Apple opens Pandora’s box for the media business, could have profound long-term consequences

“Last Thursday morning, Apple Computer Inc. started selling an episode of the hit television series ‘Lost’ through its iTunes Music Store for $1.99 after the show aired the night before on ABC. It marked the first time a popular show was made available for legal downloading over the Internet so quickly after its original airing,” Nick Wingfield, Joe Flint and Ethan Smith report for The Wall Street Journal. “With that, Apple may have helped open a Pandora’s box for the media business. The Cupertino, Calif., company and its first TV partner — Walt Disney Co., the parent of ABC — have taken a potentially significant step in the dismantling of a decades-old system for distributing TV programming to viewers, a move that could have profound long-term consequences for broadcasters, cable systems and satellite companies if more users download shows instead of watching them the old-fashioned way.”

Wingfield, Flint and Smith report, “It’s unlikely Apple will cause a meaningful diversion of viewers from traditional TV in the near term. For now, it offers less than a half-dozen TV series from Disney through iTunes. Shows can take more than an hour to download if users don’t have the speediest Internet connection. And the video quality is inferior if displayed on a large television, though the picture looks better on a computer or one of Apple’s new video-capable iPod portable players. But the partnership with Disney may be merely a first step for Apple, which said it expects to offer more TV shows. If downloading episodes over the Internet proves popular, analysts believe Apple will get permission to offer shows with better-fidelity pictures. [MDN/iPodDN added bold emphasis] Any success Apple has won’t go unnoticed by other online media powerhouses with expanding video initiatives like Yahoo Inc., Google Inc. and Microsoft Corp., which could all help extend TV downloading to more viewers.”

“The technologies are all part of the slow death of ‘appointment viewing,’ the mantra networks lived by for decades as they sought to habituate viewers to watching shows at one time on one outlet. The growth of TiVo and other personal video recorders that make it easy for viewers to record shows and watch them when they like, while skipping through commercials, helped undermine the networks’ control over viewing habits,” Wingfield, Flint and Smith report. “If Apple is able to assemble enough top-notch TV programming for iTunes, it could prove vexing to cable operators like Comcast. In the past, cable operators have faced pressure by politicians and consumer groups to offer individual channels ‘a la carte,’ rather than forcing all subscribers to pay for large packages of programming that most don’t watch in their entirety.”

Wingfield, Flint and Smith report, “TV advertisers, too, could someday be forced to adapt if Internet downloading of shows takes off, since the programs Apple is selling are commercial-free. Advertisers typically pay fees based on the size of TV audiences; if audiences shrink, they pay less. The Apple deal ‘is part of the changed world that we are living in,’ says Peter Gardiner, a media executive at Interpublic Group’s Deutsch ad agency. ‘This is about finding news ways to distribute content and it’s up to us to find new ways to advertise.'”

Full article with much more here.

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22 Comments

  1. LOVE IT!! Steve shakin’ things up. Amazing that M$ and their “platform” dorks have struggled with this and have no traction. In ONE DAY (watch the QT replay of the Oct 12th event), Apple has turned everyone’s head with the introduction of video, and FIVE TV SHOWS! With 802.11n, Vingle, and the tablet Mac, the media world is going to change indeed!

    MW: Idea. Balmer and Gates have no idea what just hit them!

  2. For years I’ve been telling people that The Internet was the key to distribution of television programs. Over the air, cable, and satellite are dinosaur technologies. They have been and continue to sink in the tar pits of their own convoluted irrational distribution models and billing structures. Nearly 100% of what consumers are forced to pay for on cable and satellite, they don’t want or watch. It’s the basis of the old joke, “500 channels and nothing to watch.” On top of this, at the end of the day there have been more ads forced upon viewers than anything else. What have these distributors offered? Half baked interactive television concepts that few people have actually seen. More “services” that people are asked to pay for, etc.

    Then along comes Apple and over night changes everything forever. Finally television as we know it will die. Distribution of original programming will follow a scheme that more closely resembles the distribution of music, namely I CAN BUY WHAT I LIKE. Period. And I can buy it, when I want it. No more worrying about missing a program. No more fretting over the fact that my TiVO only has one tuner. It’s the end of the distribution dominated market and the beginning of the market driven model. Never again will the Nielsen Families deny Star Trek fans their show because they like “Survivor” and “Dog the Bounty Hunter.”

