Apple is reportedly preparing to launch in early 2010 an online TV subscription service, as part of its iTines store. The online shop already offers music and films for download, as well as TV series, while the new service will offer a subscription of around USD 30 per month. For the moment, the service appears limited to the US.
At first glance, this looks like bad news for the cable industry. Watching films and now also TV is moving more and more away from broadcast channels to over-the-top services, undermining the core of the revenues. At the same time, one has to ask if the content industry wants to go along with these trends. Broadcast TV works like a walled garden, where TV content is secure and rights are guaranteed. Given Apple's strong position on the consumer market, content providers will want to be sure they can continue to control their product. Apple can offer a bigger audience, as more consumers use computers or laptops to watch movies and TV, and the content providers can benefit from the growing popularity of online viewing and the iTunes infrastructure. They can also ensure that their content is paid for, even when it's streamed online. In short, everything depends on Apple and the content industry reaching revenue-sharing deals where all parties are happy.
Whatever the case, the cable operators are facing a difficult time. Broadcast TV is their bread and butter, while non-linear viewing is on the increase. They can only profit in part from this, through their video-on-demand services. Over-the-top content only offers them an increase in bandwidth demand.
There is one party that in theory would like to do a deal quickly with Apple: Walt Disney. Steve Jobs is not only the head of Apple but also a board member at Disney. Furthermore, Disney is keen on increasing its online content distribution. Recent rumours suggested that Disney was developing a new strategy, under the code name Keychest, centred on offering films online. Disney is aware that physical players for CDs and DVDs are becoming less popular, and with Keychest, the company could take to 'the cloud' with its content.
Both the Apple service and Keychest are streaming services and will place demands on both sides of networks. On the one hand, demand at data centres and over content delivery networks (CDNs such as Akamai and Limelight) will increase further, while on the other hand end-users will put more demands on their internet connections (the access network). Downloading creates 'bursts' in traffic, which can be easily accommodated. However streaming requires a continuous connection of 5-10 Mbps, which can't be shared with other people in the household or, in the case of 'shared' networks such as cable, with neighbours.
Apple may also combine the new service with Apple TV, which faciltates wtaching web content on the TV. In addition to the trend of watching TV on a computer, there's also increased interest in the opposite: watching online content on a TV (see our Research Brief 'Connected TV'). Other examples on the American market include Hulu, a portal where News Corp, NBC Universal and Walt Disney offer their content, and TV Everywhere, an initiative of Comcast, Time Warner Cable and Verizon. Via broadband, the partners want to further open up their content for existing customers.
To sum up, Apple's new service may be a blow to the cable industry, while helping content providers increase their distribution. Other winners are in theory the CDNs, such as Akamai, and cable and telecom operators will see growing demand for broadbamd. A quick look at the stock market shows this shift in content delivery reflected in share price performances since the start of this year (admittedly this is only one of many factors determining a share price). Comcast has lost 19.3 percent, while Disney is up 15.5 percent and Akamai has gained 43.3 procent. Verizon is down 16.1 percent, showing the limited pricing power on the broadband market.
