How an App Store Could Revolutionize the TV Industry

This week’s media event could finally confirm (or scuttle) rumors of a new Apple TV device. If it’s based on iOS 4, like many pundits believe, there’s strong potential for this device to feature its own App Store. If such a future came to fruition, Apple could be facing another round of tough negotiations with content producers like it faced when it introduced the world to digital music and movie downloads. If it’s successful though, Apple could revolutionize the television content marketplace.

The Current Marketplace

Consider how you currently watch TV, which could be through broadcast or cable television. If you watch cable, you pay a fee to a provider (like AT&T), which allows you to see certain channels based on your subscription (though that model doesn’t seem to be panning out so well anymore). The providers pay a portion of your subscription fees directly to the networks (an average of about 26 cents per channel). Networks make additional money with the ads they run on their channels as well. If a network doesn’t show ads, you can expect they charge the cable provider substantially more than 26 cents per channel, and the opposite is true if they show an average amount of ads. This is all relative and pretty much a standard business model.

How Apple Could Shake Things Up

With the introduction of the App Store, we’re starting to see how some industries are shaking up the status quo. For instance, consider the magazine industry. Wired now provides its app directly to consumers, and can sell a digital version of its magazine at a comparable price (per issue) to the newsstand price. Yet, without having to incur the printing costs behind it, and even while giving Apple 30 percent of the revenue, Wired pockets a lucrative profit.

Can the same model work for the television industry? Network providers already provide their content through iTunes, and, through negotiation, have arranged to sell content at $2-$3 per episode. Rumors of 99-cent TV shows have been rampant but unfulfilled, simply because of the tough negotiations required to make it happen. Could the solution be to simply bring an App Store directly to the TV? If so, similar to the Hulu or Netflix app, a network provider like HGTV (s sni) could provide its own app for free and charge within for in-app content, like episodes of a show. If it wanted to provide streaming content of the past few episodes for free, it could do so. As long as it approves of the 70/30 profit split with Apple, it would maintain a lot more control over its content and pricing. The networks would be happy, and Apple would be happy. Networks could still run ads as they wished and earn even more profit.

Who would stand to lose from this? At the outset, nobody, but if such a solution were to become mainstream, then cable providers could begin to see a dip in subscriptions. Why would most consumers pay a monthly fee of $30 to over $100 if they only want to watch a certain show or a certain network? Instead of paying for needless extra content that consumers never watch (based on their own viewing habits), they can pay for content that matters to them. The providers are aware of this, which is why many of them also provide internet service (think about Verizon, Comcast (c cmcsa) and AT&T).

I think an App Store on the TV could really revolutionize how we watch and engage with content.

What are your thoughts? A new Apple TV could revolutionize the television experience. Do you think it will take off? I’d love to hear what you think, so please share your comments!

Related GigaOM Pro Research: 3 Things Apple iTV Must Do to Succeed



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