Apple’s Non-Disruptive 4K Strategy

For all the disruptive innovation Apple has unleashed on the markets for devices and software it has not been particularly disruptive to the content markets it has entered. Often just the opposite.

By the time Apple introduced the iTunes Music Store the record business was already reeling from the impact of Napster and its progeny. Rather than disrupt the business, Apple’s entry created a new market for paid downloads. The record companies later came to rue the terms of Apple_TV_portsthe deals they made initially with Apple, the iTunes store helped restore legitimate commerce to digital music platforms and on balance has been a net positive for the incumbent rights owners.

Apple is now trying to do the same thing in music streaming, relaunching a paid-only Beats Music service as the record companies try to marginalize free streaming platforms.

Apple’s entry into the ebook market followed a similar pattern. By the time Apple launched the iBookstore, the publishing business was fighting a losing battle against price erosion driven by Amazon’s aggressive ebook strategy. Far from adding to the disruption, Apple went so far as to orchestrate a conspiracy among the major publishers, according to the government, at least, to force higher prices on Amazon.

Now, as is begins to ease its way into the subscription video business, Apple is again, apparently, being careful where its steps. According to a report by John Paczkowski of BuzzFeed, the long-awaited next generation of the Apple TV set-top box will not output 4K video despite sporting a chip and GPU with more than enough horsepower to decode 4K streams.

Apple’s reasons for demurring on 4K no doubt include cost and competition: 4K streaming using the new HEVC (H.265) codec comes with a pretty steep royalty stack that would add cost at a time when Apple is reducing the price of its set-top box. Apple also only recently upgraded iTunes HD video from 720 to 1080p; outputting 4K content from Netflix and other Apple TV apps alongside iTunes’ 2K streams might cause self-inflicted embarrassment.

But there could also be some strategic calculation behind the decision to skip 4K. As Apple prepares to roll out a new set-top box it is also looking to launch an over-the-top subscription linear video service this year featuring the major broadcast and cable networks. Apart from the technical challenges it would entail, very little, if any, of that content is going to be in 4K anytime soon.

Having made the transition from standard to high-def, the broadcasters and other linear channels are in no hurry to undertake another expensive upgrade to 4K and have no plans to start creating a lot of 4K content. Insofar as Apple is interested in courting their support, therefore, there’s no reason for it emphasize 4K on a set-top when it’s not a priority for the networks.

More to the point, insofar as 4K is becoming a factor in the OTT space it has the potential to be disruptive to the incumbent linear channels. Netflix has been the most aggressive OTT provider in pushing 4K streaming and is clearly looking to leverage TV maker’s keen interest in 4K content to sell their 4K TVs for its own strategic goals.

At CES in January Netflix announced that it would begin evaluating connected TV sets to identify those best suited to accessing Netflix videos. And just this week it unveiled the first slate of “Netflix Recommended” sets, from LG, Sony and Roku TV sets being manufactured by Chinese CE companies Hisense and TCL.

Google has also been leveraging TV makers’ hunger for 4K content to encourage adoption of its VP9 codec, lining up a list of hardware and silicon partners at CES to showcase 4K streaming from YouTube.

Clearly, both Netflix and Google are looking to build their own, tightly linked hardware and content ecosystems on their own platforms, and are leveraging TV makers’ interest in promoting 4K to get there. If successful, those ecosystems would be both competitive with Apple’s tightly woven ecosystem, whether or not they’re ultimately used to deliver much 4K content, and disruptive to the incumbent linear networks, who would no longer be the best game in town for delivering premium programming.

When it comes to content businesses, that’s not Apple’s usual M.O.

 

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