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.

AT&T’s Real Challenge to HBO

Media industry tongues are still wagging over AT&T executive John Stankey’s June 19 town hall meeting with HBO employees, in which he discussed the telco-giant’s plans for the network.

As first reported by the New York Times, which got its hands on an audio recording of the event, Stankey came off  like a bull in a china shop, seemingly admonishing HBOers they were in for a “tough year” to meet AT&T’s goal of making the boutique network “bigger and broader,” in the Times’ characterization, by cranking out subtantially more content to better compete with over-the-top services like Netflix.

“We need hours a day,” the Times quoted Stankey saying. “It’s not hours a week, and it’s not hours a month. We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.”

The goal, he said, was more engagement. Read More »

The Weight Of The World

Shares of Netflix touched $349.29 this week, raising its stock market value to $153 billion, eclipsing Disney’s $152 billion and making the streaming service, briefly, the most valuable entertainment company in the world.

Netflix’s stock has been the top performer in the S&P 500 so far this year, surging nearly 70 percent since January. But a bullish forecast put out last Friday by Bank of America analyst Nat Schindler suggested the peak is yet to come, fueling this week’s rally.

“We believe Netflix still has a considerable opportunity ahead if it can achieve reasonable penetration levels internationally,” Schindler said in a note to clients. “Netflix will face varying levels of competition, regulation and economic conditions in each individual market it participates in, but its content scale should allow it to become the dominant streaming player in virtually all markets.”

Schindler predicts that Netflix’s global subscriber base can continue to grow by 8 percent annually, reaching 360 million by 2030, as consumers in a growing number of markets get access to broadband. Netflix currently pegs its global subscriber rolls at 125 million. Read More »

Comcast And Netflix: We’re Chill

A story appeared this week in the the music trade Digital Music News claiming that Comcast had coerced Netflix into their recently announced agreement to bundle the streaming service in with Comcast’s pay-TV offering by threatening to impose “paid prioritization” charges on Netflix for delivering its streams to Comcast broadband customers.

The story cited an anonymous source, who pointed to a paragraph in the press release announcing the deal, which reported that “Netflix-related billing will be handled directly by Comcast, giving customers one, simple monthly statement,” as evidence of Comcast’s arm-twisting. Read More »

Set-Top Rapprochement

Back in 2012, writing for the now-defunct GigaOm, I predicted that peace would eventually breakout between pay-TV operators and over-the-top services, a process I dubbed the set-top rapprochement (I was able to find one archived example of my musings still available online).

As OTT services evolved into ever-more viable substitutes for traditional TV, pay-TV providers, I assumed, would eventually realize they were better off embracing the enemy that fighting him, lest they be displaced altogether. OTT services, I imagined, would eventually see the benefit to getting their service onto TV-input 1 in households that held onto their pay-TV service, which is to say most of them. Read More »

Mirror Mirror

Netflix’s content chief Ted Sarandos once famously quipped that his goal was for Netflix to become HBO “faster than HBO can become us.” By that he meant, for Netflix to establish itself as a high-end global TV content brand before the reigning high-end global TV content brand, HBO, could un-tether itself from the legacy pay-TV ecosystem.

So far, Netflix is winning that race. The streaming service now reaches over 100 million subscribers worldwide, more than the entire U.S. pay-TV universe, and will spend upwards of $8 billion in 2018 producing 700 original series.

What’s more, Netflix has successfully colonized HBO’s home turf in the living room. Although today you can watch Netflix on virtually any connected device nearly anywhere in the world, the company reported this week that 70 percent of its streams are delivered to a stationary TV set, either directly via smart TV app, via streaming box, or via its growing number of integrations with traditional pay-TV platforms. Read More »

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.

 

Skinny Bundles vs. Set-Top A La Carte

Having resigned themselves to a future defined by cord-cutting, TV programmers are desperately trying to hold the line on bundling. The virtual-MVPD movement started by Dish Network’s Sling TV service began by trying to split the difference between the bloated traditional pay-TV bundle and true a la carte by offering a slimmed down package of channels at a lower price.

Since then, as more vMVPDs have launched to challenge Sling programmers have used their leverage to push up both the heft of the bundles and price tag, to where “skinny” bundles increasingly resemble what they aimed to replace, albeit at a somewhat reduced price.

That strategy isn’t cutting it with many cord-cutters, however. According to MoffettNathanson analyst Craig Moffett, virtual-MVPD subscriptions are so far making up only about 60 percent of the losses from consumers cutting the traditional cord, a trend Barclays analyst Kannan Venkateshwar sees continuing. Over the next decade, Venkateshwar projects, 31 million traditional pay-TV subscribers will cut the cord, but only 17 million will sign up for an internet-delivered bundle.

