Parks Associates Blog

Wednesday, January 16, 2008

Apple TV's Upgrade

Just as I was writing about VUDU's service this week, Steve Jobs unveiled updates to the Apple TV service that include movie rentals. At $229, Apple TV is decidedly less expensive, and it offers more features in terms of access to iTunes music collections, photos, and some online content. There's an element of portability, too, as movies can be transferred to iPods, iPhones, and PCs. Now, wouldn't a major coup for Jobs be to cut deals with the major networks and deliver ad-supported (non-skippable) primetime television offerings through the Apple TV?

As my colleague John Barrett noted today in The San Jose Mercury News, assumptions that Apple TV's rental service marks the beginning of the end for DVD rental businesses are premature at best. Take the assumption, for example, that the early target market for a stand-alone set-top plus electronic movie rental service are the households that are watching lots of DVD rentals each month. As the average Netflix subscriber is viewing 7 movies a month, the economics of a roughly $20-per-month subscription outweigh an a la carte rental offering, even if the subscriber has to wait a day or two to receive the DVDs.

Apple TV also doesn't spell doom for your cable, satellite, or IPTV service. Network capacity continues to favor the incumbent video providers on their ability to send lots of high-definition content (both linear and on-demand) to the home, and I expect that we will see aggressive moves on major players in 2008 to experiment more broadly with models such as day-and-date release of certain movies (matching the DVD window). Hollywood hasn't bent over backwards in support of traditional VoD to date. However, if I'm a content producer, my best allies in the next few years could very well be the service providers who operate networks with large capacity, established security, who can pipe their content to a growing number of devices (such as mobile phones), who have the network infrastructure to ingest vast quantities of content and deliver it in a high-quality format, who have well-established billing practices, and whose advertising strategies grow more sophisticated.

For the incumbents, the opportunity also doesn't end with commercial content. I was impressed with demos that I saw at CES from Cisco that showed "hyper-syndication" of user-generated content into an operator's TV lineup. This way, YouTube or other content can be ingested into the operators' networks and provided as a stand-alone channel if desired. Game over? Not exactly. It's just another example of what makes this industry so interesting to follow.

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