivity agreement between CBS and their affiliates. Considering most internet usage also includes your geographic location, VPN and similar techniques notwithstanding, I have no doubt that has to be taken into consideration, similar to MLB TV’s mechanism for enforcing blackouts by location.

          Joe

          1. I suspect you’re right. No wonder Reed Hastings said it will take 20 years for TV to move online fully!

  4. The TV business is an incredible tangle of endless conflicting interests. For anyone (like Apple) to offer a reasonably complete TV package is like trying to walk through a jungle where there are a thousand vines blocking your way.

  5. “…sports refuses to be time-shifted.”

    The thrill of watching a sport is tied up with the hope that your team/player may win. I can’t think of anything less thrilling than watching a game/sport where I already know the outcome.

  6. Wouldn’t it make more sense for Apple, with its billions, to simply cut to the chase and buy Dish Network? They could then have all the local access agreements in place immediately and just work to take all of it online in whatever way they wish. Sure it means having to deal with a consumer component that doesn’t completely fit, but given that Dish is certainly already moving toward a lot of on demand stuff on whatever device you want to view it on, it seems like it would be largely a complementary pairing.

  7. I don’t see mention of over-the-air. I have all the streaming devices but just bought a TiVo Roamio. So far, I think it’s the best. I’ve got local channels, DVR, it also includes search and streaming for the major online services, too. I’m using SlingTV for my non-local channels streaming through AppleTV/iPad or Roku. If Roamio added Plex and SlingTV, I’d be all set and would dump the other devices altogether. I think TiVo is on the right track and might be primed to be purchased.

  8. Nice piece Jan. One item I’m skeptical about – you state that live linear TV viewing has dropped to half of the total TV viewing? Would you mind backing that up with a supporting fact or two? I’m sure I’m just thinking about the numbers differently. I’m bullish on non-linear viewing but I still don’t see it as even close to half the totality of TV viewing. “Once the totality of traditional TV viewing, it’s now dropped to less than half and is likely to continue to fall.”

  9. I remember a time when having cable meant no commercials. Do you think that there might be a way to offer a subscription service similar to streaming music platforms? Pay a higher rate for higher quality video/audio and be commercial free?

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