In last week’s financial conference call, Steve Jobs reiterated his view that the Apple TV is a hobby for the company. He even went so far as to say that digital video in the living room as a whole had not really caught on.
I think the whole category is still a hobby right now. I don’t think anybody has succeeded at it and actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away, so I’d have to say that given the economic conditions, given the venture capital outlooks and stuff, I continue to believe it will be a hobby in 2009.
That’s prompted some wondering about the future of the Apple TV. This morning, The Mac Observer’s John Martellaro posed the question of why Apple has not yet struck a deal with Netflix, who themselves have been pushing online video watching both through the Web as well as through partner devices.
Apple continues to regard Apple TV as a hobby and has curiously failed, so far, to secure an agreement with Netflix. Instead of getting an Apple TV into every Netflix subscriber’s home, Microsoft, Roku, LG, and Samsung are, in Apple’s absence, seizing the business opportunity, with likely others to come.
There are a couple of issues here, but the major reasons behind this decision have to do with Apple’s ethic: the way that they do business.
For one things, Apple doesn’t do partnerships well, chiefly because it likes to be the center of attention. Look at the deals that Apple has made over the past several years, and see if you can pick out one where the other company got a bigger share of the spotlight: Intel, Sony, AT&T, Motorola. That goes double for markets in which Apple already competes. Making a deal with Netflix would be seen by some, perhaps even Steve himself, as conceding that Apple simply can’t cut it in the video market.
Another, as we’ve discussed before, is the extreme difficulty of Apple succeeding in areas that Steve Jobs doesn’t “get” (cf. gaming). Apple is both a passion-fueled company and a top-down organization: it does its best work when it’s executing based on a central vision. Video, like games, is not something that Steve is passionate about. Ever hear him wax rhapsodic about Lawrence of Arabia or Easy Rider in a keynote presentation?* Honestly think he’s caught up in the mysteries of Lost or the intricacies of The Wire? Can’t quite picture that, can you?
I think the reason Apple hasn’t struck a deal with Netflix is the same reason that they haven’t put a DVR in the Apple TV. They’re used to controlling the whole system: think Mac hardware and software, or iTunes and the iPod. Bringing content in from another company is kind of antithetical to the business model they’re trying to promulgate: the future of video in their eyes is downloads and rentals via iTunes.
That said, whether or not they’re right is a separate question. Given the levels of success they’ve achieved on the music side with iPod and iTunes and on the software side with the iPhone and the App Store, it’s a hard argument to counter. As Martellaro points out, Netflix would at first blush seem to be doing substantially better in the video market than Apple is. Part of that is a vast subscriber base (over 8 million) and a huge catalog (only a portion of which, admittedly, are available for online streaming).
Then again, according to the Q4 2008 financials, iTunes has over 65 million customer accounts. And they’ve got a catalog of 2,500 films and 30,000 TV shows as of September, though the store’s bread-and-butter remains music (and perhaps, increasingly, iPhone apps). That means Apple already has the major two things that Netflix could potentially bring to such a relationship: content and customers.
But, as I remarked just last week, Netflix has blazed a trail that Apple should follow. It’s shown that people are willing to pay a monthly fee just to watch video. There’s no reason that Apple shouldn’t attempt to launch their own business model along those lines. They’ve got the ingredients for success; it’s just a matter of combining them in the correct fashion.
* Pixar movies are an exception here, but I think that happens to be more because of the technology and the passion that others, like John Lasseter, bring to the products.
Streaming/downloading video in the living room has not caught on. When only 0.01 people have heard of something, it's pretty safe to say that it has not caught on. When my mom comes and asks me about streaming video, then we can consider it to have caught on.
Netflix does not charge a fee for streaming video. It comes with the DVD rental, and very few people actually use it. For Netflix, it's a feature the Blockbuster isn't providing. For the hardware manufacturers, it's a feature that may sway buyers. It's one of those things you know you might never use, but if all else is equal, it can influence your decision, and you get it "just in case".
And the trail is hardly blazed. One lone explorer has gone out into the wild. We've received a few messages back that he's OK, but it's not really certain if he'll make it back alive.
What about YouTube? It's a video source Apple doesn't have complete control over yet they've worked out a way for iPhone and Apple tv to both support YouTube videos. I could see Netflix as an extension of that with Apple controlling the interface, but of course they do compete with iTunes rentals so probably not going to happen.
Digital downloads of movies still can't be considered as a means of distribution while we have service providers that want to limit your downloads amount.
Doesn't Netflix's streaming use Microsoft Silverlight? Wouldn't that alone be a barrier to Apple wanting to join forces?
Oh, my, it looks like Steve Jobs spin doctors are out in force to defend his eccentric-ness.
Netflix users pay a monthly fee to have 1-3 DVDs at any given time that they want to watch. Digital downloads changes the equation fundamentally. It doesn't make sense. Apple benefits from a subscription (to music or video) only to the extent that customers don't utilize the service (i.e. most subscribers are suckers who should have stuck with renting/buying). Customers benefit only if they use the service so heavily that they save money over an a la cart pricing scheme. iTunes movie rentals is sufficient. TV rentals would be nice, but I wonder if the providers would allow it. Apple could compete with cable and satellite providers if it offered TV rentals (I would drop cable and my TiVo in a heartbeat if the economics work out right). Apple may not be able to recoup the bandwidth costs either.
And no, a Netflix partnership makes absolutely no sense. Then again, I never understood why people want a DVR in their Apple TVs. When iTunes has free TV shows, I put them on my iPhone and connect it to my TV rather than watch on my TiVo. The experience is that much better (I would use my Apple TV, but that would mean getting one of them new-fangled flat screen dealies).
Digital downloads face major challenges:
1. The entire internet, and more importantly local ISPs, simply cannot handle everyone trying to use it at once, particularly for something as demanding as video. Thus we see limits on bandwidth and throttling of heavy users. This alone must be solved before mass downloads of video can succeed.
2. Cable costs less than $2 a day. A single show from iTunes costs that much.
3. The general public is satisfied with cable, but want to customize it by time shifting. Thus the demand for a DVR.
4. Commercials are a great reminder to get off the couch and walk to the kitchen, bathroom, etc.
5. The general public thinks it understands renting and owning physical media. Media that exists solely as bits on a computer or set top box appears to have lower value.
Very little (if any) full length content and hideous quality. Apple is not trying to sell you over-compressed gopher videos.