Assuming internet-delivered bundles are still around in a decade, that is. “Most of these [vMVPD] businesses are at best break-even or money losers,” Moffett told Bloomberg. “This is shaping up to be a truly lousy business.”

The a la carte on-demand subscription business, on the other hand, is shaping up nicely. Set-top streaming box maker Roku this month reported 15 million active monthly accounts, a 43 percent year-over-year increase and more than all virtual-MVPDs combined. The privately held company generated nearly $400 million in revenue in 2016 and reportedly is preparing to file for an initial public offering later this year at a roughly $1 billion valuation.

Notably roughly $100 of that $400 million in revenue last year came not from hardware sales but from its media and licensing business, which includes ad sales on Roku channels and fees it charges networks to be featured on the platform.

Roku isn’t alone on the set-top, either. According to eMarketer, Roku 38.9 million Americans will use Roku at least once a month in 2017 (including multiple users per active account), up 19 percent over last year, followed closely by Google’s Chromecast, at 36.9 million, and Amazon’s Fire TV, at 35.8 million.

One reason for that growth in connected-device usage is the growth in the number of U.S. households subscribing to more than one over-the-top subscription VOD service.

According to a recent study by Hub Entertainment Research 38 percent of U.S. TV households now subscribe to two or more SVOD services such as Netflix, Amazon and Hulu. That’s up from 26 percent last year. Some 14 percent of households subscribe to all three major services, up from 6 percent a year ago.

Not all of those SVOD subscribers have cut the cord, of course, but anyone who is subscribing to all three major services is paying about as much per month for them as they would for a skinny bundle. If consumers can be said to vote with their dollars they’re voting for a future that is on-demand and a la carte, not just over-the-top.

The Net Neutrality Paradox

One of the more unfortunate wrinkles in the long debate leading up to the Federal Communications Commission’s 2015 Open Internet Order, better known as net neutrality, was its increasingly commercial focus. There were important civil liberties issues at stake, to say nothing of the interplay of engineering and regulation of critical infrastructure and the private ownership of public goods. But much of the public debate boiled down to an argument over streaming — Netflix streaming in particular.

That was due in no small part to the efforts of Netflix founder and CEO, Reed Hastings, who made himself and his company the poster-children of the net neutrality cause by loudly proclaiming Netflix’s oppression at the hands of ISPs looking to impose interconnection fees on the streaming service.

Although net neutrality proponents eagerly embraced Netflix’s cause and Hastings’ pubic advocacy they worked to color the issue as essentially a commercial dispute between different types of service providers, which, paradoxically, is actually an argument against what the FCC did. Disputes between buyers and sellers are not really the FCC’s bailiwick; that’s more a matter for the Federal Trade Commission and the antitrust division of the Justice Department. 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 »

Netflix Ponders Life Without Net Neutrality

Netflix CEO Reed Hastings did as much as anyone to shape the Federal Communications Commission’s net neutrality rules. CEO Reed Hastings’ aggressive public lobbying for what he termed “strong” net neutrality, after Comcast and AT&T successfully forced Netflix to pay for access to their last-mile networks, was largely responsible for putting interconnection arrangements between ISPs and edge providers at the center of the debate and helped persuade former FCC chairman Tom Wheeler to push through reclassification of broadband access as a Title II telecommunications service, which gave the commission jurisdiction over those deals.

Yet, as Republicans in Congress and on the commission sharpen their knives to disembowel Wheeler’s hard-won rules Netflix says it no longer needs the protection.

“Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable,” Hastings said in his Q4 letter to shareholders this week.

Translation: we’re too big now even for Comcast to push around, a point Comcast itself obliquely acknowledged in November by integrating Netflix into its flagship X1 set-top box. 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 »

A Measure of Success: Frank Ocean, Netflix and the Value of Data

Frank Ocean’s surprise release “Blonde” debuted at No. 1 this week on the Billboard Top 200 album chart, racking up sales of 275,000 units, despite its not being released as an album in any physical format.

frank-ocean-blonde-x750So what were those 275,000 units? Some 232,000 of them were paid digital album downloads, according to Nielsen Music. The other 43,000 consisted of “equivalent album units.”

Say what?

An “equivalent album unit” (shouldn’t that be “album-equivalent unit?) is a metric devised by Billboard in 2014 to accounting for streaming activity and individual track downloads for charting purposes. Ten individual track downloads from an album as measured by Nielsen, or 1,500 on-demand streams of individual album tracks as reported to Billboard by the major streaming services, are counted as an equivalent album unit. In the case of Blonde, individual track downloads were not available at the time of the albums initial release, but they accrued 65 million streams. Dividing that 65 million by 1,500 yields 43,000 equivalent units. QED. Read More »