Online Video The TV business is proving remarkably resistant to disruption. Google tried it, with Google TV, which met with disaster (Google is getting ready to try again, this time in Europe). Apple has tried it more than once but has yet to find a way to disrupt the TV content value chain to its own advantage.
Apple’s most recent bid — 99 cent TV show rentals through Apple TV set-tops — has proved a bust. On Friday, while most Apple-watchers were still buzzing about Steve Jobs’ decision to step down as CEO, the company quietly announced that its nine-month experiment with low-cost rentals would end.
“iTunes customers have shown they overwhelmingly prefer buying TV shows” to renting them. Apple spokesman Tom Neumayr said in a statement.
The effort had never gotten much buy-in from the networks. Only two — Fox and ABC — agreed to test the 99-cent offer and in both cases there were extenuating circumstances. ABC is owned by Disney, whose largest individual shareholder is Steve Jobs, while Fox is owned by News Corp., which at the time was keen for Apple’s help in launching The Daily, its e-newspaper app for the iPad. Now that The Daily has launched (and largely flopped) Fox has become less accommodating.
“After carefully considering the results of the rental trial, it became clear that content ownership is a more attractive long-term value proposition both for iTunes customers and for our business,” a Fox spokesman told the L.A. Times.
It’s now clear that the handwriting was on the wall for the 99-cent rentals last month, when Apple announced the integration of Apple TV with its iCloud platform enabling iTunes users to watch previously purchased TV episodes via the Apple TV STB.
“iTunes in the Cloud lets customers download and watch their past TV purchases from their iOS devices, Apple TV, Mac, or PC allowing them to enjoy their programming whenever and however they choose,” Nuemayr said Friday.
Apple’s tactical retreat represents yet another victory for the networks in their effort to forestall disruption to their current business model. Broadcasters’ refusal to cooperate with Google TV last year largely doomed that fledgling platform, while the networks have now at least twice flummoxed Apple, first by stiff-arming its effort to offer a hand-selected subscription bundle of channels through iTunes and now by killing 99-cent rentals.
There are probably whole treatises to be written on the question of why the TV networks have been so much more successful (so far) at resisting disruption than were the music companies, newspaper and magazine publishers and even the movie studios.
One simple answer is that their business model simply isn’t particularly broken. The networks have suffered something of a downturn in advertising revenue but they’ve been able to offset that through higher retransmission fees. Cable operators have seen some erosion in their core video business but there is plenty of upside for them yet in broadband. Even consumers, though they grumble about cable TV rates, have greater and more convenient access to TV content today than ever before for little or no direct incremental cost. That mix has left few targets of opportunity for would-be disrupters to exploit.
Another key reason, however, is that the TV networks have had the opportunity to watch and learn from the experiences of other industries (often within the same parent conglomerate). Having seen the effect that Google’s unbundling of online news has had on traditional publishers, they were alert to the danger that Google TV, using the same sort of search technology, could unbundle the traditional TV network brand. (Shameless plug: I have a new report coming out next week from GigaOM Pro on ways that publishers can respond to the Great Unbundling).
Having seen Apple milk recorded music to add value to the iPod and iPhone the networks were similarly alert to the dangers to them of Apple’s value-chain inverting, device-based strategy. That’s one reason I remain skeptical of the latest round of rumors and speculation regarding an Apple TV set. If Apple can’t crack the market for TV content with a $99 Apple TV device, why would a bigger, more expensive device work any better?
If there is ever to be a successful assault on the networks’ and MSOs’ stranglehold on the TV content business it will likely need to be service-based, not technology-based (Google TV) or device-based (Apple TV). That is, it will need to challenge the basic consumer value proposition of today’s fixed subscription TV bundle with an equally compelling proposition of its own that is not as dependent on the cooperation of the networks.
Current cord-cutting options (Netflix, Hulu) do not meet those criteria, for a whole host of reasons. I’ll have some (speculative) thoughts on how Apple might still find a way to get there in my next post.