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Cable Technology Feature Article

August 30, 2011

Will Apple Disrupt Cable TV?

By Gary Kim, Contributing Editor

You have to wonder what markets Apple already plans to enter next, but most observers would say Apple's interest in TV services, though a self-described "hobby" in the past, will not remain a hobby for long. 

An immediate challenge for Cook will be to advance Apple's plans in what is expected to be a key market for growth: digital video, the Wall Street Journal reports. Apple is working on new technology to deliver video to televisions, and has been discussing whether to try to launch a subscription TV service.

Unlike the iPod and music, where Apple has a commanding position, the battle to rule online video remains wide open and the company faces fierce competition from several quarters. Apple eyes TV, print

Apple's digital book, magazine and newspaper services are in their early days as well, but Apple seems to have designs in those areas, too. 

The reason Apple focuses on the content experience is because there's just so much money in it, some would argue. Apple can make money on hardware, on software, on cloud services, on providing content, on allowing others to provide content and on advertising. 

The content focus is why, for example, the profits Apple receives from the iPhone (News - Alert) are twice as high as those of all other phone makers. TV is content, content is what Apple disrupts

Apple set out to replace that lousy content experience, and it did so with iPods and iTunes. Next, it noticed that people started consuming a lot of content on mobile phones. But the experience was terrible, Apple concluded. 

Phones were ugly and clunky. Mobile interfaces were awkward and counterintuitive. The carriers were gouging users and offering lousy content. So Apple fixed the horrible content consumption problem on mobile phones with the iPhone and the App Store, argues Mike Elgen at Computerworld. 

Chairman Steve Jobs (News - Alert) "often criticizes, in public and in private, the experience of watching TV as clumsy and bad for consumers" and says that the "existing system, where consumers get content from different cable and satellite providers that use different technologies, makes it difficult to innovate," the Wall Street Journal reports. 

Executives in any industry historically have had good reason to tremble whenever Jobs has said things of that nature about an industry, as it typically is a prelude to Apple trying to provide a better experience, which also leads to Apple inserting itself in a powerful way into the new ecosystem and driving much innovation within the changed ecosystem as well.

This will not be easy, and likely harder now that Steve Jobs has stepped down from the CEO post at Apple. Basically, what Apple, or Google (News - Alert), or any other potential disruptor, must do is convince the content owners they initially will gain enough new revenue, with limited losses from other channels, to embrace a new model. The long term model is easy to describe. When content owners make more money from a new mode of distribution than from the legacy modes, they shift.

Apple's iCloud may not have brought us music subscriptions, but the company is reportedly still considering a subscription service tied to TV content delivery Apple subscription TV coming? Some might point to Apple's recent suspension of sales of individual TV episodes for 99 cents, a price point content owners have said devalues their content. 

But music, where single sales remain the most successful revenue model, arguably is different from television. People buy their favorite songs because they expect to listen to those songs over and over. People behave differently when consuming TV content, watching an item once, maybe twice. 

Even for video on demand services, cable operators have found that a subscription approach works better than the on-demand, pay-per-view model. So a potential Apple TV subscription service would make sense. 

Still, even Apple might find the initiative takes some time, as cable operators will put extreme pressure on their content suppliers not to jeopardize the substantial revenue that cable and other distribution channels now provide. Still, Apple has proven in the past that it can disrupt and reshape existing markets. TV seems to be shaping up as a target. 

And Apple isn't the only source of potential innovation or disruption, depending on how one wishes to view the matter. Google also is working on ways to innovate in the TV arena, though not as a distributor, while Netflix and others are working on the distribution model. Amazon and others also are working on the content distribution model. 

Because access to content is crucial, alternatives are not likely to develop quickly content owners simply do not have the financial incentives to license their content in quantities sufficient to make any competitor to cable TV viable in the near term. For many observers, the only issue is how long it takes before an inflection point is reached. 

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2011, taking place Sept. 13-15, 2011, in Austin, Texas. ITEXPO (News - Alert) offers an educational program to help corporate decision makers select the right IP-based voice, video, fax and unified communications solutions to improve their operations. It's also where service providers learn how to profitably roll out the services their subscribers are clamoring for – and where resellers can learn about new growth opportunities. To register, click here.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves