I just made a few bets on what will be announced at Apple’s September 1st iPod event. Curiously absent was any mention of “iTV”/Apple TV take four billonth, because I find no such joy in predicting its future.
Steve Jobs made it clear, as we all knew in our hearts, that the TV-related infrastructure is the worst clusterfuck you could wish for in terms of providing a coherent experience, and that there was no way around it short of demolishing everything and starting over.
This will eventually happen. There will be no such thing as channels, or prime time, or programming blocks; no such thing as physical disks hosting DRM and insufferable unskippables; no such thing as a stack of devices, some of which exist as standalone products to enable an architecture where you can pick your level of quality and ambition, but most of who cover up the lack of expertise and customer respect inherent in most consumer electronics companies; no such thing as seven remotes, six HDMI ports, five different sorts of audio outlets, four dozen cables running back and forth across your wall, three standards of digital television reception to choose from, two different boxes for viewing and recording different programs and one confused user in the middle of it.
The TV market is fucked up at every level. The TV itself doesn’t work, the standards are wild and varying, the extra boxes you need don’t even talk to each other, the networks sell your eyes for change to advertisers and that’s only the consumer end of it. Paving over it means starting from the shows and figuring out what can be added to them. If you could pick TV shows a la carte, you could have either no ads for a large fee, few ads for a small fee or the same deluge of ads for free, but the ads would be better targeted. You could tick a box and receive experiments; watch a pilot and tell the producers what you liked about it. You could tick another box and allow for an extra few programs each week that your friends recommend.
It’s not clear to me that Apple is willing to do this, or that they want to do it right now. The alternative is a cheaper version of the Apple TV. Maybe it could get better software, sure. Maybe it could turn into a gaming platform and a new console, okay, even if every cut of A4 to date lacks muscle when compared to the crop of consoles that are currently on the market, and that will be due for replacement in a while. You’re not going to see any substantial improvement in anything that matters about Apple TV unless they start paving. If you’ve already made the bet, great, it’ll get better. If you’ve been waiting for a shift in pricing, great, you’ll be able to afford them. They could sell twice as many and it wouldn’t do a whole lot.
The TV as we know it, along with every single ancillary construct save for shows and the production thereof, is dying out. The writing’s on the wall. There will come a system to throw everything out that needs throwing out, and that will arrange the pieces that are left in such stunning and efficient simplicity that we will wonder how we ever put up with what was there before. But it’s not a “media center” like anything you’ve ever seen, and it sure as hell is not the Apple TV. The Apple TV is to this revolution was the MiniDisc player was to digital music; still playing the same old game in the same old way, strapping inline skates to the horse, and maybe it’ll make a few people a bit happier, but it’s not what the world wants.
“This will eventually happen. There will be no such thing as channels, or prime time, or programming blocks; no such thing as physical disks hosting DRM and insufferable unskippables”
I tend to disagree. At least if we’re defining “eventually” as the semi-foreseeable future.
The “stakeholders” involved in the production and distribution of video have tried very hard to learn from the perceived mistakes of the audio industry.
And one of the lessons they’ve taken is that balkanization actually helps their business in certain ways.
The new Apple TV is going to be underwhelming, at least at first, simply because the content companies don’t want to put their programming on it in a compelling way.
Content companies hold all the cards right now, and they see more downside in disrupting their current revenue streams than upside in establishing new revenue streams.
If anything, things seem to be moving in a more balkanized direction, at least in the short-term, with content companies buying or creating distribution channels to create vertically integrated cartels.
The mid-term future seems like it’ll be a lot like the current world. You’ll still have to pay for a monthly “package” deal that contains some stuff you want and some stuff you don’t want. The only big change coming is that a la carte ordering will become much easier. In other words, this world will come into existence, but it’ll be a very expensive a la carte menu that most folks won’t be able to afford to rely on for the bulk of their video.
By Chucky · 2010.08.29 19:37
Chucky: Sure enough, if the future world is limited to the groupings and establishments that exist today. Not only will people regroup, new talents are constantly appearing. I wouldn’t be so sure that change has to come slowly when YouTube only sprung into existence five and a half years ago.
Change will happen quickly when it does happen. Every player has everything to win by moving to a new market. The four explanations why they won’t are: a) inertia; b) they don’t know exactly how to do it; c) It’s scary; and d) it’s so efficient, it’s bound to cause some positions to become unnecessary.
I don’t think they milk the slowly dissolving status quo because they’re scheming. I think it’s because they’re incompetent. They really can’t move faster than this. Even the clued-in people who are working with them are learning you can’t teach a snail to tap dance. Their fears are blinding them.
