Apple’s Latest TV Tease

For the best part of a decade, the heads of Apple, including Steve Jobs and current CEO Tim Cook, have had a side-career teasing fanboys and analysts about a major move into TV and video.

Jobs famously told his biographer, Walter Isaacson, that he “finally cracked” the secret to re-engineering the TV viewing experience, and just weeks before his death called tech columnist Walt Mossberg to say he had figured out how to “remake” television.

Whatever it was Jobs had figured out, though, he took it with him to his grave because nothing like what Jobs described to Iasaacson was ever released.

That didn’t stop his successor, Cook, from continuing the tease, however. For several years after, Cook made a habit of dropping hints about some new TV project or another, and stories leaked out of Hollywood every six months or so that Apple content chief, Eddie Cue, was talking with the studios and TV networks about licensing content for some sort of new Apple video service.

Nothing ever came of those purported discussions, either.

More recently, thing had gone quiet on the TV front as Apple turned its attention to building up its music streaming service and squelching growing investor fears about the future profitability of iPhone sales.

On this week’s Q3 earnings call, however, the TV tease was back on.

“We hired two highly respected television executives last year, and they have been here now for several months and have been working on a project that we’re not really ready to share details about,” Cook said. But he assured analysts he “couldn’t be [more] excited about what’s going on there.”

OK, I’ll take the bait. What could it be?

It’s clearly not any kind of integrated Apple TV set, as Jobs seemed to be contemplating. Nor is it likely to be a new set-top box or dongle, as Cook had hinted at over the years.  The two executives he referred to hiring are Jamie Erlicht and Zack Van Amburg, from Sony Pictures Television, where they were responsible for “Breaking Bad,” “The Crown” and “Rescue Me,” among other series. They’re not what you would call hardware guys.

But are Erlicht and Van Amburg there to produce shows or to take another run at licensing and acquiring content from the studios?

As Cook noted on the earnings call, pay-TV cord-cutting is happening at an accelerating rate, but he believes it will accelerate even further, “at a much faster rate,” than generally acknowledged. That means there will be a lot of potential video subscribers up for grabs over the next few years.

I wouldn’t expect Apple to try to launch a virtual MVPD service, as it seemed to be angling for in the past, though. With studios and networks increasingly looking to launch their own direct-to-consumer streaming services, and the consolidation underway in Hollywood, there is likely to be a lot less premium content and established TV brands around license, and prices will be sky high.

I wouldn’t expect Apple to go the Netflix route either. With 140 million video subscribers world wide Netflix has an enormous head start. It’s true that Apple has proved it can come from behind, as it did in catching Spotify in music. But in that case, Apple was able to obtain essentially the same catalog of content as Spotify at comparable prices. Though Apple is sitting on a mountain of cash, taking on Netflix’s $8 billion original content budget and well-oiled production pipeline would be a very heavy lift with a high potential for failure.

Whatever Apple is planning its target is likely Amazon. Apple can’t have missed noticing the strategic value Amazon has derived from Prime Video and its ability to drive business for other parts of the company.

Amazon’s Echo smart speakers and Alexa voice assistant have also given it a firm and rapidly growing footprint in the home, posing a serious threat to Apple’s ambitions in the connected home market. Alexa is also helping drive subscriptions to Amazon Music, which is starting to look like less of an also-ran in a market Apple hopes to dominate.

Apple needs an answer to Amazon in the home. And that means creating a credible alternative to Amazon Prime Video.

Whatever Apple is planning, it won’t be a Netflix-link standalone video streaming service. It will instead be tightly integrated with its broader strategic goals, the way Prime Video is tied to Amazon’s.

And Apple can’t keep up the tease much longer.

Thinking Inside The Box

Remember the Great Set-Top Box War of 2016? That was the brouhaha touched off by then-Federal Communications Commission chairman Tom Wheeler’s effort to force cable TV operators to “unlock the box” and make their video service available as a standalone feed so that third-party device makers could incorporate the service into their own platforms and within their own user-interface functions.

The proposal met fierce opposition from the TV networks and cable operators, who feared losing control over the uses and presentation of their programming, as well as from the Republican members of the FCC itself.

After a bruising, months-long fight, Wheeler was forced to pull the proposal on the eve of a planned vote. It was later dropped altogether after Wheeler left and a new, Republican-appointed chairman took over.

