Why Content is the Biggest Roadblock for Apple TV

Ben Bajarin / August 30th, 2011

It appears as though the “Apple is making a TV” discussion is coming back around. Probably because of rumor reports that “sources in the know” are talking about a brand new product category.

Apple has a hobby business in a product called Apple TV. At some point in time this hobby will become a business, the question is when. The other question is will it be in the form of a full blown television? Will it simply be a set top box? Or perhaps will the iMac become a 40′ or larger monitor /TV?

These are all interesting questions and I can see good arguments for and against all of them. However the real issue as I see it is the content industry.

Problem #1 Hollywood
What many people don’t know is that Hollywood is nearly impossible to deal with. Unlike the record labels whose business is more distrubution, the movie studios and TV networks prefer controlled distrubution. Both the TV studios and the movie studios carefully control when, where and how their content is distrubuted.

They have exceptionally strong legal rights to their content and because of that they are in the driver seat. Take for example Starz, HBO and Showtime.

If you have ever wondered why there is no digital “subscription” service for first release titles of movies it is because Starz, HBO and Showtime own the rights to first run movies as a subscription service. This is why as a part of their subscription services comapnies like Netflix, Apple, Amazon etc can not offer a digital download or streaming subscription service which includes new releases on DVD.

This is why the only options to date to get a first release on DVD digitally is to buy it or rent it.

For any company to offer a subscription service to download or stream new release movies they would have to get HBO, Starz and Showtime on board, not to mention the studios, who I think have more lawyers than employees.

This is why in 2006 Starz tried to launch Vongo.com their attempt at a movie subscription service. The challenge with Vongo was that it didn’t have movies newer than 6-8 months depending on the studio.

The primary reason for this is because the studios want people to go buy DVD’s not subscribe to a service for the cost of a DVD that allows them to stream it as many times as they want. Because of that only the premium pay-per-view model is available for a movie in digital form until it has been on DVD for at least 6-8 months. So all though Starz, HBO and Showtime on the rights to a subscription movie service they studios don’t give them those movies until 6-8 month’s after it has come out on DVD.

Historically Blockbuster and now Netflix and Redbox get away with offering a subscription service for physical DVD’s because of copyright laws. Legally anyone can pay full price for a DVD and sell or rent that DVD at whatever price they can fetch. Unfortunaly digital copyright laws work differently.

Hollywood tighlty controls their first tier window of physical and digital DVD distribution and I don’t see that changing anytime soon. The fact of the matter is the purchasing of DVD’s is what they want people to do and they will protect that business to all ends.

To make a long story short, it would take a miracle for us to see a subscription service to stream new release DVD’s.

Problem #2 Comcast, Dish, DirecTV and others
What about a service to subscribe to network TV shows? We do this already since we pay a fee do Comcast, Dish, Time Warner, DirecTV or someone else. So it would seem logical to assume someone can offer something similar through the Internet.

The only problem is those above service providers pay hundred’s of millions of dollars for the rights to offer that content as a subscription service. The reason we get 100’s of channels for a fee each month is because hundreds of millions of dollars were spent to reserve the right to distrubute that content.

Put yourselves in the shoes of ABC, NBC, CBS etc. They get massive amounts of money up front for their programming. Do you think they are going to jeapordize that by letting people stream or access their content for free or cheap?

Although some networks today allow next day viewing for free with mandatory ads I am betting that at some point in time that model changes as well. What’s more is that even though supporting free streaming by ads is a business model, it comes no where close to hundreds of millions of dollars up front.

Hulu is in fact already experimenting with only allowing people to watch a show online the next morning if a fee is paid then anyone can watch it after seven days with ads.

I would expect in the near future if you want to stream a show for free online you will need to wait at least a week after it has first run. This will instantly kill any chance at the water cooler affect of a show and most likely discourage online streaming all together.

If you add up all the business model issues facing any company who hopes to offer or disrupt the current TV ecosystem it amounts to a monumental challenge.

The bottom line is the biggest hurdle for Apple to make Apple TV a business is not a technical one, it is a legal one.

I completely agree that the televion will someday become the next big platform to deliver rich content and services to and that it NEEDS to be disrupted in a major way.

But to quote a friend of mine who is a Hollywood lawyer:

“Two things drive Hollywood – fear and greed.”

I’m not optimistic that either of those forces will work in the technology industries favor.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • I remember the same kind of comments about Apple entering digital music, then digital movies. I think Apple will find a way to negotiate a deal. In the mean-time, I believe Apple can add value to the TV interface, which stinks, quite frankly. Voice control, air gestures and STB integration can still be significantly improved and Apple can focus and win on this in the short term.

    • Yacko

      Maybe yes, maybe no. I think the reason Apple dropped streaming is the same reason it is hard for Netflix. There isn’t enough money in the universe to license everything circa 1900 to now for streaming. And as the article points out, there are too many Hollywood players in the game with their hand out or blocking things. With that out of the way Apple can maintain they are on par with DVDs. Hollywood likes that better so maybe deals can be reached. You buy the show or movie, it is a little more costly, but it will mimic streaming at your end and Apple just has to store one to a few copies.

  • I remember the same kind of comments about Apple entering digital music, then digital movies. I think Apple will find a way to negotiate a deal. In the mean-time, I believe Apple can add value to the TV interface, which stinks, quite frankly. Voice control, air gestures and STB integration can still be significantly improved and Apple can focus and win on this in the short term.

  • Anonymous

    yup, this is the big roadblock. what we all want is a la carte pricing, to just pay for the 10-20 channels we actually watch. not the high priced cableco bundles with all their fees tacked on. I don’t know how Apple – or anyone – can break this open.

  • Rich

    I think the reason the record labels have a business model of more distribution but the movie studios and TV networks have controlled distribution is that movies are watched once or twice but CDs are listened to many times.

  • Just like the music industry did, the movie industry now pisses and moans at the money they could lose… without considering the money they could actually make.

    Consider the movie THE INFORMANT. A little Soderbergh movie with Matt Damon. An interesting true story with some goofy twists, but not worth an evening out for a couple. It’s just not THAT good. It’s kind of like a slick HBO movie. It cost 22 million to make and has grossed 33 million.

    Now, suppose that movie had instead been released directly to streaming via Apple TV and Roku. Almost no advertizing budget except for prominent placement in both services. So at first you might release it as a $10 Debut Household price. Why not? That’s still a savings of a least $10 off of going to a theater to see it. If you have another couple watching with you, that’s a saving of at least $30.

    Say two million people are willing to pay that. That’s 20 million right there. Not the entire budget, but wow, most of it. And if that budget includes advertizing, the movie’s real budget was 10 million.

    I remember when movies used to be about something. Stories used to be about people. Those movies can be made inexpensive and streamed directly to home theaters.

    Hi Hollywood: exploit this!

    • SHANE ALGARIN

      if all viewers canceled their cable, the industry would get the hint. THEY’D FIND A WAY TO OFFER A LA CARTE CHANNELING OR STREAM VIA THE INTERNET OVERNITE.

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