Apple TV has Cable Companies Running Scared

| Editorial

This is the dawning era of Internet TV: Apple TV, Google TV, and now MS TV. All the while Apple TV was deceptively labelled a hobby, the cable (and satellite companies) appeared to be asleep at the wheel. No longer. Now they’re running scared, and that’s dangerous.

It has always been easy to make fun of the cable companies. They have so many subscribers, they can’t give each customer very much individual attention. The business model is based on boiling the customer’s frog with ever increasing rates in order to satisfy the stock holders. The attitude has been that the customer should be so happy to receive some high-definition TV, they’ll put up with crappy user interfaces on the DVRs.

Then along came Apple, Roku, and Google who fundamentally changed the customer experience. (Well, at least Apple and Roku.) These companies didn’t compete for that coveted #1 HDMI slot on the TV. Instead, they weaseled their way into our hearts by providing an easy alternative: HDMI port #2, which just sat there waiting for a blind date. And it was a success: Apple has sold a millon Apple TVs in the last 90 days.

Digital TV

The Awakening

This week at the Consumer Electronics Show (CES), Cisco is expected to announce a next generation cable TV box, according to the Wall Street Journal [Subscription required.] It’s a hybrid box that can receive and manage input both via the normal coax cable and also the Internet. Not only does this allow a more targeted, IP address oriented Video on Demand (VOD) experience, but also allows the cable companies to tap the capabilities and sources of the Internet — with the attendant benefits to advertisers.

Their goal is to make that HDMI #2 port irrelevant.

In addition, Comcast announced this week that it will be offering streaming live and on demand TV shows and movies to its Xfinity TV iPad app. Clearly, Comcast has awoken from its long slumber.

What caused this was an accumulation of several factors. The economy certainly played a role in promoting cord-cutting. There’s nothing like being faced with a layoff combined with a hike in cable TV rates to propel the home owner to action. The Internet is a necessity for job hunting; cable TV is not.

Also, for the first time, the cable companies have seen a decrease in subscribers. Some, perhaps, in the cable industry may fool themselves that when the economy fully recovers, they’ll recover all those lost subscribers. Apple, Roku, Google and Microsoft aim to make sure that won’t happen.

Apple TV

Could this become obsolete soon?

And The Winner is…

TV content is now a commodity. Controlled, managed, protected, but still a commodity thanks to the many channels content creators have chosen to pursue: Hulu, Netflix, etc.  The winners in this race will be the companies that can provide the best user experience and the best value. Certainly Apple is a company well positioned to do that, but success still isn’t guaranteed because of several other factors.

  • ISPs who own media, like Time Warner and, soon, Comcast will, despite government regulation, find new and innovative ways to make life difficult for competitors who aren’t vertically integrated. Apple, if anyone, should worry about its future ability to deliver content.
  • Customers still like to keep things simple. If they can have one box, designed by Cisco, that integrates the Internet and cable experience, the majority will stop experimenting with that HDMI #2 port.
  • Content providers have a vested interest in preserving and enhancing their revenue streams. Cable and satellite have a proven business model. Apple and Google have already discovered how difficult it is to make their cases to the content providers.
  • Netflix, once a hallmark of the alternative Internet TV systems, will soon be appearing as a red button on the remote control of Internet-enabled TVs from Panasonic, Samsung, Sharp and Toshiba. That’s another blow to the HDMI #2 back door by Apple and others.

The upshot is that the race is now on for real. Comcast is now awake and moving aggressively. Dish may end up buying TiVo, rather than pay the enormous award granted them by federal appeals courts for patent violation. That’ll give them better Internet inroads. Cable, which was at a technical disadvantage in delivering HDTV via coax compared to satellite, has figured out how to use the Internet to offset that advantage. The war is back on, full steam, and while Apple may hang in there, I’m betting the less experienced players will struggle against the mighty cable giants.

This week at CES, Will Richmond, an online video analyst, said: “The pay TV industry is asserting itself — belatedly, but asserting itself. What they’ve clearly seen is that consumers love online-delivered video. The industry needs to persuade consumers that online [Internet] video is not an either/or proposition with pay TV, but rather supplemental.”

Comcast may still frak the whole thing up, but they’ll do a good enough job to stem the tide and avoid early termination. I can just hear it now in the Comcast strategy sessions: “Our goal is to make sure Steve Jobs’s hobby stays a hobby.”

[Images courtesy iStockphoto, Apple]

Comments

Ross Edwards

Cox, Comcast, DirecTV, and their ilk are looking everywhere but at the elephant in the room: price.  They charge too much for the content they deliver, by comparison to these other conduits like AppleTV, Roku, Netflix, Hulu, and so on.  They’re like “we’ll offer this, we’ll offer that,” how about just do what you’re doing far cheaper and you’ll be good to go?

When my DirecTV contract ends in a few months, I’m cutting the service… why pay $60-90 for more content than I can ever consume when I can use the internet-enabled devices I have (and a $10/mo Netflix subscription) to be fed… more content than I can ever consume?  Either way, it’s more content than I can ever consume!

And when it comes time to watch a football game, a $20 antenna provides free access to an uncompressed OTA HD signal.  Hard to beat “free.”  Many of my friends have already ditched satellite or Cox (our local cable monopoly) in this way, and they’re reaping the savings while finding that they don’t really feel like they’re missing anything.

Now if DirecTV wants to charge me, oh, $20 per month, including their HD DVR rental and all that, for the channels I’m getting now, then sure, count me in.  That’s worth it.  Three to five times that amount?  Welcome to the technological scrapheap, satellite.

Terrin

I cut Comcast recently and I have never been happier. First, I now pay AT&T $20 a month for 6MB a second high speed Internet. I was paying Comcast $140, which included cable and Internet. Comcast’s customer service stinks. It is still trying to charge me for unreturned equipment that I can proof I returned (it gave me a receipt).

I use Netflix, which I watch streaming movies from my X-Box. I would have an Apple TV, but somebody gave me the X-Box as a gift. I see Apple doing something similar, but the X-Box has ESPN as a bundled application on the X-Box. I watched the Ohio state game on that free. MOst of my favorite TV shows are online, although they are often a week late.

Like with the Apple TV, I can stream all my content from my Mac to my TV by using the X-Box.

mouring

I dropped Comcast going on on 5 years ago.  I had one of their people call me trying to come back and my answer was simple.

“25 channels of my choice for $25 plus my local stations and I’ll consider it.”

She became upset and started spewing that they gave customers the best deal, etc…

I told her I cared about 6 channels.. They all were at the top tier or moved to the top tier in the last few years, and I didn’t care about CNN, Sports, etc channels.  So why should I bother to pay for them.

I’ve been rending from Netflix in the last few years.  I built a Mac Mini for my own media center box to watch my own movies on demand, and now run Apple TV 2 with my Mac mini in the office (much quieter living room =).

Only thing I miss is first run shows.  I miss watching the new Dr Who, and stuff on discovery/history.  However, those are not worth $90 to $120 a month.

So it isn’t perfect, but $8 a month it is better than just my library of movie and TV shows.

fultonkbd

I don’t mindlessly consume TV like I used to. So I only have basic extended from Time Warner. The biggest problem with TV in general is too many ads. I honestly feel like I watch more ads then TV, plus the shows don’t seem to appeal to me as much.

I just got an AppleTV, as I have purchased a few TV Seasons and movies and would love to use it. But damnit, it doesn’t see my iTunes with Home Sharing. So while Apple is close, they still have some more work to do before I drop cable.

FlipFriddle

TimeWarner around here doesn’t seem to be running scared; they have a monopoly (for cable at least) and still treat their customers like a bottomless ATM. I want to cut the cord, but half of my TV viewing is local hockey and Fox Soccer Channel; no dice getting that anywhere else. Satellite is available but contracts can go suck it.
Rates just went up again this week and they recently dropped their mid tier service. So we’ll see… As soon as I get an HDTV and AppleTV, it might be time to just listen to Hockey on the radio (still, that’s not really progress is it?).

TanZ

Depends. If Apple were to make apps, namely tv stations apps, for the ?TV then people still say screw it to the cable companies. Including the new permanent paradigm of mobility won’t make things easier for the cable companies either.

Increasingly less numbers of people are watching programs at specific times anymore. The stupidity of tv ratings continue however.

Nemo

John:  While it appears that Cisco is hoping to make HDMI #2 and, thus, Apple TV and the other HDMI #2 boxes irrelevant, it is not clear to me that the HDMI #2 boxes won’t make HDMI #1 and coaxial cable irrelevant, nor should we forget the upcoming Apple/Intel Lightpeak technology, which appears to be greatly superior to existing cable technologies in its bandwidth and ability to power connected devices.  If Apple or some other maker or makers can secure enough high quality content, mightn’t technologies like AirPlay and Apple TV’s current Ethernet, and future Lightpeak, port eliminate the need for HDMI #1?

After all, if I can connect to the Internet to get my content—let’s say from iTunes—I don’t need HDMI #1 or coaxial cable, do I?  So it will, will it not, come down to who has the content?  And that means that what Apple must most concern itself about, aside from making an insanely great Apple TV, is showing the providers of content, especially the integrated providers (ISP and content) like Time Warner, that they will be able to eat high on the hog at the high end of the table.  If Apple does that, it will be HDMI #1 and coaxial cable that will be irrelevant. 