Yet for all the sturm und drang, a pair of recent announcements suggests that cable operators and box makers are finding ways to move beyond the controversy to achieve at least some of Wheeler’s hopes regarding innovation in the pay-TV market, if not his ultimate goal of breaking up the traditional pay-TV bundle.

At Apple’s Worldwide Developers Conference this week, the world’s biggest (by market cap) device maker announced a wide-ranging partnership with number 2 cable operator Charter Communications to incorporate Charter’s Spectrum TV app into Apple devices.

As part of the deal, the Spectrum TV app will be available on Apple’s next-generation set-top box, the Apple TV 4K, due later this year. Spectrum subscribers will be able to access “hundreds” of live channels, according to the announcement, and “tens of thousands” of video-on-demand titles through the Apple box.

While Charter has made the Spectrum app available on Roku devices since 2015, the Apple integration goes deeper. For one thing, the Apple 4K will incorporate Siri, allowing at least some functions of the box and its apps to be controlled with voice commands.

More notably, Apple’s latest operating system for the 4K box, tvOS 12, will enable the device to access a broader range of Spectrum subscribers’ program permissions and authorizations, including TV Everywhere authentication — one of the principal goals of Wheeler’s proposal. As described in the announcement, “Apple TV simply detects the user’s broadband network and automatically signs them in to all the supported apps they receive through their subscription—no typing required. Zero sign-on begins with Charter later this year and will expand to other providers over time.”

The feature would still require subscribers to get both broadband and video service from Charter, but it moves Apple TV a step closer to being a viable replacement for the traditional cable box.

Also this week, Amazon unveiled the Amazon Fire TV Cube, which combines features of Amazon’s current 4K-capable Fire TV box with those of its Echo smart speaker, including the Alexa voice assistant.

While Amazon has not announced any pay-TV service integrations with the Cube, the box does support HDMI-CEC (Consumer Electronics Control). Though still a bit dodgy, HDMI-CEC is designed to allow devices connected to a TVs HDMI ports to communicate back and forth with the TV, which means Alexa will be able to control at least some functions of compatible TVs though voice commands.

The Cube also contains IR (infra-red) blasters and comes with an IR dongle that attaches to the back of the device, giving Alexa a measure of control over a variety of cable boxes, soundbars and other TV-connected devices.

According to Amazon, the Cube is compatible with “more than 90 percent” of cable and satellite services, including boxes from Comcast, Dish, DirecTV, Charter, and Verizon.

To be sure, both the Apple and Amazon solutions leave the incumbent pay-TV operators in control of subscribers’ program permissions, as well as how that programming is packaged and presented — a grip Wheeler had hoped to loosen. And they do nothing to break up the Big Bundle.

Yet, by introducing innovations such as effective voice control they could begin to render that packaging and visual presentation moot, achieving through attrition what Wheeler tried to achieve by fiat.

 

Nothing Neutral About Disney’s Bid For Fox

It was fitting, albeit likely coincidental, that the Walt Disney Co. announced its $52 billion acquisition of most of the movie and TV assets of 21st Century Fox on the day the Federal Communications Commission voted to repeal its own net neutrality rules, because the deal is very much about the future of content delivery over the internet.

Disney CEO Robert Iger

Under the deal, Disney would absorb the 20th Century-Fox film and TV studio and its library, including the first three “Star Wars” films; most of Fox’s cable networks group, including National Geographic, FX, and 300-plus international channels but excluding Fox News or Fox Sports; and 22 regional sports networks (RSNs). The deal also includes Fox’s one-third interest in Hulu, giving Disney majority control over the streaming service.

Assuming the deal passes antitrust muster — highly likely given Rupert Murdoch’s closeness to Donald Trump — it will give Disney control over vast new libraries of content as it prepares to significantly expand its direct-to-consumer streaming business. Strategic control over Hulu will also give Disney a solid foundation from which to challenge Netflix and Amazon directly as an over-the-top content aggregator.

Yet, while the coming showdown with Netflix has grabbed most of the headlines about the deal, there is another important streaming dynamic likely to play out that has gotten less attention but which could be directly impacted by the repeal of the net neutrality rules.

Whether, or not, the bulked up Disney succeeds in challenging Netflix and Amazon, its growing direct-to-consumer ambitions give the Mouse a major stake in the coming contest between programming services and broadband providers over the terms and conditions of engagement on last-mile networks.

