Apple Might Need to Think Different About TV

Apple’s tough negotiating stance has hobbled its efforts to bring entertainment industry companies on board with its planned streaming TV service, The Wall Street Journal recently reported.

Talks with Disney, 21st Century Fox and CBS have fallen through, according to the paper.

Had the entertainment and cable TV industry given in, Apple’s demands would have turned current practices topsy-turvy. For example, Apple reportedly wanted a multiyear freeze on the monthly per-viewer rate it would pay for Disney Channel licenses, whereas the standard practice is to increase rates annually.

Apple is developing its own miniseries and pushing apps as the future of TV. It offers an HBO app in the iTunes store.

“Apple’s trying to apply the lessons they learned from dealing with the music industry — which it disrupted by charging consumers 99 cents per song,” suggested Mike Goodman, a research director at Strategy Analytics.

“They were successful in doing so but they were also first to market then,” he told the E-Commerce Times.

“When you’re first to market, you have the flexibility to try new things and you can dictate terms, but when you’re fourth or fifth or sixth to market you can’t,” Goodman said. “The TV industry isn’t going to redo all their contracts and disrupt their business model just for Apple’s sake. The question is, what’s in it for them?”

Apple’s Way

Apple’s discussions with the entertainment industry in recent years have fallen through because of the company’s hard-nosed negotiating style, according to the WSJ. It has sought to select which channels to include, to set the price, and to retain global rights in some cases. It wanted to have users sign in with their Apple IDs so it could build a database of subscribers and their preferences, while its entertainment industry partners would handle billing and customer service. It has refused to share crucial details, including information about its customer interface.

“At the root [of Apple’s failures] is that technology companies can’t unilaterally change the current business of video distribution,” said Greg Ireland, a research manager at IDC.

“They can participate in the evolution and even drive that, but — at least at the moment — licensing content is only going to be done on terms that content companies can live with,” he told the E-Commerce Times.

Programmers “are trying to preserve the legacy model of combining ad and distribution revenue, and are often walking a thin line … aiming to move forward with new distribution partners, but not undermine the traditional business model they depend on,” Ireland explained.

No Common Ground

There appears to be no confluence of both sides’ interests.

“Programmers might not need Apple yet,” Ireland said. “Similarly, for Apple, entering deals that don’t make sense for the company for a service that isn’t yet a must-have means it can stick to its desired approach.”

Content “is all about volume and margin,” said Michael Jude, a program manager at Stratecast/Frost & Sullivan.

Apple “is a disruptive force in the industry,” he told the E-Commerce Times, and it “is attempting to do for video what it did for audio content. Existing Hollywood and cable industry practices have been symbiotic and dysfunctional for a long time. It’s time for a shakeup.”

The Road Ahead

The video market “is experiencing a growth in customer alternatives,” said IDC’s Ireland, including not only “new content types, but also a lot of great new original content that consumers are willing to pay for. Traditional media and cable companies may have to alter course to adjust to new competition, and this might turn things in favor of large tech companies like Apple, Google or Amazon.”

That said, the entertainment companies have the leverage, because “people love the content itself — and even though cord cutting is real, it’s still incremental and hasn’t decimated traditional distribution practices with cable companies,” he pointed out.

“Does Apple really think the TV industry is going to redo their entire business model for them?” asked Strategy Analytics’ Goodman. “They’ll have set a precedent, and everyone else will want the same deal.”

Apple is “going hat in hand to the industry, and it’s a position they’re not familiar with,” he noted. “They’re still operating from the perspective of the market leader and that they have the leverage — which they don’t.”