If Apple can get everything to come through a home’s Internet connection and thereby eliminate some cable TV fees, it may have some additional value to works with that it can divide up with the providers of content.  But the trick will be persuading Time Warner, Comcast, and other integrated ISP/Content Providers that they can make at least as much profit by transitioning their networks to solely ISP and taking their fee for their content and their fee for their respective ISP services from separate subscriptions.  Can Apple do that?  It will depend on the numbers, that is, what is the total amount of value in Apple’s proposed business model and how that value is distributed among the major players to produce their profits.  If Apple can persuade the providers of content, especially the integrated ones, that they can get fatter or at least as fat with it business model, Apple TV will succeed, and HDMI #1 will be superfluous.

John Elberling

yes good points, but two things:

- al la carte services provided through Apple TV and the others, combined with much-improved free digital HD OTA TV, will still be much less costly for many households than a CATV subscription. so many will keep switching no matter what new features the cablecos offer.

- the way for Apple to solve the input #2 issue is simple: sell its own brand of HDTV’s with Apple TV built in (Sony is already trying this with Goolge TV). i bet we see this in the Fall of this year. the ultimate household consumer product.

John Martellaro

Nemo:  There are bigger issues.  For example, I believe cable companies are required to carry local TV stations.  Local TV stations means easy access to local sports teams, NHL, NFL, MLB plus local news and weather. (A habit for many.) Some cord cutters are lucky: they can drop cable and get local TV stations broadcasting HD over the air. In general, however, cable and satellite hold a trump card for sports fans.  Who wants to miss the Super Bowl?

Roku offers a sports package of MLB as well as NHL hockey, but it’s expensive.

As a result, cable and satellite can hold to the benefits they have and augment with Internet—even if a certain percentage of customers remain disgruntled and opt for a cord-cutting experience.

Nemo

John:  Your points are well taken, but Apple doesn’t have to win the entire market by tomorrow. Starting with that segment of the market that can get local content and enough sports OTA may be a pretty good start at establishing Apple TV and could put considerable pressure on the content providers, both integrated and not integrated but especially the not-integrated ones, to come to terms with Apple.

Mr. Elberling raises a good point, supra:  That many may be cutting the cord because they find cable either too expensive or too expensive for the value that they receive.  There has been much debate about whether that point is true and, if true, how big is the effect.  But if it is true and the effect is large enough, that may permit Apple to make a business from Apple TV that is more than a hobby, and may even be sufficient to force the content providers to the table.

Dare I say it:  I suppose that we will have to stay tuned for further developments.

FlipFriddle

This will all be interesting and will probably take several years to shake out. I’m sure some internet infrastructure work has to be done to handle all of this media over the internet before everything will work well.
I also wonder where TiVo will fit in all of this. Their TiVo Premier box is interesting, but with AppleTV and other stuff around it is hardly revolutionary.

John Martellaro

I wrote a Hidden Dimensions column that bears on this, but forgot to link to it:

http://www.macobserver.com/tmo/article/how_apple_will_finally_spend_its_cash_hoard/

dhp

I’m on board with cord-cutting and Roku/AppleTV, but the thing that never seems to get mention in these articles and comments is that a large percentage of what people watch comes from cable TV. No one really knows if there will be money to produce quality TV series when a critical mass of viewers defect from cable.

People say they want ‘a la carte,’ but a lot of the cheaper-tier channels only exist because people subsidize them by paying for premium channels. The example I think of is Mad Men. Where would that great show be if cable subscribers had had to choose AMC and pay for it individually for years while it was just playing 40-year-old movies?

My fear is that dropping cable will be like not getting vaccinated. It’s not that big of a deal as long as the vast majority of people are still getting vaccinated, but at some point the number of non-vaccinated people could drop low enough to cause huge epidemics of disease.

Peter

This past September, my old Toshiba tube TV went belly-up after 18 years so I went out and bought a nice Sony HD TV with all the entertaining bells and whistles.

One interesting thing about this TV is that it has Sony-decided Internet feeds.  There’s a Podcast channel, old TV shows, etc.  It also has Amazon Pay-Per-View, NetFlix, Sony’s own Qriocity, and Hulu Plus.  CBS has a channel, though they don’t actually seem to put TV shows on it (they have clips and other content).  With DLNA, I can connect it to my Mac and stream DVDs that I have ripped.

So I’m nearing the point where I can say goodbye to cable TV.  There’s not a whole lot left that I watch…

iJack

I am in month seven of my no-cable/no-satellite experiment.  I am quite content, with the caveat that I watch less TV.  Well, no TV at all actually, but what I meant was fewer TV shows. 

