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How Apple could disrupt the TV business

Digital Living Room With the news last week that Apple is pulling the plug on 99-cent TV show rentals through Apple TV, the tech media has again been ablaze with speculation about how Apple might still do unto the TV business as it has the music and mobile phone businesses, complete with a reappearance of the zombie rumor that it will introduce an App Store-enabled Apple HDTV set sometime next year.

As I noted in my last post, however, the TV business has thus-far proved remarkably resistant to disruption, the sine qua non for Apple to invest seriously in the market. The networks and cable operators successfully resisted Google TV’s bid to disaggregate the TV bundle with search technology, as well as Apple’s efforts to drive down the price of  accessing TV content on Apple TV. As I noted yesterday, I’m skeptical that Apple’s introducing a different form factor — a 42-inch display  instead of a set-top box — would change that dynamic. Another data point against an Apple TV set can be seen in the Display Search chart (via Bloomberg) embedded below showing that the typical 42-inch LCD display will soon cost less than the cheapest iPad.

What Apple needs, if it is to disrupt the TV business to its own benefit, is not a new device but a new value-chain for connecting consumers with TV content. Thinking about the problem in terms of form factors or device capabilities is a cul-de-sac.

What might a new, Apple-centric value-chain look like? If I actually knew the answer to that I would have a real job. But just for giggles, I’ll pretend I’m a newly installed CEO at Apple and looking to make a mark of my own. Here are a few steps I might think about:

License AirPlay to 3rd party CE makers: Bloomberg reported back in March that Apple was in fact considering a plan to license its AirPlay streaming technology to other hardware makers for embedding in their HDTV sets. That would allow iPad and iPhone users to stream content directly from their Apple devices to their big-screen TVs, regardless of the manufacturer, without having to go through an Apple TV set-top.

Not much has been heard of the plan since, but as I noted at the time such a strategy would allow Apple to extend the iOS platform and iTunes ecosystem to the living room without needing to invest directly in the irreversibly commoditized display business or in marketing a $99 STB that by itself adds little to Apple’s bottom line. The tens of millions of iOS devices already in the market could then be used as content acquisition portals in a broad range of living rooms.

Licensing AirPlay would also cement iOS as a dominant platform for second-screen and companion apps for TV shows. While a small business now, within 5 years companion apps with social network integration, supplemental material and synced hyperlinks are likely to be de rigueur for network series. That’s the sort of foundation on which new value-chains can be built. And if they aren’t built on iOS they’ll be built on Facebook.

Historically, of course, Apple doesn’t license its technology to other manufacturers. But there is precedent in the case of AirPlay. Apple already licensing AirPlay audio streaming to other OEMs for building iTunes-enabled speakers.

Think Hulu: I didn’t originally like Apple as a buyer for Hulu and would still be pretty surprised if that happened. But the timing of Apple’s move to kill low-priced episode rentals, as well as Fox’s comments on the move, made me wonder at least briefly whether Apple could be looking at Hulu more seriously than I had supposed.

If nothing else, getting rid of low-priced, ad-free rentals cleared away a potentially major conflict with Hulu’s ad-supported business model. Ad-supported (and/or subscription) streaming coupled with electronic sell-through, however, might make for a reasonable consumer proposition, and, if properly windowed, might fit within the networks’ comfort zone.

Especially so if the whole thing could be moved to the cloud, which is why Fox’s statement in response to Apple’s rental move struck me as interesting:

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. To further enhance the value of ownership, we are working with Apple to make content available within their new cloud-based service.

Fox really wasn’t compelled to say anything in response to Apple’s move, especially since Apple itself had soft-pedaled the announcement. Even if it felt compelled to say something, moreover, that second sentence about helping Apple move stuff to the cloud was hardly necessary from a strict PR perspective.

If you were given to reading entrails, and given that Fox is one of the networks selling Hulu, you might read the statement as a hint that EST in the cloud could be part of a broader deal also involving Hulu. Would a package including next-day EST, with storage in iCloud, followed by authenticated streaming a week or more later, followed perhaps by open, ad-supported streaming a month or more after that get Apple the rights to enough content to build a new service on? It might, although I can imagine a pretty good tug-of-war with the cable operators over how to handle authentication.

As a bonus Apple would also inherit Hulu’s pretty advanced ad-targeting system, which Apple might be able to leverage for iAds.

In any case, coupling EST with ad-supported and/or authenticated streaming on the same platform and in the right windows could make Apple an attractive buyer of rights to the networks whether those rights come through Hulu or not.

Focus on improving navigation: Navigation is the weakest point in current service providers’ armor. As TVs and set-tops add functionality, the limitations of the current user interface available to most consumers loom larger. Arrow keys and an “OK” button is no way to navigate rich, interactive apps and services on a TV.

If your goal is to loosen incumbent service providers’ grip on consumers, providing consumers with better tools for navigating the increasingly diverse services funneling into the TV would be a good place to start.

Further reading:

The Connected TV Marketplace ($$)

Apple’s Path to the Living Room ($$)

HDTVs vs. iPads

 

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