Hasta La Gadget!

Dec 22

Subscriptions Could Be Apple’s Second Attempt to Conquer Video

Posted in: Apple, Home Audio and Video, itunes, rumors, speculation, streaming, Today's Chili, TV, video

Apple is planning to offer television subscriptions over the internet, according to multiple industry sources, and so far CBS and Walt Disney are considering the idea.

The subscription service would involve allowing customers access to some TV shows from participating networks for a monthly fee, anonymous sources have told The Wall Street Journal. The subscription content would presumably be integrated into the iTunes Store and iTunes-compatible hardware. Though Disney and CBS are rumored to be interested, the companies have not officially commented on their plans.

Assuming the rumors are true, a subscription model would be Apple’s second major move to seize the digital video market. The Cupertino, California, company introduced the Apple TV in 2007, which stores and plays video content downloaded through iTunes. However, Apple has repeatedly referred to the Apple TV as a “hobby,” implying the product has not made a serious dent in the entertainment market.

Also, the iTunes Store’s offering of video content pales in comparison to competitors’ catalogs. In March, Apple reported the iTunes Store had accumulated 40,000 downloadable TV episodes and 5,000 movies. Around the same time, Netflix, which offers a rental service in addition to streaming-video hardware, had amassed 100,000 DVD titles and 12,000 choices of streaming content.

Apple’s rumored subscription strategy, if successful, could reshape the TV industry by offering a compelling (and cheaper) alternative to the pricey bundles sold by television providers. However, it will be tricky for Apple to get TV networks on board, said James McQuivey, a Forrester analyst who focuses on the consumer video market.

“It’s very hard to walk into these folks’ door and say, ‘I’m going to deliver revenue to you,’ when in the past few years they haven’t been able to do that,” said McQuivey, in a phone interview.

How could Apple persuade networks? The video-subscription strategy could work if Apple implements a streaming model, McQuivey said. That would involve allowing iTunes customers to stream TV shows without downloading them straight to their hard drives.

Studios typically prefer streaming technology over direct downloads. Streaming video is not only difficult to pirate; it also enables studios and networks to track their success. With streaming video, they can insert dynamic advertisements, create interactive experiences that can be measured, and report on success of promotional campaigns and content strategies.

McQuivey added that Apple could possibly offer to handle the bandwidth for streaming TV shows so that a subscription service could cost networks next to nothing.

“Apple could say, ‘We’ll pass revenue to you, and we won’t burden you with a single drop of cost,’” McQuivey speculated.

That would be a plausible gesture, since Apple is currently building a 500,000 square-foot data center in North Carolina, which could handle the bandwidth required for streaming video. The corporation also recently acquired Lala, a music streaming service, whose infrastructure could be shared with video.

However, McQuivey noted that streaming is getting “dirt cheap” thanks to technological innovations, and it’s poised to get even cheaper — so Apple will have to think hard about how to sell the idea of a subscription service to enough networks in order for the model to ever come into fruition.

TV networks will be especially defensive against Apple, in light of the corporation’s takeover of the digital music market. For the first half of 2009, iTunes-purchased songs accounted for 69 percent of the digital music market; Amazon is in a distant second with 8 percent. iTunes also accounts for 25 percent of the overall music market — both physical and digital — according to research firm NPD Group. iTunes is slowly chipping away at CD, still the most popular music format with 65 percent.

“You can’t get away with that in the video industry because they watched what you did, Apple, with music,” McQuivey said. “[TV networks] are going to be looking for short-term deals and offering no exclusive for content. It’s going to be difficult for Apple.”

See Also:

Photo: niallkennedy/Flickr