Those who do want to advance will leave the dead weight behind and do it on their own. Once that works, it’ll be a little easier to get on-board.
By Jesper · 2010.08.29 19:47
“They could sell twice as many and it wouldn’t do a whole lot.”
For whatever it’s worth, I actually think they’ll sell boatloads of these at a $99 price point. Assuming they’ll be marketed as a cheap accessory for your iOS device(s), it’ll have enough of a “gee whiz” component to move them off the shelves.
Hell, my beloved TiVo sells a remote control for what the new Apple TV is supposed to be priced at…
By Chucky · 2010.08.29 19:47
That also depends on the product. As long as it’s fundamentally the same product that people didn’t get (in any sense of the word) from the beginning, I think its prospects are grim, and even if they weren’t, it’s so clear that they want to be able to do better but just can’t.
They could sell ten times as many. Ten times a small amount is larger, but it’s probably still a small amount. To extend and further strain my metaphor from the post, putting a hoverboard under that horse wouldn’t do a lot of good either.
By Jesper · 2010.08.29 19:53
“The four explanations why they won’t are: a) inertia; b) they don’t know exactly how to do it; c) It’s scary; and d) it’s so efficient, it’s bound to cause some positions to become unnecessary.”
e) cartels and monopolies are actually quite beneficial for incumbent “stakeholders”.
f) the infrastructure (in the US) doesn’t currently exist to deliver individual HD streams to every household.
“I don’t think they milk the slowly dissolving status quo because they’re scheming. I think it’s because they’re incompetent. They really can’t move faster than this.”
This is where we fundamentally disagree. Although there are infrastructure issues that hold them back, at the core, the current “stakeholders” hold back because like the current business model. They think that it gives them more control and more profit.
The content conglomerates and wireline monopolies are acting quite rationally, in my estimation. Their interests just don’t align with the public good.
By Chucky · 2010.08.29 20:09
“I think (Apple TV’s) prospects are grim”
It’s not going to change the world on day one. But if they sell boatloads, they could do something interesting in an evolutionary way, over time.
Apple TV could be like the Kindle. Are the Kindle’s prospects grim? I don’t think so. It’s a best of breed niche product. And, at least at first, that’s all Apple TV can aspire to. But with the iOS installed base to sell ‘em to instead of an extra case, that should give them an easy leg up in getting there.
Then, once they’re attached to tens of millions of TV’s, Apple can patiently wait for a civil war to break out among the incumbents, and use the opportunity to get their foot in the door.
“it’s so clear that they want to be able to do better but just can’t.”
Welcome to the wonderful world of home video!
Everyone wants to do better. My beloved TiVo wants to do better. Netflix wants to do better.
But they don’t own the railroad.
It’s really that simple. The folks who own the railroad, they own the railroad. They twiddle their mustaches in a comically evil manner, and they use their power to try to increase their power.
NBC/Universal is merging with a cable company to get vertically integrated. They’re tipping their toes into a different kind of vertical integration with Hulu (a non-business at the moment), purely to preempt future competitors.
That’s how this game gets played. There is real money to be made through cartels and monopolies.
Steve-o’s best bet is to use the fact that he’s got a huge stock position in one of the railroads (ABC/Disney), and use his influence to build more track around that railroad.
By Chucky · 2010.08.29 20:34
I was talking about the people who are “half on-board”, not about the ones who are going down with their business model. I believe that even the corrupt fat-cats of this harvest with inflated salaries out the wazoo would actually profit more by moving to a saner environment, but I suppose that we may never know.
None of this has to be HD. If you deliver a superior solution which uses HD where available and the same resolution as either NTSC or the low-end YouTube streams where not available, regardless of if you live in the sticks or not, you’ll jump on it because it’s a better idea; because it’s about changing everything except the pixels. Giving everyone a TV set that could do 4K wouldn’t solve shit. To the extent that resolution even is an issue, it’s far from unsurmountable even in the short term.
By Jesper · 2010.08.29 20:41
Wow, thanks for introducing me to my own thoughts. Apple TV is barely interesting. Apple TV being used as a negotiation wedge is interesting. And Apple TV turning into what they’d negotiate for is very interesting. But I still think that you’d need something on the order of several YouTubes to actually make an impression. As you say, everyone’s interested in doing their own things instead. So there’s nothing wrong with just going for it; that may actually create some pressure.
By Jesper · 2010.08.29 20:45
“I believe that even the corrupt fat-cats of this harvest with inflated salaries out the wazoo would actually profit more by moving to a saner environment”
Again, this is our core disagreement.
I think the home video incumbents are making quite rational decisions about how to maximize their future revenue stream. Taking decisions to own the entire market from end to end, split among a small number of zaibatsu, is the smart path for the interests of those zaibatsu.