The over-the-top streaming business has so far developed very differently from traditional movie and television delivery businesses. In the traditional TV business, the owners of the last-mile pipes — cable and satellite operators, local broadcast affiliates — pay program providers for access to their content.

Disney, in particular, has been successful in leveraging that dynamic, earning ESPN the highest per-subscriber carriage fees of any cable network.

Unlike a cable TV system, however, internet access networks have utility and value independent of any particular content, allowing access service providers to build their networks — and subscriber bases — without having to pay for the content moving across those networks.

If anything, the monopoly or duopoly status most internet access providers enjoy within their footprints has raised concerns that ISPs could use the leverage of their control over their networks to compel content providers to pay for access to their subscribers.

The FCC’s original Open Internet Order was designed in part specifically to deny ISPs that leverage, by prohibiting the blocking or throttling of data based on its source, or accepting compensation for favorable treatment of data from a particular source. Those rules left the status quo in place, at least for the time being. But they left open the possibility that the streaming business could eventually develop more like the traditional TV business, in which access providers are compelled to

The FCC has now voted to lift those rules — their ultimate fate awaits the outcome of inevitable litigation — potentially upsetting the current balance of power.

Determining who will ultimately holds the leverage in that balance remains a work in progress, however. One way to read Disney’s bid for Fox is as an attempt to position itself not only against Netflix but against last-mile network operators for the inevitable battles ahead.

From that perspective, the real trigger event for Disney was AT&T’s (still pending) acquisition of Time Warner. Assuming that deal goes through, it will mean that two of Disney’s (and Fox’s) major competitors — NBCUniversal, now owned by Comcast, and Time Warner — will be owned by major broadband providers. That could leave Disney at a disadvantage in the struggle for leverage over the terms of OTT distribution.

One option would have been for Disney to sell itself to a network operator. But the only one out there with the scale to do it and not already betrothed is Verizon, and Verizon execs have made it clear they’re not in the market for a major studio.

By buying Fox, Disney is hoping to gain enough scale as a content provider to treat with network operators on equal or better terms.

 

Amazon, Google And The Great Game

For the better part of the 19th Century, the British Empire and Czarist Russia (and for a while Napoleonic France) struggled for influence and control over Afghanistan and the broader Islamic Central-Asian region. Russia feared England’s growing commercial ambitions on the doorstep of the Russian Empire, while England feared that Russian control of Afghanistan would allow it to threaten India, the “jewel in the crown” of the British Empire.

Although the European powers never went to war against each other directly over the region, they engaged in a decades-long series of political and diplomatic moves and counter-moves (and occasional indirect military moves) that historian came to call The Great Game.

Something like a 21st Century version of the Great Game is now playing out among today’s digital empires for control over virtual territory on the connected devices and streaming services in Americans’ homes. Read More »

Fool Me Twice: How Spotify Could Become the New iTunes Store

Back in 2003, as the music industry was reeling from widespread, Napster-fueled piracy, Apple CEO Steve Jobs made the record labels an offer they couldn’t resist: Give me a license to sell individual tracks but let me sell them cheap enough to be a viable alternative to free, and I’ll wrap them in DRM for you in a way that consumers will accept, so they can’t be copied.

The labels leapt at the deal and the $1.00 download became the new atomic unit of the business.

Though thrilled at first to have an answer to piracy the record companies eventually came to rue the arrangement once they figured out that Apple was using those inexpensive downloads to supercharge the market for its high-margin iPods and later iPhone hardware, and was reaping far more of the value being created by their music than they were. By then, however, they had become captive to Apple’s ecosystem: Thanks to Apple’s proprietary DRM, the only way to sell music to iPod users — at the time the largest segment of the portable music-player install base — was through iTunes, under terms effectively dictated by Apple. Read More »

Amazon in Good Field Position After NFL Deal

Amazon won the auction for live-streaming rights to this season’s Thursday Night Football franchise with a bid of $50 million dollars for a package of 10 games. That’s 5 times what Twitter paid last year for essentially the same deal: Amazon will share the games with NBC and CBS and will stream the networks’ feeds, including their ads. Amazon will also be able to sell a handful of ads per game itself.

The games will be available for free to Amazon Prime members.

Although the 5X increase in price is impressive — and was probably too rich for Twitter — $50 million is still pretty small beans, both for the league — whose deals with the broadcast networks run into the billions — and for Amazon, which has $20 billion on its balance sheet. For both, it’s largely an add-on business at this point.

