Apple is negotiating with the three leading US premium cable networks -- Home Box Office Inc. (HBO) , Starz Entertainment LLC and Showtime Networks Inc. -- to create a not-so-skinny bundle for Apple TV, according to a report from Recode last week.
Presumably driven by the launch of several skinny bundle services, most recently from YouTube Inc. , Apple Inc. (Nasdaq: AAPL) is also looking for ways to create its own pay-TV package. However, instead of getting into an increasingly crowded market focused on low-spending cord-cutters, the company is targeting the premium end of the spectrum, bundling services that usually require basic cable subscribers to pay a premium to access.
Firstly, I should say it's not clear if the report is correct. But even if Apple is thinking about such a service, it may just be an initial idea that is being run by potential partners, rather than a fully developed initiative.
Still, that has been enough to generate discussion within the industry, and the consensus seems to be that this is a bad idea. While it is always a bit disappointing to agree with conventional wisdom, in this case I have to.
A premium service needs to offer more than a basic service, and with just three providers, this would not. In fact, most skinny bundles will provide subscribers with more variety than this "cream-only" Apple TV package, even if original series on some of these channels are sought after.
The price would also be problematic. With HBO priced at roughly $15 a month and the other two at about $10 each, the total package would be in the $35 range. Even with a bundled discount, who would that appeal to? Not the cost-conscious cord-cutting millennials. Nor probably higher-end videophiles with greater willingness to pay, because they would simply want more content options. And not existing pay-TV subscribers, because they could just get these services from their pay-TV provider without having to add a new billing relationship.
So the audience would be limited to perhaps a small group of Apple fans willing to purchase pretty much anything Apple comes out with.
Apple's success in many areas has come from its insistence on transforming the user experience, usually disrupting the existing business in the process (think music and mobile phones.) But the TV value chain is much harder to disrupt, as Apple has found over the years. The only way to disrupt it is to build a parallel ecosystem -- using the Internet and producing your own content, as Netflix Inc. (Nasdaq: NFLX) has done.
Based on what I hear, Apple is also not a great partner. The company needs to dominate the relationship, dictating product development and revenue shares. This doesn't play well with multi-billion-dollar network operators, used to having technology vendors running around for them. In the past, digital disruption had enough service providers frightened, but now there are other partners and distribution channels available even if they want to innovate outside of their comfort zone. (See Will Providers Buy Into Apple's New TV Guide?)
Perhaps the best option for Apple is to work directly with movie studios. With Netflix and Amazon producing their own content and reaching a global audience, the studios' position at the top of the video value chain is increasingly threatened. Movie rentals and electronic sell-through are already well established, including via Apple services, but is there more innovative content that can be created and new distribution models that can be explored?
Even with that goal in mind, I think most studios would probably look to Facebook and Snapchat as platforms for future viewers and innovative content formats. Both have now moved past Apple as desirable destinations for younger audiences. And Roku is the preferred device platform for streaming video in the US now, well ahead of Apple TV. (See Streaming Is an Opportunity for Telcos – Roku's Ferrone.)
Steve Jobs once described Apple TV as a hobby for the company. It might be that it remains one for now.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation