Apple Video Play May Hurt Boxee, Roku

While cable operators likely won’t face an immediate threat from the subscription service Apple Inc. (Nasdaq: AAPL) is purportedly pitching to major content suppliers, the offering may instead put the hurt on over-the-top video service providers like Boxee and Roku Inc. (See Roku 'Store' Opens With 10 Channels and Ronen: Boxee Isn't a Cable Killer.)

According to reports in today’s Wall Street Journal and New York Times, Apple is talking to CBS Corp. (NYSE: CBS) and Walt Disney Co. (NYSE: DIS) about supplying content for a new subscription, broadband-fed TV service, which could launch in 2010 with an array of shows from some popular cable and broadcast networks. But unless Apple can line up a broad programming offering, it likely won’t compete with the broad content packages offered by cable and satellite TV providers.

“Apple could be a very formidable competitor here because of the iTunes franchise and their devices, but I’m still relatively skeptical that they’d be able to pull together a competitive offering,” says Will Richmond, president of Broadband Directions LLC , a market intelligence and consulting firm specializing in broadband-delivered video. “Cable networks want to offer the full portfolio, and it sounds like Apple only wants to cherry pick. Most owners of cable networks don’t want to be in the cherry picking business -- they want to be in the full portfolio business. That’s how they’ve grown their revenue, by adding additional channels.”

Reports first surfaced in early November that Apple was looking to develop a $30 monthly subscription package that would allow Web surfers to watch programs from popular TV networks through iTunes. A viewer that owns the company’s Apple TV set-top may also be able to watch shows on a TV connected to the box and a computer. (See Report: Apple Pitches Cable Killer to Content Companies.)

Under “some versions of the proposal” that Apple is floating to programmers, broadcast networks would get $2 to $4 monthly per subscriber in exchange for supplying content, while cable networks would receive $1 to $2, according to the WSJ.

But it's unlikely that Apple would be able to strike deals with vertically integrated media companies like Time Warner Inc. (NYSE: TWX), which owns not only top cable networks like CNN, TBS, and TNT, but still has linkages to the nation's second largest MSO, Time Warner Cable Inc. (NYSE: TWC). And while it may take a year for Comcast Corp. (Nasdaq: CMCSA, CMCSK) and NBC Universal to get regulators to approve their merger, it’s difficult to envision NBC Universal cutting a deal to supply content from NBC, USA Network, SyFy, and other channels to Apple as it's preparing to marry the largest cable MSO. (See Comcast to Take Control of NBC Universal and Time Warner Cable Leaving the Nest.)

But Apple could still put together a limited offering of long-form content from broadcast and cable networks, and develop a programming package that would appeal to iTunes and Apple TV users. If it does succeed with a subscription offering, it could have an impact on over-the-top Internet video firms that rely on distributing content through broadband Internet services marketed by cable operators and telephone companies.

“Apple has the best brand name in the business. If they could put together a credible offering, they would immediately be competitive with any of the over-the-top approaches, whether that’s Boxee or Roku or TiVo or [Microsoft Corp. (Nasdaq: MSFT)'s] Xbox,” Richmond says.

Another “question mark” in Apple’s subscription plan is what its stance will be on advertising, Richmond says, noting that “Apple has never been involved in an ad-supported content model. Certainly for the ad-supported cable networks and broadcasters, something that doesn’t include advertising is going to be a totally new approach."

— Steve Donohue, Special to Cable Digital News

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