For the NFL, streaming is still largely an experiment aimed at finding a way to reach cord-cutters and out-of-home viewers, and to test the viewership waters outside the U.S., not to supplant its traditional broadcast deals. For Amazon, the NFL deal is a way to enhance the value of a Prime subscription and to attract to new subscribers at a relatively modest price. Read More »

Apple TV Needs To Get Off The Couch

Earlier this month Apple poached Timothy Twerdahl from Amazon, where he had headed up the Fire TV unit, to serve as VP in charge of Apple TV product marketing, raising hopes that Apple is gearing up for another try at transforming Apple TV from a hobby into a meaningful product line. But if so the transformation won’t be immediate.

Apple is reportedly testing the next iteration of the Apple TV set-top box, which could be released later this year. But early indications are that it will be another study in incrementalism, adding support for 4K streaming but no groundbreaking new functionality.

Apple is also rolling out two new original TV series, a long-form version of James Corden’s Carpool Karaoke segments from the “Late Late Show,” and reality TV-type series called “Planet of the Apps.” But neither series is being launched under the Apple TV banner. Instead, as Apple content chief Eddy Cue explained at the Code Media conference this week, both will be made available through Apple Music in a bid to boost subscriptions to the music streaming service. Read More »

Have Netflix, Will Travel: EU Digital Single Market Inches Closer

Negotiators for the European Commission, the European Parliament, and European Union member countries this week reached agreement on new rules that will allow citizens from one EU country to access digital services they subscribe to, such as Netflix, Spotify, and sports live streams, when traveling in another EU country starting in 2018.

Up to now, exclusive territorial licenses between rights owners and online services, as well as other rules, have generally prevented services from granting access to subscribers from outside their home country.

“Today’s agreement will bring concrete benefits to Europeans. People who have subscribed to their favourite series, music and sports events at home will be able to enjoy them when they travel in Europe,” EU vice-president in charge of the Digital Single Market Andrus Ansip said in a statement. Read More »

Apple Tip-Toes Into Original Video

The Wall Street Journal reported this week that Apple has begun talks with producers in Hollywood about buy rights to original TV series and movies. If true it would represent at least the third attempt by the iPhone maker to crack the TV code, so far without notable success, although its strategy this time appears to be different from its previous efforts.

I say “appears” because, according to the Journal, Apple itself  “is still working out details of its business strategy built around original content.”

The new shows, which could begin appearing by the end of this year, will reportedly be made available to subscribers of Apple Music, suggesting this isn’t an attempt (yet) to build a direct competitor to Netflix and Amazon Prime. The fact that Apple is targeting individual movies and TV series rather than networks suggests this is also not some sort of skinny bundle play to compete with Sling TV and the new Hulu service. Read More »

Talking Back to the TV

TV manufacturers, set-top box makers and smart TV software developers have tried for years to get rid of the old D-pad remote control and on-screen programming grid for search and navigation. They’ve tried motion control, Bluetooth qwerty keyboards, touch pads, and casting from mobile devices. With the exception of casting, most have proved pretty kludgey.

At the International CES underway in Las Vegas this week, voice activation has emerged as the TV interface flavor of the month. Amazon announced that it has licensed its Fire TV interface — complete with its Alexa voice-controlled digital assistant — for use in a trio of low-end 4K TV brands based in China.

Display sizes will range from 43 to 65 inches and device will come with 3GB of RAM, 16GB internal memory for apps, and a remote control with integrated microphone for talking to Alexa.

Not to be outdone, Google announced it will bring Google Assistant to all TVs and set-top boxes running Android TV, including Sony’s Bravia models and Sharp’s Aquos line. Read More »

Music For The Masses

Music streaming has brought a lot of personalization to the experience of listening to music. Faced with the challenge of differentiating their service from competitors featuring substantially the same catalog of music, at a de facto standard price point, streaming services have focused on developing ever-more precise tools for personalizing the listening experience in the hope of keeping users engaged. So, Spotify has its playlists, Apple has its curators, Pandora has its music DNA project.

His_Master's_VoiceMusic rights owners too, in their approach to the streaming business, have also encouraged personalization. Burned badly by free music “sharing” sites, the record labels have been more than happy to reinforce the streaming services’ efforts to turn listening into a personal — and solitary — experience, such as by curating their own Spotify and Apple playlists.

Digital technology itself has also contributed to the bias toward personalization. Use of streaming services is heavily weighted toward mobile devices, particularly phones, which by design are personal, and in general highly personalized devices. Digital distribution also generates the sort of highly granular usage data on which personalization tools rely.

All that personalization has come at a price, however. With everyone cocooned inside their own playlists and cut off from the outside world by earbuds, the communal experience of listening to recorded music with friends or family has become a rarity. Read More »

For Music Biz, First-Half Results Are A Glass Half Full

The Recording Industry Association of America this week reported that U.S. music sales through the first half of 2012 were up 8.1 percent over the first half of 2015, to $3.4 billion, the industry’s strongest rate of growth in more than a decade.

iphone-artist-spotifyThe surge was due almost entirely to a whopping 112 percent increase in revenue from paid streaming services such as Spotify, Apple Music, and Tidal which more than offset a 17 percent decline in digital downloads (including albums, single tracks, and kiosks), and a 16 percent decline in sales of physical formats (CDs and vinyl).

Revenue from free interactive streaming, such as Spotify’s ad-supported tier, YouTube and Vevo, grew 24 percent but remained a tiny slice (5.9 percent) of the overall revenue pie. Revenue from non-interactive streaming services, primarily Pandora, was up 4 percent.

“Streaming in all its forms accounted for almost half of all recorded music revenues in the first half of 2016,” RIAA CEO Carey Sherman wrote in a post on Medium. “This represents a remarkable transformation and reinvention by a business that was principally physical products just six years ago.” Read More »

The More Things They Change, The More Digital Platforms Become The Same

YouTube is working on a plan to be more like Facebook, Snapchat, and Twitter. According to a report by VentureBeat, the video platform has been developing a new feature internally called Backstage that will allow users to post photos, links, text posts and other non-video content alongside their videos. The new content will resemble a Facebook Timeline, presented as a feed scrolling in reverse-chronological order on the user’s channel home page, but also appearing in subscribers’ feeds and notifications.

Backstage, or whatever it ends up being called, is expected to be rolled out later this year on select YouTube accounts.

The move to make using YouTube more like using Facebook seems only fair at this point given that Facebook has lately become more like YouTube. The social network has, with considerable success, moved aggressively to turn itself into a major platform for hosting and sharing user-created videos — once the near exclusive facebook_videoterrain of YouTube.

Facebook has also lately taken steps to become more like Twitter, launching Facebook Live to rival Periscope, while Twitter has tried to become more like YouTube by making video a bigger part of its offering.

A similar convergence is underway in the music streaming area. Pandora is reportedly in the final stages of negotiations with the record companies to launch an on-demand tier to its service, which would make it more like Spotify and Apple Music. Spotify, meanwhile, is acting more YouTube and even Netflix, adding original video to its mix of content.

It’s getting to where you can’t tell the players apart without a scorecard.

More to the point, it’s getting harder for digital platforms and services to differentiate themselves from each other. Music streaming services, which already share substantially the same catalog of content and now increasingly share the same business model, are trying, through the increasing use of  individual artist exclusives. Others have sought to make human vs. machine curation a point of differentiation. Read More »

How Twitter Beat Out Rivals For NFL Deal

Twitter this week landed streaming rights to a 10-game package of Thursday Night Football games next season for a surprisingly modest $10 million, edging out rival bids from Verizon, Amazon and Yahoo, at least one of which reportedly came in 50 percent higher than Twitter’s offer. Another rival, Facebook, reportedly dropped out of the bidding last week over objections to the advertising framework imposed on the deal by the NFL.

Twitter, in fact, will get minimal advertising rights as part of the deal. As a technical matter, it will be rebroadcasting the CBS and NBC feeds of the nfl_gamegames, which the networks will also be streaming over their own, authenticated TV Everywhere platforms as part of their $450 million deal to broadcast the games, and the networks will be handling the bulk of the ad sales for both broadcast and digital channels. Twitter will get a little bit of inventory around the margins to sell, plus some pre-game, player-created spots on Periscope. The deal is basically a $10 million brand-building exercise for micro-blogging and live streaming platform.

The games, in fact, will be available for free, without authentication, both on Twitter’s own platform and across its entire, syndicated global footprint.

That last point was obviously critical for the NFL, which has been working feverishly to expand its audience outside the U.S. and sees streaming as a way to reach potential fans in territories where broadcast rights would be a tough sell. Read More »