Cable Tech

What’s Bad About TV? Just Ask Apple.

How quickly we’ve forgotten. Remember mobile devices before the iPhone? They all shared a common feature set: Abject horribleness.

Handheld organizers like Palm’s personal digital assistants demanded that users brandish a silly stylus and squint into a monochromatic window. Early-generation Blackberrys, the little black rectangles so revered by careerists, crammed miniaturized keys onto miniaturized pads in a forced pairing of machines -- the typewriter and the telephone -- that produced record numbers of typos per message. Cellphones, if they offered Internet access at all, did so by neutering Web pages into graphically bereft, walled-garden frames of text, visible through screens hardly bigger than postage stamps.

Everybody bought them anyway. That is, until Apple Inc. changed the game by advancing a techno version of Hans Christian Andersen’s story, “The Emperor’s New Clothes,” in which the technology products company was bold enough to say what everybody sort of had intuited privately but was too timid to declare out loud: These things are dreadful to use.

The iPhone’s runaway success came about not just because the device itself was gorgeous, innovative, and capable, but because it instantly exposed every preceding mobile communications product as a sad joke. It raised the bar for handheld computing while reducing incumbent products to yesteryear's rubble.

Attacking TV
That same sort of willingness to challenge presumed truths is at work again at Apple, which, as everybody knows, has been circling around the television business for a while now. There has been a library’s worth of published speculation and studied what-ifs written about Apple’s presumed approach to innovating in television. Most of the speculation has been looking into the technology of television itself: Apple can invent a better TV set. Apple can invent a better interface. Apple can leverage the AirPlay application in iOS to marry computing with television better than anyone else has done.

But it now appears that everybody overshot the mark, because apparently Apple has been taking a much broader look at television. Just as the late chairman Steve Jobs identified and attacked fundamental flaws in the mobile device category, Apple seems to have seized on a revelation about one of television’s weak points -- one that resides much further up the experience chain than interfaces, screens, or search functionality. Commercials.

A report by technology journalist Jessica Lessin in July indicated that one of Apple’s ideas for revolutionizing television was to, get this, do away with advertising. As Lessin reported, Apple has talked with major television networks about a novel scheme to strip out commercials from programs and offer viewers uninterrupted streams of content. You know, like Netflix, but with current stuff.

Of course, the notion of vanquishing a revenue stream that streams roughly $70 billion into the US TV ecosystem was quickly deemed preposterous -- mostly by people whose livelihoods and expense accounts depend on streaming roughly $70 billion into the US TV ecosystem. Advertising Age’s Jeanine Poggi produced a roundup of cold-shower reactions from Madison Avenue, with executives, including Rino Scanzoni, chief investment officer of Group M, dismissing the model as economically unviable.

It certainly looks that way, when you see the idea through the default lens of television tradition. But so was the idea of fitting the entire Internet onto a handheld device in 2007.

Apple is obviously aware of the audacity, but it has a workaround. The idea is to compensate TV networks for vacant ad spots by reimbursing them for the revenue they’d be foregoing, so that there’s no immediate financial risk (although there may be plenty of strategic risk).

Although big advertising thinks it’s a laughable scheme, I actually think it could work, with minimal immediate disruption to the bigger TV ecosystem. Here’s why:

  • The market is going to be very small. Apple’s notion of a premium Internet-distributed television bundle -- the so-called virtual MSO model -- is likely to appeal to a very small subset of the US TV marketplace. An optimistic read is that 3 million individuals who currently pay for traditional cable, telco, or satellite video service might choose instead to subscribe to Apple’s premium service in two or three years (based partly on its alluring idea of commercial-free content). That means the household delivery universe for the largest advertiser-supported network would be reduced by about 3 percent. The potential reach would dip from the current universe of 95 million multichannel video households (the number recently published by Leichtman Research Group to 92 million.
  • Commercial exposure would hardly be affected. The number of homes exposed to commercials during a particular airing of a cable TV program would be pared even less. Example: Let’s take History’s Pawn Stars, which achieved total HH delivery of around 4.5 million for its prime-time episode debuts in July, according to tvbythenumbers.com. If we think Apple can take away 3 million homes from the total pay-TV universe (or about 3 percent of the base), the rough math suggests it would reduce the viewing audience to an ad-supported telecast of Pawn Stars by about 135,000 (or 3 percent of 4.5 million).

