3 Reasons Apple's TV Subscription Service Failed

The Holy Grail. Over $100 and rising.

We now know that Apple has likely suspended its efforts, for the time being, to offer a TV subscription service. We don't know the intimate details of the negotiations, but it's possible to make some good guesses as to why Apple has come away empty handed.

Basically, it's all about industry growth and money.

1. Zero Sum Game. Apple's vision is to offer just the local stations and a few major cable channels that people want to pay for in a subscription package. The focus is on the customer: ease of use, low, easily cancelled payments and few if any ads. The specter here is that if Apple were to pull away several million customers from satellite and cable carriers, the total revenue pie would be decreased.

To make up for that, there were reports that the content providers wanted to be able to insert (unskippable) ads, Hulu style. Without a DVR, such a subscription, streaming service would be unappealing to most potential Apple customers. Impasse.

2. The Business Math. CBS, NBC Universal, and ABC are all part of a bigger network of shows typically provided in the satellite or cable subscription bundle. As a simple example, ABC owns ESPN (Actually both owned by DIsney now.), NBC Universal owns USA Network and SyFy. CBS owns the Smithsonian channel.

When carrier bundled packages are large, these secondary channels, even though they don't carry the same price tag, get included and paid for. There is revenue for the parent company even if subscribers never watch, say, the SyFy channel. With that larger, sometimes, $100 plus monthly bill, the carrier also gets to take a bigger slice in dollars. Even though the carriers and the content providers squabble, the content providers know that, for now, they need healthy carriers.

To make up for this potential loss to Apple, "Bloomberg said that unspecified media executives expect Apple, Amazon, and other new Internet-based distributors to pay more for their content than cable and satellite companies." Impasse.

3. Fear of Apple. Apple is famous for creating a good relationship with the customer. Its hardware is good looking, easy to use and dependable. Apple has legendary customer support and a formidable set of retail stores with friendly, helpful staff. The carriers, on the other hand, are not well loved and use contracts that have steep cancellation fees to retain subscribers. That has the virtue of keeping revenue in place, and with annual increases in monthly fees, assured growth. Apple's model threatened that.

And while the content providers don't have as big a stake as the carriers, the carriers are still important. It's not wise to damage their financial health too early in the transition to all Internet TV that's coming down the road. Impasse.

The Consumer Conundrum

As consumers, we always want to pay less. We explore technical means and also alter our viewing habits to fit our (sometimes shrinking) budgets. There emerges, as a result, a meme about how things should go that conflict with the complicated business dealings and goals of the TV industry.

So when a company like Apple comes along and threatens to settle for very minor profits as it proposes to cause a net loss in total industry revenue, the natural reaction by the entrenched players was likely, "Hey, you can have this service so long as our total revenue goes up, you don't threaten our business partners, the carriers, and we get to control the relationship with the viewer. Here are our terms for that."

That impasse probably led to the suspension of talks.

However, my prediction is that in 15 years, the satellite carriers will be gone and the cable companies will no longer be providing TV content via coaxial cables. Cable companies like Comcast that protected their future by becoming ISPs will survive and flourish. At some point in the future, it will make business sense to let Apple become one of just many Internet carriers of streaming TV — as incremental, positive growth is preserved.

We—and Apple—will just have to be patient.


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