OPINION

Apple’s iConcierge: Do You Feel the Ground Shaking?

The proposed US$30 billion Comcast-NBC Universal deal has entered the labyrinthine process of winning Congressional approval from the antitrust gurus and the Federal Communications Commission. Small cable operators, which apparently still exist, fear that they will be driven out of business by the sprawling new company that would combine NBC’s programming with Comcast’s vast network of 24 million subscribers.

Those of us who remember the Frankenstein that was AOL Time Warner may shudder as we hear these words again: “It’s great to own content and distribution!”

Meanwhile, cable operators should be more concerned about recent rumors that Apple is seeking to distribute television content via subscriptions to its hyper-successful iTunes Store. Apple tried to penetrate this market once before with one of its few relative flops, the Apple TV.

However, Apple’s team knows that digital distribution is not going away and has decided to attack this market from another angle: leveraging the phenomenally successful iTunes Store that already reportedly has 100 million customers.

Television’s Big One

Suddenly, it seems that Apple would make a formidable de facto cable television network. The company is poised to unleash the same business model earthquake in television that it did in music.

After all, Apple transformed the music industry by providing only distribution, not content, eliminating the record labels’ traditional role as publishers. Will Apple reinvent the role of television studios as well? What does this mean for the Comcast-NBC deal?

Frankly, anyone distributing content will have to contend with Apple. The iTunes Store currently has a limited selection of movies, but it is bound to grow, putting Netflix squarely in Apple’s sights. Perhaps the company will reinvigorate the original Apple TV to create a better set-top unit that delivers content from the iTunes Store to a home theater for people with screens that are not their computers.

The iPhone is not a cellphone, nor a smartphone, but an entertainment concierge. Currently, the iTunes Store model provides a license in perpetuity and doesn’t provide a short license term for rental, but that is easily solved and could be handled for single transactions, or bundled together in a subscription model.

Imagine sitting on the subway and deciding to rent a movie, then getting home and downloading it to your 60-inch plasma screen. Video-on-demand from cable companies has already conditioned users to “self-destruct” license agreements with 24-hour rentals, so the market is ready for the iPhone as a general rental agent.

Apple could then return to its music roots and reinvent the music distribution model yet again. Perhaps you are planning a wedding and want four hours of 1980s music for your college friends’ dancing pleasure, but you don’t really want to pay 99 cents for each of Billy Idol’s hits. You could create a 300-song playlist and “rent” it for a night, then have the license expire. Your deal might even include downloads for your friends, making you part of Apple’s happy distribution ecosystem.

The iTunes Store is bound to evolve further, providing more options for both content and license terms.

Battle of the Business Models

The real battle will not be about market share but about business models: Will Google’s model of paid advertising trump Apple’s subscriptions? Its cute “don’t be evil” consumer presence notwithstanding, Google operates fundamentally on a business-to-business (B2B) model of providing market analysis to vendors seeking to reach consumers; despite its remarkable record of developing over 100 new products, over 90 percent of its revenue is derived from one advertising product.

On the other hand, Apple has been slowly executing its strategy of vertical integration by owning distribution capabilities (via iTunes), as well as the hardware and software required for downloads. Both Google and Apple remain agnostic to content origin, sticking to the classic “gold rush” strategy — the real winners are those who provide the picks and shovels. The Comcast-NBC deal is still mining for gold by placing a premium on content generation.

Smart management teams will offer multiple business models, allowing consumers to decide which one is more suitable. Consider the model promoted by music service Pandora; its hybrid service offers free music for those who tolerate advertisements, and paid subscriptions for those who don’t.

Cable companies introduced us to this opportunity 30 years ago; today, the universe of entertainment delivery allows us to decide piecemeal from whom we are willing to tolerate ads. Perhaps we use an advertising-based television comedy service but will pay a subscription for indie music.

One interesting twist with limited momentum is that of PopCuts. Its pyramid spin gives a cut to customers who refer their friends to purchase the same songs. This method creatively monetizes relationships but remains content-independent.

PopCuts’ Web site suggests that high rollers generate about $10 to $15 — not enough to change someone’s lifestyle but enough to lend some credence to the model. Perhaps this will grow through other venues, although the universe of viable social networking sites seems to change with the seasons.

In any case, this suggests that people are still actively experimenting with novel business models. Expect to see the movie and television industries follow music’s lead (so to speak).

The Comcast-NBC deal is a vestige of the past. Look for the Apple iTunes Store to chew through every industry providing content of any kind.


Andrea Belz is the principal of Belz Consulting, a consultancy focusing on technology commercialization. Belz specializes in management consulting for the technology and entertainment industries, providing both strategic planning services and operational management. She can be reached at andrea-at-belzconsulting-dot-com.

2 Comments

  • Apple must be able to lengthen the 24-hour rental window before I’ll be interested. I want to be able to rent at 9:00 PM , watch until 10:30, hit stop, and watch the rest the next day starting at 9:00 PM . If that pattern costs me more than one rental, I’m not interested.

  • I’m not sure the Networks/Cable combines will be quite as clueless as the labels were, (hindsight and a product of a more competitive ecosystem). Many believe Apple will gut the labels eventually, and TV doesn’t want to be next. This may be reflected in the difficulty Apple is currently having in arranging broader deals for movies and TV shows.

    What Apple needs to pull this off, is the Killer set-top box as their foot in door. It would do net access and cable access, with simple integration of AV out components (don’t tell me this shouldn’t be easier, I still can’t remember which remote to use). Combined with the iTunes store and shiny hardware. I don’t know how to do this, wether its Apple TV+ or something different. But with the cable companies dragging their feet on the cable card issue…?.

    Apple seems to have figured out the secret of consumer sales. When business decides cost and control (provider control) rules, when consumers decide, ease of use and cost are relevant. Using consumer choice as an advantage is a very alien concept to the networks, and a big advantage to Apple.

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