Apple TV: Lead Zeppelin or Disruptive Rocket?
There is a fun debate going on right now, in the weeks building up to the shipment of the Apple TV.
The question is, will the Apple TV be a disruptive engine that will radically reshape the economics of TV and Movies? Or, will it fall in the category of gorgeous, but underpowered boxes that fail to find an audience (et tu, G4 Cube?)
Now, I am not going to spend time here on the following, over-contested, issues like:
- The Apple TV has too little storage
- The Apple TV only has HD outputs
- The Apple TV doesn’t include DVR functionality
- The Apple TV doesn’t offer any “new” features
Sorry, but these arguments aren’t compelling reasons why the Apple TV won’t work. The Apple TV has plenty of storage for caching. Composite outputs are on almost every TV sold in the past five years. The Apple TV is not meant to be a DVR (see below). As for “new” features, like the iPod did?Jason O’Grady has been writing great posts about Apple products for over a decade. He recently penned this article:
He basically argues that the problem with Apple TV is that unlike music, Apple cannot ship DVD-ripping software to customers. As a result, consumers will have no easy way to convert their existing content (DVDs) to digital format.
Personally, I think Jason hit the nail on the head – what will make or break the Apple TV will be the supply of content for it. Right now, there are three sources that matter:
- User created content (Photos, Movies, Playlists)
- Converted digital content (DVR, DVD)
- iTunes content
I am just not sure that (1) and (3) are enough to make this platform work for most users. There will have to be a solution for (2).
However, unlike Jason, I am not sure that Apple has to ship this software themselves to make this successful. Companies have had excellent success defeating lawsuits to sell “DVD Copy” software that breaks encryption. As long as people use the software purely for their own use, the courts have not yet upheld that the DMCA restrictions will apply. Converting a DVD to another format for personal use certainly seems like it would fall under fair use, but that has yet to be tested in court.
In the meantime, if people want DVD Ripping software, it’s possible that retailers will step into the void to offer promotions and bundles, just to compete with the Apple online store. Imagine:
- Option 1: Apple.com selling the Apple TV for $299
- Option 2: MacWarehouse selling the Apple TV bundled with the new “DVD2AppleTV” software for $329? $309? Maybe even $299?
We’ll see, but the market very well may step in here and fill the void.
Why? Because the current distribution channels for video, cable and satellite, have priced themselves into a very expensive place.
Check out this article from this personal finance blog, Get Rich Slowly. It confirms a trend that I’ve been hearing from a lot of my 20-something and 30-something friends.
The logic goes like this:
- Cable/Satellite in HD is expensive
- Pay channels are expensive
- I hate waiting to watch shows week-to-week anyway
- I hate watching bad shows, trying to figure out which ones will actually be good.
- I don’t have time for that much TV on a regular basis – I need to consume it in bursts when I travel, or when there are lulls in my life.
These are the trends that have driven NetFlix and Tivo, but now iTunes has provided another path.
You drop your cable subscription. You take the over $1000/year you save and put it into:
- Movies for big-budget blockbusters
- Netflix for movies at home
- iTunes for TV shows that your friends say you have to watch
I think Apple has a shot with (3) eventually subsuming (2) if they get the content.
My sister, for example, is 21, and a senior at college. She just recently discovered The Office, and has been catching up on all the episodes.
She didn’t buy the DVDs – they don’t extend to the current season anyway. She just bought them on iTunes.
We’ll see what happens with the Apple TV this year. It’s possible this will be a dud.
But I know I want to buy one (actually four, if you’ve read my previous posts). I’m interested in it as a solution to get rid of the DVDs that my 2-year-old son continues to maul.
However, I wonder if we aren’t underestimating the potential for iTunes -> TV as a disruptive channel. I personally spend over $1000 per year for content through DirecTV… is that really rational? How many movies and TV shows could I buy through iTunes and on DVD for that? Is it worth it?
If it turns out that there is an early adopter market that is ready to buy the Apple TV because they either have figured out DVD ripping, or they already purchase iTunes video content, then this just might work. Once demand for the Apple TV is strong, other vendors will likely step in to make the DVD ripping problem go away. Oh sure, the MPAA will fight it tooth-and-nail. But it’s more likely they’ll be forced to put more content on iTunes, and price it more competitively.