The few I am addicted to, I can watch online at the ABC, CBS, NBC, etc., web sites.  Sure, I have to wait a couple of days after the broadcast date, but since I am no longer tied to the TV Guide, I don’t give a rat’s a** about it,  I should mention my Netflix subscription with unlimited online viewing for $9 per month. It’s a steal.

The only thing I must see live, is my football games.  ESPN 3 online does an outstanding job of streaming all kinds of sporting events, all day long, including a substantial amount of college football.  And I watched most of the World Cup live on ESPN 3.

That leaves NFL football, which for me is must-see TV.  So I cheat.  I watch the pirate streams.  ATDHE.net, VIP Stand, RealSportz, and the outstanding (usually) Veetle.  There are others, but these always fulfill my needs.

When Fox, CBS and the others come up with a reasonable per game streaming program, I’ll pay.  But I’m not going to buy an Apple TV or a Roku box.  And unless some things change drastically, I am never going to pay for cable or DirecTV again.

FlipFriddle

dhp makes a good point, a lot of the less mainstream cable networks will probably disappear if the cable/satellite model goes away completely. I’d love to find out what percentage of my cable bill goes to what networks. I’m sure about 20% of the lineup is subsidizing the other 80%.

mouring

@FlipFriddle, none of your payment to the cable company goes to subsidize the line up.  Absolutely ZERO percent.

What what they do is they have a list of how many people are listed at each tier plus the premium channels and they provide that information as “This is your potential viewer ship.”

This is important for two reasons.

#1 - The TV stations have their own commercials they run that they pick.  Most of those go to supporting the channel.

#2 - The Cable company has “national” commercials they get to pick and that money goes to offset the rest of the infrastructure costs in delivering and cost to FCC and payments they make to keep the station.

So directly, your money you fork each month never does, but the commercials you may watch are funding it.

Terrin

I suspect you have to reconfigure the built in firewall on the Mac. I had to do the same thing to use my iPhone as a remote for iTunes.

But damnit, it doesn?t see my iTunes with Home Sharing. So while Apple is close, they still have some more work to do before I drop cable.

Terrin

I recently went over a friends house. I live in Michigan. He was watching college football and the picture was great. Better then on the Comcast that I had been paying for. I asked him how the picture was so great. He said he didn’t know, but it was free HD TV broadcast over the air, he too had cut Comcast. I never knew, but the major networks now have several versions of their channels all broadcast free over the air. He must have had over 50 free HD channels.

Some cord cutters are lucky: they can drop cable and get local TV stations broadcasting HD over the air. In general, however, cable and satellite hold a trump card for sports fans.? Who wants to miss the Super Bowl?

fultonkbd

Thanks, but not sure if that is it. I have the firewall set to “allow all incoming connections” on the PowerMac (Which holds the bulk of content)

Plus when I fire up the laptop I can see the PowerMac library and it can see the laptop library via home sharing. So between the two computers home sharing works, no problems.

Some of my research suggest that it could be because the PowerMac is connected to the network with a hardline while the AppleTV is wireless. Which to me sounds like a bug that Apple needs to work out.

I suspect you have to reconfigure the built in firewall on the Mac. I had to do the same thing to use my iPhone as a remote for iTunes.

b0wz3r

+1000000000….

My wife and I dropped Comcast almost a year ago, and we do not miss it one single bit.  (By the by, we’ve come to use “comcastic” as a pejorative.)  We don’t even miss broadcast news anymore… it’s become nothing but sensationalistic muck raking, so there’s nothing in it we can’t get elsewhere.

Between iTunes, Netflix, Hulu, and a few other associated niche sites such as National Geographic, we get everything we want.  Comcast can bite my shiny metal a$$.

I dropped Comcast going on on 5 years ago.? I had one of their people call me trying to come back and my answer was simple.

?25 channels of my choice for $25 plus my local stations and I?ll consider it.?

She became upset and started spewing that they gave customers the best deal, etc?

I told her I cared about 6 channels.. They all were at the top tier or moved to the top tier in the last few years, and I didn?t care about CNN, Sports, etc channels.? So why should I bother to pay for them.

I?ve been rending from Netflix in the last few years.? I built a Mac Mini for my own media center box to watch my own movies on demand, and now run Apple TV 2 with my Mac mini in the office (much quieter living room =).

Only thing I miss is first run shows.? I miss watching the new Dr Who, and stuff on discovery/history.? However, those are not worth $90 to $120 a month.

So it isn?t perfect, but $8 a month it is better than just my library of movie and TV shows.

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