They think a saner environment means a smaller future revenue stream for them, and I can’t find a reason to disagree with their thinking.
“None of this has to be HD. If you deliver a superior solution which uses HD where available and the same resolution as either NTSC or the low-end YouTube streams where not available, regardless of if you live in the sticks or not, you’ll jump on it because it’s a better idea”
Video that isn’t HD has all the pricing power of audio. In other words, essentially none. There is no business in YouTube. And similarly, there is no business in Hulu.
All the pricing power of video is in lean-back HD. That’s where the dollars get spent.
(Hell, if you don’t care about HD, just send $9 a month to Netflix for their streaming catalog, and you’ll be good to go.)
•••••
“Apple TV is barely interesting”
The old Apple TV was barely interesting. This iteration is actually pretty interesting to me.
Lean-back video is a market with incredibly high barriers to entry. Apple’s leverage of the iOS customer base and their relationship with ABC/Disney gives them a very rare opportunity to really get their foot in the door here.
The problem is that I don’t have any faith in Cupertino getting this right.
They are going to be faced with many choices of whether to head down an “open” path, or an “AppStore” path. And I don’t have any faith they’re going to pick correctly. Their short-term interests are going to be in building a walled garden so they can be a middleman to sell content. Their long-term interests are going to be in letting everyone in to make their box utterly compelling and necessary, relying on their superior user experience. I get the feeling Steve-o thinks short-term…
By Chucky · 2010.08.29 21:23
Fair enough, but what I said was also quite clearly that they don’t have to deliver HD even to people for which HD is untenable. They’d be toast if they couldn’t deliver HD to people who expect HD. But they don’t have to solve the problem of making HD available to people who don’t already have it in order to solve the other, bigger problems. Cabling or wireless coverage will eventually sort itself out more or less on its own as far as they are concerned, but no one else is going to solve the rest of their problems for them.
By Jesper · 2010.08.29 21:59
“Fair enough, but what I said was also quite clearly that they don’t have to deliver HD even to people for which HD is untenable.”
No, I do follow you. But the folks for whom HD is untenable are not Apple’s customers, since they’re not spending money.
Netflix is going after those folks with gusto. They’re spending the bulk of their acquisition budget locking up SD streaming rights of mainstream movies. Hulu Plus is the railroad’s preemption experiment in that niche. But folks who only want to spend $10 to $20 per month on their video consumption are not Apple’s customers.
And it’s not about a 4k kind of thing. The world has settled into a “good enough” HD standard of 720p with reasonable compression. That’s what Amazon VOD and the current Apple Video Store deliver, via buffering. And it’s what Netflix HD streaming delivers, although their catalog of HD is tiny, and seems likely to remain tiny. (It’s not what Hulu Plus is delivering.) That “good enough” really is noticeably worse on a lean-back than what you get via cable or BD, but for most stuff and for most people, it’s “good enough”.
Apple wants to deliver “good enough” HD video via streaming. The problem is that the rights holders don’t yet want Apple to deliver that via a selective subscription service since they think that will cut their overall revenue. From the rights holders’ POV, why let you pick just the shows you want, and thus decrease your monthly revenue stream? And, of course, the rights holders are tightly intertwined with the wireline providers, who have their own interests in controlling the box under the TV…
In short, it’s a jungle. The folks who own most of the infrastructure and put the boxes under the TV’s are tied in with the rights holders. It’s a zaibatsu system, and the things Apple wants to offer its customers are difficult to achieve on a corporate level for perfectly rational reasons at the moment.
As an addendum on infrastructure, think of it this way: if the new Apple TV were to undergo massive adoption from day 1 as something other than a toy, (which I most definitely don’t think it will), three months later, every coax wireline provider would have to institute bandwidth caps…
By Chucky · 2010.08.30 00:12
Of course, the only thing that would make a profit-optimized zaibatsu system move toward a saner delivery system is the intervention of the government. Which is what makes this news tidbit from today of interest…
By Chucky · 2010.08.30 17:41
Not necessarily. Even if it was that simple, you may have a well-paying job and simply live comparatively in the sticks, unwilling to move just because of higher bandwidth networking.
And with regards to that particular stereotype, are everyone who has ever bought an iPod spenders? I don’t think so.
By Jesper · 2010.08.30 20:17
“And with regards to that particular stereotype, are everyone who has ever bought an iPod spenders? I don’t think so.”
Folks who bought an iPod in Years One and Two sure as hell were luxury item buyers.
