Tuesday, December 22, 2015

Apple Cuts the Cord on Live TV Plans

Apple Cuts the Cord on Live TV Plans
By Richard Saintvilus |
Consumers who eagerly anticipated a live-TV service by Apple Inc. (AAPL) – giving them one more reason to cut their cable cords and the expense of unwatched channels – will have to wait a while longer. How long? It depends on the following three factors.
Content for Cash
Apple's plan to revolutionize the TV industry by launching its own live television service, which was initially targeted for 2016, is now on hold. Reports suggest that talks between media executives and the Cupertino-based iPhone maker fell apart over programming costs. Apple's plan to offer some 14 to 20 channels (also known as skinny bundles) at a price of about $30 to $40 per month were not enticing enough to media executives, who believed their content was worth far more. Even on the high end, Apple's price was some 112% below the $85 cable bundles for a similar number of channels. (See also: Is Apple TV Competing or Aligning With Netflix?)
At the same time though, if Apple were to charge more for its skinny bundle, it would have a much harder time persuading consumers to pay for the service. And Apple has become more sensitive to cost, given it likely underestimated the value of "free" when it launched Apple Music in summer. Market leaders Pandora Media Inc. (P) and Spotify, which offer free music-streaming alternatives, did not feel adverse effects to their subscriber totals.
The Future of TV Hardware
In the case of Apple's live TV ambitions, in lieu of an Apple-backed service bundle the company will instead focus on its next-generation Apple TV set-top device, which was recently launched with enhanced functionality, including voice-controlled Siri and an App store. Apple believes the new iteration of Apple TV can become a commercial conduit that allows media companies like Comcast Corp. (CMCSA) to market directly to customers. And this makes sense, given the success of Facebook Inc. (FB) and how it has grown by linking advertisers directly to consumers.
The Future of TV Software
Recall, in September, Apple CEO Tim Cook said, “We believe the future of TV is apps." By doubling-down on its Apple TV set-top box and allowing media companies to build their own apps to grow their audience through it, Cook is living up to his promise. The question remains, however, to what extent Apple can generate meaningful revenue from its Apple TV hardware and services to help lessen its dependency on iPhone sales, which currently account for more than two-thirds of its profits.
The new Apple TV went on sale in late October, starting at $149 for the 32-gigabyte version, while the 64-gigabyte option fetched $199. Apple reports first-quarter fiscal 2016 earnings results some time in January. And if the history of the Apple Watch launch is any indication, the company may remain secretive about the number the Apple TV devices it has sold. Consequently, quantifying the success of the device may be a challenge.
Given the resources Apple has at its disposal, including some $206 billion in cash on the balance sheet and another $81 billion in operating cash flow, Apple has tons of financial muscle to realize its live-TV streaming ambitions. One staunch believer is Les Moonves, CEO of media giant CBS Corp. (CBS). At a recent conference, Moonves proclaimed, “This will happen,” referring to an ultimate launch of a live TV service by Apple.
The Bottom Line
Apple wants a live-TV service that will disrupt the television habit in the same way the iPhone disrupted the telecom habit. But the media companies, who still own the content, aren't ready to be disrupted without a substantial payout.
At some point, however, media titans may realize their businesses are hemorrhaging too much revenue from cord-cutters to justify the hardball they're now playing with Apple. And Apple – like Netflix (NFLX) before it – may have to first become a real threat to the growth of the TV industry before it can be seen as a partner or a savior.
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