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January 25, 2008

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Rentals turn the Apple TV from hobby to pro

Posted Jan. 25, ’08, 1:27 PM PT by Dan Moren
Category | iTunes » iTunes Store

Movie RentalsUpdate: Not sure why I ended up with the pre-jump part of this twice, but it’s all fixed now.

In this post-Macworld Expo week I’ve already bludgeoned you with lengthy treatises on the MacBook Air, iPod touch, and Time Capsule. That leaves only one major announcement from Jobs’s keynote to mull on.

Randy Newman.

Or movies. Fine. Of everything that Steve showed off last week, the revamped software for the Apple TV and the introduction of iTunes movie rentals strikes me as the most significant. This was a keynote that was about filling in chinks in Apple’s product wall, and the Apple TV had been a loose brick for far too long. I’ve defended the device a number of times, always because of what I thought was its untapped potential.

Make no mistake: Steve’s admission that they got the Apple TV wrong the first time around was carefully calculated. Jobs isn’t about to admit that they got anything wrong unless there’s a point to it. But I don’t think that’s the whole story, either. I think the Apple TV Take 2 is the device that Apple wanted to release a year ago—unfortunately, the company was lacking some crucial pieces. The first generation Apple TV was a placeholder for Apple, an uncharacteristic way of saying, “Look, we’re working on this. It’s not there yet, but you know it’s coming.” It needed to be done, however, to keep iTunes movies purchases from tanking from the get go. Jobs at one point notably called the Apple TV a “hobby,” which is a little bit like a stage magician proclaiming that he’s got nothing up his sleeves. The magician doesn’t walk off the stage at that point: we know he’s going to produce a dove from out of thin air. Likewise, we knew that there was more in store for the Apple TV.

Look at it this way: nothing in the underlying hardware of the Apple TV has changed with this update. It still comes in 40GB and 160GB models, it still has the same array of high-capacity ports: HDMI, optical audio, etc. Those connectors were put there with a purpose last year, even as we and many others wondered why there were HD outputs when iTunes wasn’t selling HD content (and if you’re going to claim Apple was altruistically benefiting HD podcasters, you’ve obviously checked your sanity at the door). Clearly, Apple was planting their flag in the living room, even if all the pieces to support it weren’t yet in place.

Sure, the software interface has evolved from version one to version two, but even that isn’t the biggest difference. The big change is behind the scenes, in the partnerships that Apple wasn’t able to lock in the first time around. Remember that when Apple only sold movies on iTunes they had just a couple major studios signed up: Disney, with whom they have significant leverage in the forms of Jobs, and Paramount. That moment in this year’s keynote when Steve says “We’ve got all these great studios signed up” and shows a slide with the likes of Weinstein, Miramax, Lionsgate, and so forth, you could feel the uncomfortable seat-shifting in the room. I know the thought that went through my brain was “geez, why even bother?”

But to turn that around and add that they’d also gotten all six majors onboard, that was a coup. That’s the ingredient that prevented the original Apple TV soufflé from rising. Content is what will make or break the digital media market: if it’s easier to get the same content from other places, whether that be via television, Netflix, or even piracy, that’s where the consumers are going to go. If the content isn’t even available on the digital media service, well, that’s a no-brainer.

Rentals seems to have been the way to get those content deals made. I believe that Steve would have been perfectly happy to stick with straight video purchases if he could have gotten the studios to agree—and I think that’s because he doesn’t get movies in the same intrinsic way that he gets music. He doesn’t have a connection to it. Look at the music he picks for so many of his demos: things like Bob Dylan and The Beatles—music that clearly means something to him. Look at what he picks for movie demos: things like Ratatouille and Live Free or Die Hard—movies that mean something to his businesses.

But the studios were wary about movie purchases eating into lucrative DVD sales. Consumers didn’t want to buy video that a) was lower quality than what they could get on DVD; b) was more expensive than DVDs; c) was only playable on their iPods, computers, and Apple TV; and d) had to be stored somewhere indefinitely. Rentals removes a number of those restrictions: HD rentals are available via the Apple TV (I’d expect and hope to see those brought to Macs and PCs eventually too); rentals are far cheaper than purchasing and, more important, commensurately priced with traditional rentals (I’d still love to see a Netflix-like monthly subscription plan); and you don’t have to use up your hard drive space with movie files you’re only going to watch once or twice.

There are still some problems with the model that Apple’s using now, but I gather most of these have to do with artificial restraints imposed by the studios. The 24-hour window is frustrating, even with the pause loophole (why not, as John Gruber suggested, seventy-two hours? Except in the case of small children, most people can’t—or at least won’t&mdash watch a two hour movie three or four times in seventy-two hours). An even bigger “you’re kidding me?” is the 30 day lag between when a movie gets released on DVD and when it shows up on the iTunes Store. Again, the studios don’t want to hurt the DVD moneymaking machine, but that’s a bit excessive; it needs to be halved at the very least. Movies are already usually available for brick-and-mortar rental day-and-date with DVD releases, why hamstring iTunes with the same requirements? My guess: unfounded piracy concerns. Hopefully this lag time will decrease as the studios realize that they’re just shooting themselves in the foot. Again.

There’s also the matter of television content, which still seems on the expensive side compared to buying cable. That said, with the writers’ strike going strong, I don’t expect to see movement on this issue in the near future, but I’d like to see a monthly subscription that covers a certain number of shows. The current season pass implementation is good, but I want it to be better than TiVo—I want it good enough that I don’t have to subscribe to cable TV anymore. It’s close, but it’s not quite there yet.

Will the Apple TV Take 2 succeed where its predecessor failed? Not necessarily: this is a fledgling market that’s still struggling to get off the ground. But it’s in a much stronger position than the Apple TV Take 1 was. The living room is going to be the major high-stakes match in 2008, and right now it’s a wide open arena. If nothing else, Apple TV Take 2 and iTunes movie rentals ensure that Apple’s a serious player in this game.


3 Comments

Dave-O said:

That post was so good, you had to put it in there twice :)

Seriously, you were building to something...

January 25, 2008 3:55 PM
Huh? said:

Wow did I just run into a digital skip?

Wow did I just run into a digital skip?

January 25, 2008 4:45 PM
Dave-O said:

Subscriptions that cover multiple shows. I like it. Even better than the a la carte cable offerings consumer groups have been pushing for. Why pick the channels you want when you can pick the shows? That would be awesome; but the movie/TV studios have demonstrated a willingness to manipulate markets (that's what the music label are doing), so I doubt that would happen. What, create an actual competitive environment where cable companies would be pressured to repackage or lower prices on content?

January 27, 2008 9:31 AM

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