‘Portable music players’ became an atypical category, precisely because Cupertino established such a dominant market share in the category. If Cupertino has a category where they can get a 75% market share, then obviously they’re going to serve everyone. But that’s not how Cupertino approaches most categories, since they’re normally not after market share dominance.
“Even if it was that simple, you may have a well-paying job and simply live comparatively in the sticks, unwilling to move just because of higher bandwidth networking.”
Cupertino’s answer:
Just don’t hold it that way.
Chucky’s answer:
Sure. And if that’s the situation, I’d assume Cupertino will be happy to stream video to you. You just might have to pay the same high HD price that folks with HD infrastructure pay for your SD video.
But the minority demographic of folks with money they want to spend on lean-back video services, who happen to lack the proper IP infrastructure due to geography, are more efficiently served via the more ‘broadcast’ models of traditional cable and satellite TV than they could possibly be with streaming IP TV.
Apple could serve SD customers very easily at a lower price point by just enabling Netflix and Hulu Plus on the new Apple TV. But I don’t know if they’ll do that. From a monetary POV, it’s close to irrelevant whether they do or they don’t, since there is so little money in SD TV. But even if they do enable those types of alternate services, that’s not where Apple wants to make money off of selling video services.
At the end of the day, Cupertino lives to serve luxury item buyers. They want to make nice things, and sell to people who want to buy nice things. When you translate Cupertino’s DNA into the terms of lean-back video, it all means delivering professionally produced “good enough” HD with a nice interface.
That’s where the money is in terms of video services, and that’s what Apple wants to do with their video services.
By Chucky · 2010.08.30 23:07
Which is why the current Apple TV doesn’t work with component out — oh, it does. But in any case is certainly why the current iPhone doesn’t work with Windows — oh, it does. But at least it explains why they don’t, to take a more direct example, sell standard definition TV shows on iTunes — of course they do.
They’re going to deliver what people know is good quality. But they’re also not going to leave money on the table. This isn’t a binary “SD or HD” rights question, it’s a question of whether to offer HD and SD or just SD, and of course they wouldn’t want to just offer SD. But they don’t have to offer “just SD” to cater to those that just want to have SD. All they need to do is offer both. They already do, for fucks sake. I fail to see why offering both is a problem, or why it’d raise the price of the lesser alternative. One of the few things that are already implemented and working is a funny thing to latch onto and proclaim the practical impossibility of about this entire wild idea.
By Jesper · 2010.08.31 00:17
“Which is why the current Apple TV doesn’t work with component in-out — oh, it does.”
Do you think the new Apple TV will include analog outputs? Assuming the $99 price point, I think it likely won’t, though I’m nowhere near 100% sure.
“But in any case is certainly why the current iPhone doesn’t work with Windows — oh, it does.”
Huh?
“But at least it explains why they don’t, to take a more direct example, sell standard definition TV shows on iTunes — of course they do.”
Sure. They sell SD material on the current Store, but with two caveats:
1) A lot of that SD is there in the first place because Apple can’t obtain HD rights for most titles.
2) The items which do have an option between HD and SD don’t reflect the true pricing difference between HD and SD. You’ll pay 80% of the HD price on the SD version on many items, but the value of the SD version to the rights holders is somewhere around only 10% – 20% of the value of the HD version.
And that leaves aside the most salient point going forwards, which is:
“But they don’t have to offer “just SD” to cater to those that just want to have SD. All they need to do is offer both. I fail to see why offering both is a problem, or why it’d raise the price of the lesser alternative.”
The current Apple video service model is a downloading model. With such a model, you can get HD video even if you have a substandard IP infrastructure. You just wait a little bit for the thing to download, and you’ve got HD. That takes care of the small number of customers who both want to spend dollars on video services but live in a geographical area where they don’t have the option of paying for decent IP infrastructure.
But now imagine the new Apple TV, which seems as if it is going to be based on a streaming model.
In a streaming model, you simply can’t get the HD version unless you have the proper infrastructure.
And furthermore, there is a tremendous tendency in the streaming market for a one price fits all infrastructures model, no matter what stream you can achieve. To take an example, if Apple can get the 99 cent TV show rental price it wants, you’ll likely pay the same price if you watch with adequate infrastructure to get a “good enough” HD stream on your lean-back, or with inadequate infrastructure that falls back to a low-res stream on your lean-back. You’ll even likely pay the same price if you watch it in 3G over your iPhone in a super-low-res stream.
Similarly, you pay the same price to Netflix streaming whether you have the adequate infrastructure to take advantage of their (tiny) library of HD material or not.
