Why the TV Industry is Vulnerable To Apple

on March 5, 2012

In 1992, while I was overseeing the largest multimedia computing show in NYC for a large publishing group, I was asked to meet with Sr. Executives of one of the major TV networks. In my opening comments at this show, I had mentioned that I thought that one of the major benefits of things like delivering expanded media content on a CD Disc would be to eventually launch an era of content on demand. And one of the examples I gave was that I could see someday when people would be able to call up a TV show on demand and view it at will.

Now, remember that this was before the Internet and few were even thinking about new forms of media distribution. In fact, everything we were discussing at the show was very PC centric. But one of my jobs is to look at technology and visualize its impact over a period of time and try and figure out how it could eventually impact consumers.

It turned out that since this event was in NYC, a lot of TV executives attended this show and consequently I was invited to meet with some execs at one of the major networks to explain my thinking about content on demand. As I spoke to these executives, it became clear to me that while they were interested in the future, they did not want to embrace anything that would disrupt their current business model. The idea of giving customers more of what they wanted through an “on-demand” format was taboo and if it did not increase the quarterly bottom line, they wanted no part of it.

However, to their credit, they saw that what I shared was worth thinking about and they soon created an executive position that was called something like VP of Digital Content. It was so long ago I can’t remember that exact title of the job description but this person was chartered to find out about the digital world and recommend how this company could or should deal with its potential impact on their business. So for the next three months I got quite an introduction to the TV business and its business models and more importantly, how risk averse they were and how much they feared change.

Looking back over the last 20 years, and thinking about that assignment in 1992 and how different the world of TV is today, I am actually amazed at how much progress the television industry has made. But to get where they are today in which each of the networks use the Internet to deliver some of their top shows, they had to understand that the Internet is just a medium for delivering their content. And that consumer’s will continue to want these shows on demand, anytime and anywhere they happen to be.

But to be clear, while they are starting to embrace the Internet as a vehicle for distribution, they are doing so reluctantly. If they had their way, they would keep total control of this distribution for themselves and drive their viewers only to their dedicated sites for viewing their shows. But the Internet has forced them to open up a bit and little by little they are doling out their top shows to dedicated partners who they trust to help them keep some semblance of control so that they can maximize their earning potential and if possible try to keep their customers within their network family as much as they can.

However, in this world of digital content, they are now realizing that while they ruled the roost in the world of broadcast television, they are just another channel among thousands of channels that consumers can choose from for viewing video content. But what they don’t seem to get is that in this world of digital, they will need new distribution partners and that they will not have as much control over them as in the past. And I also don’t think they really understand the idea that people want to have access to that content anytime, anywhere and on any device they own.

Enter Apple

Now enter Apple, who if the rumors are to believed, has been calling on the executives of all the networks and trying to cut deals with them for Apple’s new TV initiatives. And I am hearing that they are resisting Apple’s partnership offers as Apple wants to pay them next to nothing to carry this content and they fear that Apple will do to them what they did to the music industry in which Apple pays a minimal fee to the artists compared to what the artist might have gotten with their labels in the past.

Now, I don’t know what type of deal Apple is offering the networks, if any at all. But I do know one thing. Apple could become one of the most powerful video network distribution companies in the future and to not embrace what Apple is doing could be very painful for them. The reason is simple economics. While we don’t know exactly what Apple is doing in this area of video distribution yet, we have their history to look at for some clues. For example, when they initially introduced the iPod and the iTunes store, they opened the door for music artists to have millions of potential customers. But over a ten year period, Apple made it possible for that music to be played on iPods, iPhones, and iPads and to date, have sold over 350 million iOS devices in which music artists can sell to just through Apples own music distribution vehicle. Add a base of 40 million Mac users and in total there are over 140 million Apple devices tied to the iTunes distribution medium.

Now enter Apple TV. While many people think of this idea of being a physical TV, they miss the real point of what I believe Apple is doing. At the core, I believe they are moving towards becoming a powerful distribution network for video. And while I do think they will have a cool TV someday in their product mix, the reality is that every iOS device and every Mac will become an “Apple TV.” That means that for these networks, and any other of their video channel partners, Apple will deliver to them well over 140 million potential customers immediately once their TV distribution network gets turned on. And given Apple’s history you can expect that the Apple TV experience, whatever form it takes, will be elegant, easy to use and perhaps even revolutionary in the way people use their services across devices.

The mistake the networks could make is to not see Apple as this massive vehicle for distributing their content and instead see them as having to be their partner for making money and relying on Apple for high margin revenue. That is the business model of the past. The new business model that I believe will emerge is to find ways to get eyeballs to view the content and then get creative in the way they make money on that property. Of course, they could tie some advertising to it, but they could also offer games tied to the content, sell merchandise tied to the content, and give special prizes tied to the content, etc. Instead of resisting Apple, or perhaps Google or Amazon who I believe will create similar video distribution networks, they need to embrace them as vehicles to get their content in front of these eyeballs and find creative ways to keep their customers coming back and mining new ways to get revenue from their digital customers.

Apple is going to become one of the most powerful video distribution networks by nature of their existing customer base and one that is added to continually. They have sold 50 million iPads so far and will sell at least another 50 million this year, turning every one of them into an “Apple TV.” I know the networks would like to keep control of their distribution, but in the world of digital, those days are gone. The sooner the networks understand this and see things like Apple’s new distribution vehicle as a critical way to get their content to the masses quickly, the sooner they can adapt to and fine tune a new business models to take advantage of this new era of on demand, anytime, anywhere and on any device video content world.