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albreznick 8/27/2013 | 1:08:50 PM
Re: Depends on your point of view It certainly sets up a lelluva battle--Big Advertisers vs. Big Technology Firms like Apple. Can TV survive without its traditional advertising business model? i don';t know. But I'd love to see what would happen if Apple really does pursue this path. The whole business could use a good shakeup. Do you think Sony, Intel, Roku and the rest will follow Apple's presumed new model?   
mendyk 8/26/2013 | 7:42:24 PM
Re: Depends on your point of view Right, and from the POV of most commercial content providers, the current ecosystem may be dystopian, but it makes them plenty of money. I'm sure that video content producers are looking over the fence to see what has happened to the music business and are thinking, Please, not us.
brookseven 8/26/2013 | 6:34:13 PM
Re: Depends on your point of view  

I thought the purpose of any business had exactly one aim...MAKE MONEY.  The only difference between businesses is HOW they try to make money.  So the point of making video content is to GET RICH.

TLDR:  Money Talks, BS Walks.



mendyk 8/26/2013 | 6:03:36 PM
Depends on your point of view If you take the view that video content exists mainly to enlighten, inform, and entertain the world, then it makes sense to look for ways to decouple content from advertising. But if you think that the main purpose of content is to sell people cars, sneakers, personal hygiene products, etc., then that decoupling doesn't make sense. This isn't simply about disintermediating advertisers from the video stream. There's a whole economic ecosystem to consider.
brookseven 8/26/2013 | 5:18:46 PM
Re: Commercial-free TV programs could work for ALL Pay-TV and OTT services Sure commercial free could work....let's just remember that on iTunes the HD version of Breaking Bad is $22.99 a season, $37.99 for the Deluxe Edition per season or $2.99 per episode.

Let's do some math...For TV service of 2 hours per night (and I will use 30 day months) we are talking about $90/month for video.  Maybe that's high...maybe not. But that is where it is and does NOT include Broadband Service.  I just looked and a very basic Comcast package (without a DVR) is $34.99 a month.

So, really a commercial free service would probably have to provide 25+ channels at $25 a month or something like that.


gkkearny1 8/26/2013 | 2:35:36 PM
Commercial-free TV programs could work for ALL Pay-TV and OTT services This is actually a service MANY consumers have been asking for. The "gotcha" for an advertising-free service is each network probably requires a new and different play out center. It may start out as an all-on-demand file based system, but with original programming, there will be opportunities for pay-per-view "live" viewing of events, sports, and upscale programming. Apple, Intel and Comcast are all in position to build these types of play-out centers, and there's no reason why Apple or Intel couldn't re-sell content from their platform to the greater PAY-TV industry. Commercial-free TV supported by a premium subscription package can work for ALL of the Pay-TV and OTT services over time.
DanJones 8/26/2013 | 1:40:37 PM
Device So they still probably need a compleling device to make this real?
stewartschley 8/26/2013 | 12:46:35 PM
Re: Apple Bucks Dan, In Apple's case, both. I think the economics of the "virtual MSO" model are tricky, but could be compelling if you are willing to believe somebody can assemble a significant subscriber base. For instance, 3 mil. subscribers at $49/month (just guessing) yields roughly $1.8 billion in revenue annually. Granted, the programming licenses will eat you alive, and could amount to as much as 70% of revenue if Apple or somebody else pays a premium to reduce the commercial load. Even so, infrastructure, customer acquisition and customer care costs are much lower than in cable/satellite TV, so presumably there's still a cash flow margin at the end of the day. It's probably not enough by itself to move the needle much for Apple, so it's critical to have a hardware/device revenue stream tied to the service in a controlled ecosystem ala iTunes/iOS. That way it may actually be possible to make some money. I suspect Intel sees it the same way.
Sarah Thomas 8/26/2013 | 12:34:34 PM
Content binging Interesting post, Stewart. How consumers want to watch TV is certainly changing. I was also interested to learn Netflix's model for its own TV shows like House of Cards was to release the entire season at once. That's a lot of content without commercials, appealing to how consumers like to veg out and binge on content at their whim.

I think getting rid of the commercials is a great idea, but it does seem like a huge overhaul and one that the cable networks would be really uncomfortable with for awhile to come.
DanJones 8/26/2013 | 12:16:23 PM
Apple Bucks How does Apple make money though in this model? Selling the device, the service?
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