Similarly, if you’re using Amazon VOD on a streaming device, you pay the same price whether you have the adequate infrastructure to take advantage of HD material or not. (I’m actually not 100% sure about this one, since I download Amazon VOD material to my TiVo, and thus I’m not a streaming customer of theirs. But that’s how I’m under the impression it works.)
But again, this whole sideshow is essentially irrelevant to Cupertino’s thinking on video services. Sure they’ll serve dedicated SD customers, if they can without too much trouble, though likely at little to no discount over HD. But the customers who spend the overwhelming bulk of the money spent on video services have only minimal intersection with SD customers, so SD customers are not what Cupertino is really interested in on their video service plans.
(Compare and contrast to Netflix, which is concentrating on serving SD customers at an SD price, since that’s the only niche they think they can survive in…)
But again, this is just a sideshow. The interesting questions to me about the new Apple TV are:
Apple has a tiny window to get into the game here, but that window is going to slam shut quite quickly. They will need to move fast, and they will need to think long-term over short-term, which is why I’m pessimistic that they’ll get it right.
By Chucky · 2010.08.31 14:58
BTW, I was curious, so I clicked on the “About” page to find out where you’re located. Two tangential notes:
1) Congrats on being located in a civilized country. I’m envious. What you lack in video services, you more than make up for by living in a sane society.
2) I just finished watching episode 1 of Lars von Trier’s The Kingdom on Netflix streaming, which is only available in low-res. Normally, I avoid low-res video like the plague, but I’ll make an exception for Lars. The Kingdom is pretty wonderful stuff, but going on the evidence of the first episode, Lars seems to hate Swedes even more than he hates Americans…
By Chucky · 2010.08.31 15:31
Due to recent events, I’d challenge your opinion of a ‘sane’ society, but we sure as hell are about as sane as they tend to come.
Good point on streaming limiting HD to those with high enough bandwidth, although everything I’ve heard is about “renting”, which is just a more ominous DRM, and which would retain the option of getting HD.
Even if you’re channeling the TV industry, I don’t buy the valuation of SD being a fifth of HD. The valuation should be about production and marketing costs, and although HD is pricier to produce, it’s not that pricier now that everyone’s doing it and every damn piece of consumer electronics can process at least one 720p stream.
I find “about a third off” for SD (ie what they actually do) closer to reasonable than SD being worth one fifth to one fourth of HD (ie what you say that’d like to charge, or what it’s worth to them). You have to take into account the base sum, the part that’s gonna recuperating the costs and eventually make profit; maybe if you remove that and just count what they add on top, HD is five times more expensive than SD, but I think that’s a bogus argument because you can’t buy “just the base”.
By Jesper · 2010.08.31 20:14
“Good point on streaming limiting HD to those with high enough bandwidth, although everything I’ve heard is about “renting”, which is just a more ominous DRM, and which would retain the option of getting HD.”
IP TV wants to be pure streaming. It eliminates all the DRM hassles, all the local hardware hassles, and just sends you what you’ve paid to have available whenever you request it. No hard drives need apply.
The problem is that the infrastructure build-out will take many years to hit the median household. But a significant chunk of early adopters are already there, in infrastructure terms, and those early adopters have deep wallets, so the slow roll-out can commence. And Apple is trying to get there ahead of all the other big boys, so they’ll have a head start when the real combat begins.
Streaming is where this is headed for everyone who doesn’t drive “trucks”, to use Steve-o’s terminology.
“Even if you’re channeling the TV industry, I don’t buy the valuation of SD being a fifth of HD. The valuation should be about production and marketing costs”
Of course, the valuation is about what the market will bear.
I’m just following along with what streaming rights seem to be worth on the open market, and channeling that.
For a parallel example, in the cinema distribution market, 3-D holds a ridiculous amount of pricing power, even though it doesn’t cost all that much in post-production to upconvert a 2-D movie to 3-D. The consumer spends on what the consumer wants to spend on.
On the bright side, if you’re content with low-res home video, the fact that the production cartels think low-res video has little value means there is about to be a bargain basement paradise offered to you. For a pretty low monthly bill, folks will be offering all-you-can-eat low-res services that will be movie and TV cornucopias…
By Chucky · 2010.08.31 22:57
It’s coming tomorrow, and Gruber points to the other thing I’m highly curious about:
“Lean-back” is a very different UI from “touch”, just as “touch” was a very different UI from “keyboard/mouse”.
If they roll-out tomorrow with just the current Apple Remote, along with steering folks to use their iPod Touch, Cupertino will have failed, and failed badly.
They need a remote that they don’t have for sale today in order to really make this work.
If I had to bet, I don’t think the work is done. I think they just have an iOS toy to ship. But we’ll see tomorrow.
By Chucky · 2010.08.31 23:14