According to a report by Recode’s Peter Kafka, which apparently is not a joke despite its April 1 dateline, Apple is asking the TV networks to provide their own streaming infrastructure and handle their own video delivery as part of Apple’s planned subscription OTT service.
The two leading theories for why Apple is looking to take such a hands-off approach are a) to avoid the costs involved in building out its own streaming infrastructure, and/or b) Apple thinks cable-based ISPs would be less likely to engage in f@ckery against the service if the networks are delivering the streams.
Neither theory is entirely persuasive.
The costs associated with streaming video are not prohibitive. The markets for transit and CDN services are very competitive and Apple would have not trouble attracting very aggressive bids for its business.
More to the point, Apple has already built its own global CDN so most of those costs have already been sunk. That CDN may not have been built for the purposes of delivering video but it has more than enough capacity to handle video streaming if Apple wanted it to.
As for ISP f@ckery, Apple already has paid interconnection deals in place with several large ISPs so that bridge has already been crossed. Moreover, the telco-affiliated ISPs need the iPhone for their wireless services and the cable ISPs need the App Store and Apple’s user-base for their TV Everywhere efforts. No one is going to mess with Apple’s video streams no matter who is delivering them.
So why would Apple want the networks to bring their own streams? If the report indeed is true it says to me that Apple remains uncertain about the future shape of the linear OTT ecosystem and isn’t sure it really wants to be in the online video bundling business long-term. So why lock yourself into a business model you may want to wash your hands of sooner rather than later?
The existing pay-TV bundle is under assault from all sides today. Content costs continue to rise, consumers are increasingly rejecting the bundled-channels model and the networks are increasingly going direct-to-consumer without the bundle. So unless you’re already in that business, as DISH is, and can leverage existing internal resources, or you’re looking to drive data usage on your wireless platform, as Verizon is, simply recreating the pay-TV bundle online is not a particularly compelling strategy.
Apple has no doubt done the same math and is simply being appropriately cautious about its commitment to the bundle.
Further, I suspect Apple has not given up completely on the idea of integrating existing pay-TV providers’ services into iTunes as part of a universal TV Everywhere platform that combines linear, on-demand and OTT channels in a single, Apple-built UI implemented on Apple laptops, iPhones and iPads. Such a strategy would be consistent with Apple’s penchant for leveraging its users’ existing investment in content and services, as it did initially with music and the iPod and wireless and the iPhone, and would limit Apple’s downside exposure to the multichannel, subscription video business.
Getting into the straight-up subscription video business now, however, could foreclose the integration option by antagonizing the pay-TV operators. If, on the other hand, Apple were essentially just re-selling the network’s existing OTT streams, albeit as a package, it might be less antagonizing to cable and satellite providers and would leave Apple the flexibility to shift strategy as the linear OTT market evolves.