apple tv: evolution or revolution?
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DESCRIPTIONIn this white paper, Cartesian analyses the key elements of today’s TV consumption model to explore the implications of Apple TV for the telecoms and TV industries.
- 1. Apple TV Evolution or Revolution? By Ed Naef, Michael Dargue and Martin Hall Speculation abounds regarding Apples potential to redefine television. With over-the-top video already threatening the established TV ecosystem, what are the implications of Apples play for the telecoms and TV industries? September 2012
2. Cartesian: Apple TV Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 1 Introduction As rumors abound of Apple stepping further into television, with its history of combining quality content with compelling hardware, it is timely to consider the implications of such a move for the telecom and TV industry. To this end, Cartesian has deconstructed the key elements of todays consumption model to study the evolving nature of TV. This white paper presents highlights of our analysis in this area. Figure 1: Elements of Today's TV Experience Context Adoption of over-the-top (OTT) television has been growing rapidly, with over a third of households in the US now watching content from the internet on their TVs. The disruptive potential of OTT video is driven by the broad availability of media hubs, such as connected TVs, set-top boxes and gaming consoles, which enable TV-based viewing rather than using a PC or laptop. Today, OTT is mostly complementary to existing pay TV services and the number of consumers dropping their pay TV package in favour of OTT is not expected to become significant in the short term. However, users are expected to shift spending towards OTT and away from traditional pay TV. This shift will be accelerated if OTT providers successfully unbundle the pay TV industrys traditional content packages, enabling consumers to pick and pay for a more personalised selection of content. Although the limited ability of OTT providers to achieve content deals restricts the level of threat today, a combination of free-to-air and OTT services can already provide a similar range of content to basic pay TV services, at lower cost and with no annual contract. With its proven ability to secure access to content, Apple has the potential to thoroughly disrupt the established TV ecosystem. 3. Cartesian: Apple TV Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 2 Apple TV Speculation Speculation is accelerating around an increased Apple presence in the finely balanced world of pay TV and OTT content delivery. Sparked by comments from Steve Jobs in his biography, published in late 2011, analysts and media commentators have debated at length over the potential feature set, business model and timing of an Apple television set. For example, recent headlines include: Apple throws weight around in TV negotiations New York Post Les Moonves: Steve Jobs Approached CBS for Apple TV Content Hollywood Reporter Rogers, BCE vying for a bite of Apples iTV Globe and Mail Apple Plots its TV Assault Wall Street Journal The Apple TV product today is essentially a moderately successful hobby for the company, a set-top box with basic iPhone/iPad integration, that offers access to content from iTunes and other OTT providers. Opinions on the products evolution can be split into three categories, as shown in Figure 2 below. These range from continuing incremental improvements to todays product, through to the launch of an integrated television set with a feature-rich proposition. Figure 2: Potential Evolution of Apple TV Whilst some speculation may be pure hype, the potential disruption to the industry of such a move warrants further scrutiny. In particular, what are the reasons to believe Apple may or may not attempt a major push in TV? If it does go ahead, what form could the product take and what are the likely implications for industry of a fully-featured Apple TV? Analysis of Apple TV Should Apple make a move, we would expect some combination of the best capabilities currently available in TV remolded into a holistic Apple experience. We therefore begin the analysis with the deconstruction of todays TV experience, as in Figure 1 above. This enables an assessment of the key innovations in each aspect of the experience that are already available in the marketplace. Examples of these are shown in Figure 3 below. 4. Cartesian: Apple TV Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 3 Figure 3: Todays Innovations in the TV Experience One of the most debated aspects of Apples potential move into TV is the displays form factor. Apples products have historically combined strong aesthetics with ease-of-use, widening their appeal to consumers. An Apple television panel would follow this trend, likely matching the kind of elegant form factor seen in recent systems such as the all-in-one Bose VideoWave. Greater integration of iOS services such as Siri, iCloud and Game Centre would also be logical. This could match or exceed todays innovations in these areas such as the Microsoft Kinect user interface or Sky Gos place-shifting experience. However, mirroring the situation already prevalent in OTT video, content sourcing and packaging is likely to have the largest impact on industry. Apple has a history of disrupting content value chains, starting with the impact of iTunes on the music industry. Since then, the App Store has redefined the mobile software market and Apples move into eBooks coincided with that industry redesigning its business model. Each of these moves has rested on giving consumers convenient access to content on a device designed around simplicity and aesthetic appeal. Implications for Industry A move by Apple into TV content threatens similar levels of disruption to this industry. Implications for other players in the TV and telecoms ecosystem will be determined in large part by Apples choice of content strategy. The least disruptive option would be for Apple to continue incremental development of the Apple TV set-top box, driving greater consumption of TV content from iTunes. This would likely capture a greater share of the Video on Demand market, but otherwise have a limited impact on other industry players. 5. Cartesian: Apple TV Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 4 At the other end of the spectrum, Apple could potentially develop a high-end screen integrated with an OTT Apple pay TV service, sourcing content independently. This service would bypass traditional relationships, placing Apple in direct competition with existing pay TV providers. Cartesian has studied this area in depth, assessing each of Apples potential plays and the likely impact on different players in the TV and telecom industries. Our analysis on this topic has covered questions such as: How would current attempts to stem or control the rise of OTT be impacted by the launch of an Apple TV? What is the profit impact of an increase in OTT adoption caused by Apple TV? What subsidy model would work for service providers, consumers and Apple? What is the potential for a virtual MSO model for Apple TV? What are the implications of net neutrality for providing prioritized access to Apple TV or other OTT content? As industry waits to find out the truth behind the rumors and speculation, those potentially affected by an Apple move into TV should begin to assess the implications of such a move, and develop strategies to drive success whatever the outcome. 6. Cartesian is a specialist consulting firm of industry experts, focused exclusively on the communications, technology and digital media sector. For over 20 years, Cartesian has advised clients in strategy development and assisted them in execution against their goals. Our unique portfolio of professional services and managed solutions are tailored to the specific challenges faced by executives in these fast- moving industries. Combining strategic thinking and practical experience, we deliver superior results. www.cartesian.com For further information, please contact us at firstname.lastname@example.org