Disney and CBS contemplate TV subscription service for iTunes, and what that means for the Apple Tablet

Mon, Dec 21, 2009

Analysis, News, Rumors

Over the past few weeks, Apple has reportedly been pitching the idea of a $30/month subscription service for TV shows on iTunes.  The rumored subscription service wouldn’t be tied to a particular type of hardware, and would be accessible to anyone with an iTunes account.  Apple, however, encountered some resistance as many content providers were understandably wary of striking a deal with Apple after seeing how much power they were able to exert over the music industry with their iPod/iTunes combo.

Moreover, despite the fact that network executives were reportedly “intrigued” with the idea, there are a number of other considerations that factor into the equation, such as how a deal with Apple would affect existing relationships between content providers and cable companies like Comcast.

But now the Wall Street Journal is reporting that both Disney and CBS are giving some serious thought towards striking a deal with Apple.  Now before you yawn away at the thought of paying $30/month for 2 channels, keep in mind that Disney owns ABC and everything that comes along with that, like ESPN. But still, $30 is on the low end of what some people pay for the most basic of cable packages, and if Apple truly wants to set up a viable subscription service, it’ll need to get an attractive portfolio of content providers on board.  But content providers aren’t exactly jumping at the chance to get into bed with Apple.

Apple faces an uphill battle assembling a critical mass of TV networks to sign up, a factor that could delay or scuttle a launch. A broad swath of media companies—including News Corp., Viacom Inc., Time Warner’s Turner Broadcasting and Discovery Communications Inc.—appear to be opposed to or leaning away from signing on, at least to Apple’s initial proposals, according to people familiar with the matter. It is unclear if NBC Universal, in which Comcast is buying a controlling stake, is interested.

So in order to raise the stakes, Apple is reportedly willing to offer content providers anywhere from $1 to $2 a month per subscriber for broadcast network shows, and $2-$4 a month for shows on basic cable, monetary amounts with the WSJ points out are much higher than what “media companies typically receive from [traditional] distributors.”  By way of comparison, News Corp. (which owns Fox News and a number of regional sports affiliates) is currently in the middle of a highly publicized battle with Time Warner over customer subscription fees.  News Corp. is demanding $1 a month for each Time Warner cable subscriber, a figure which TW says is too high.

Apple is notoriously stingy with its money, so why would it be willing to pay double the going rate for content, and for a subscription service no less?  Well, as is always the case with Apple, they make their money via hardware and position software primarily as a means to generate more hardware sales.  That being the case, Apple, as opposed to Time Warner, isn’t solely concerned with turning a profit with content alone.

Interestingly, Apple’s sudden interest in expanding iTunes into the realm of subscription services may have less to do with TV in the living room, and more with providing a new way to view media content on its upcoming and rumored tablet device.

Indeed, the WSJ notes that Apple is positioning its tablet as a multimedia gadget, and having access to a wide variety of TV content from anywhere might be a key selling point for the device, which is expected to launch in March, 2010. Remember, Apple’s tablet will reportedly include built-in 3G connectivity, so accessing and streaming content from anywhere would theoretically be a straight forward process and make an iTunes subscription that much more appealing.

As it stands now, users can access TV content for free via sites like Hulu, but with Hulu’s selection of content always being shuffled around, not to mention reports that the service may well be moving into a paid-model sometime in 2010, a TV subscription service via iTunes for $30/month may very well be an ideal solution for seamlessly accessing media content on the go.

There is, of course, also the possibility that this is a play for control of the living room and an attempt to transform the Apple TV into more than just a hobby, but it seems improbable that Apple would be willing to take on cable companies head on at this point in time.  And besides, what would be the point?  Apple would essentially be paying a premium for content with no real way to recoup its investment.  So while the Apple TV may benefit tangentially from a TV subscription service via iTunes, all signs are pointing towards tablet streaming instead.


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