    Eventually everything will change. Consider that consumers won’t have to accept 18 Jerry Bruckheimer shows. Smaller production studios can create independent content.

    Couple all of this with the power companies preparing to deliver high speed Internet access through the power grid and new WiFi everywhere projects starting up all the time, and in the foreseeable future, I toss the cable wires in trash, and take that ugly satellite dish off the roof.

    We may or may not be able to bring Democracy to Iraq, but Apple has just brought it to television.

  3. TV is not dead yet but the rules of the game have been forever altered.

    Here is what I want to see – the ultimate in product placement. I want one of the characters on Desperate Housewives to miss an episode of Lost so she runs to her new iMac and downloads the episode the next morning.

  4. SJ said there were, what, 10 million iTunes accounts? Considering that the total population of countries where iTMS is offered is over 500 million, the market penetration is something like 2%.

    Yes it’sgrowing,but even if it triples over the next 2 years, it still does not challenge TV which has virtually 100% market penetration.

    So relax, everybody. This is just an experiment into a relatively minor new distribution channel. Everyone involved makes a little extra, everyone wins, but TV as we know it isn’t going away.

  5. As it stands now, I don’t think a video iTunes is going to have much impact on TV viewing. A slightly expanded cable service runs about $40 per month. Giving that up in favor of downloading select programs only gives you 20 programs per month. Certainly not enough to sway many people.

    The sea change will come when Apple (under license from the producers) allows unlimited downloading for $40/month, and has the library to satisfy most viewing needs.

    Frankly, this is where I see Apple headed. Apple is positioning itself to compete with cable and satellite companies. $40 per month and you can watch any program whenever you want to (for a month after download), or for $1.99 you can “own” the download (with copy restrictions).

    As to marketshare quotes comparing the number of iTMS customers to total population (where it is offered): give it up, your extrapolation is flawed. You can’t compare total population to total iTMS customers, when the issue is total households. Adjust 500,000,000 by three persons per household and suddenly iTMS customers represent 6% of market potential. What makes that significant is that 4 years ago, iTMS had 0%, and THAT is the point.

    The same point can be made of iTMS share of total music revenue. Today iTMS revenue represents –4.5% of total WORLDWIDE music revenue. IDC and Gartner each project that legal music download revenue will double in 2006. If Apple maintains its current marketshare (most likely will increase it, however slightly), then Apple’s iTMS will have a 10% share of total music revenue. Four years ago it had 0%.

    To finish up my thoughts on on iTMS video, I’m not at all concerned about the current image size limitations. I think two factors entered into the decision to make these programs available in a small format. The first is time to download a larger image. Remember, broadband isn’t universal, and of those that have it most don’t get speeds over 768K (cable users experience demand degradation). Then there is the issue of server demand. Better to build a server farm (Akamai) to serve demonstrated demand, than it is to build a server farm for ANTICIPATED demand. If video doesn’t take off, the expense of doing the latter would be disastrous.

  6. hold on Hold On. Its number of households not total population that’s the important denominator. There are 5 in my household with 1 iTunes account. Yes 3 of the 5 are kids… but we probably spend more on content for the kids than for the adults in our house.

    But this will need to be a subscription service. There are few TV shows that I really enjoy watching over and over. I want to buy my music and rent my video.

  7. Following on to my post above. In a conversation with a friend that works for Verizon, I was told that Verizon has commenced installing fiber to select residences throughout the US. This will continue for the next 5 years, at which time Verizon expects to have fiber installed in 95% of homes where it is economically feasible to do so. The existing copper will be abandoned in place. I would expect broadband speeds on these networks to be in excess of 5Mbit/sec.

    I would imagine that other telcos are planning similar efforts. The point being to wrest control of broadband from cable providers and lock out the electric power companies.

    Broad acceptance/use of downloadable video content is still 2 to 3 years into the future. Apple is just positioning itself today, to be the market leader then.

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