October 12, 2005 5:35 PM PDT
Apple cuts the TV out of TV programming
The release of Apple Computer's new iTunes store for videos Wednesday has provided a first mainstream look at a business model likely to unsettle the movie, television, advertising and retail markets for years to come.
It's not much for now--episodes of five popular television shows from ABC and Disney's cable network, a handful of animated short films and music videos, all for sale at $1.99 apiece. But the prospect of expanding the success of the iTunes music store into video has possibilities that are already resonating through the media business.
With this first step into the video sales market, Apple is taking a similar path to that followed by its initial iTunes music store. In the case of music, the company started with a relatively small amount of music, accessible only to the small number of Macintosh computer users, as a means of persuading a once-reluctant music industry to allow broader online distribution.
Wednesday's deal with Disney appears to be a similar foot-in-the-door strategy, with a small amount of content that points clearly to a future that will likely include vastly more material. It does go beyond anything else online, however, offering consumers the ability to download a purchased version of several shows the day after they air, along with back episodes.
Before launching the video store, Apple approached only Disney, said Eddy Cue, the company's vice president of iTunes. He declined to say whether Apple would subsequently be approaching other networks, cable TV producers or film studios but said iTunes would be expanding its catalog of video over time.
The immediate question is how other media companies will view Apple's offer.
Other network television companies are a natural first step. TV programmers have watched nervously as digital recorders such as TiVo have allowed viewers to skip past advertising, and a new model in which consumers pay per show for formerly free content is likely to be welcomed by the networks.
Film studios may be a harder sell, however. Hollywood executives have privately expressed deep reservations about the security of Apple's proprietary digital rights management protections, called FairPlay. They have largely refused to allow any permanent downloads of movies to be sold over the Net until the introduction of a new generation of DVD copy protection, expected to be ready by the end of the year.
However, analysts said the move accelerates the divorce between specific kinds of content and their delivery mechanisms. Just as many people are already watching movies primarily at home, on DVD, consumers may stop thinking of television as the primary way to access TV content.
"A lot of people who want this kind of content may not even bother with a TV anymore," said GartnerG2 analyst Mike McGuire.
However, Apple faces a very different competitive landscape in the video business than it did in music.
Many of the most avid, tech-savvy television consumers--a natural core market for downloadable TV shows--already use some kind of digital video recorder such as TiVo, or those offered by cable companies, which allows them to record high-quality versions of all television shows.
Increasingly, those products allow consumers to transfer the recordings to a portable device or laptop computer, such as with the TiVo To Go program, or Tuesday's debut of the PocketDish device by EchoStar's Dish Network.
Cable companies such as Comcast are also increasingly making copies of shows available for free, on-demand viewing. Though network broadcast companies have been loathe to put their shows into this pool, fearing the ultimate loss of advertising revenues, the move toward on-demand content has helped accustom viewers to free shows, rather than paying individually.
However, many consumers continue to buy DVDs of full seasons of TV shows, and the iTunes per-episode model could allow viewers to be more selective about their purchases.
Whatever the drawbacks today, it's clear that Apple has set its sights on becoming a major player in the home video business, just as it has become one in the digital music sector. Analysts speculate that a next generation of products could let video be played on the television itself, through a wireless connection of some kind, much as the company's AirPort Express allows music from a computer to be played on a stereo today.
More is certainly on the way.
"I think this is the start of something really big," Jobs said at Wednesday's unveiling. "Sometimes that first step is the hardest one, and we've just taken it."
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