Can Apple save Hollywood?
Congress may have postponed the scheduled Feb. 17 transition to digital broadcast television on Wednesday — ensuring that millions of rabbit-ear TVs won't go dark for at least another four months — but that doesn't mean that the way Americans get their video entertainment isn't in the midst of wrenching change.
Take, for example, the story on the front page of Thursday's New York Times: Digital Pirates Winning Battle With Major Hollywood Studios, in which Brian Stelter and Brad Stone report that bootleg copies of Warner Bros' "The Dark Knight" were downloaded 7 million times in the space of 6 months — despite an elaborate antipiracy campaign, months in the planning, that included monitoring every physical copy of the film.
Or Microsoft's (MSFT) report Wednesday that more than 1 million XBox Live gold members (who pay a $50 annual fee) have activated a Netflix (NFLX) app and used it to watch, in the space of three months, more than 1.5 billion minutes of movies and TV shows downloaded over the Internet.
Here you have both sides of the sermon Steve Jobs has been preaching to the studios for years: the "Napster moment" the Times article describes, in which pirates do to the movie and TV studios what they did to the music industry; and the alternative, in which video content is legally streamed or downloaded — for a fee — from the Internet.
So where does that leave Apple TV, the set-top box that Jobs unveiled two years ago as Apple's (AAPL) path to Hollywood's salvation? Originally a device for connecting a computer wirelessly to a TV, it was updated last year to allow shows and songs to be purchased or rented directly from the iTunes Store.
Although sales of the device tripled last quarter, thanks largely to movie rentals, it is still a minor player in the transition from the old distribution paradigms to the new.
"We're going to continue to invest in it, because we fundamentally believe there is something there for us in the future," acting CEO Tim Cook told analysts during Apple's last earnings call, but he still refers to it — as Jobs did — as a "hobby." (link)
The pundits have offered a variety of suggestions for how Apple might solve its — and Hollywood's — dilemma by revamping Apple TV, including Peter S. Magnusson (who urged Apple to add a tuner, a DVR and a Blue-Ray disc drive), Bernstein Research's Toni Sacconaghi (who advised the company to turn it into a full-fledged Tru2Way cable box), and Businessweek's Arik Hesseldahl (who examined a variety of options earlier this week, including buying DVR-pioneer TiVo (TIVO)).
[UPDATE: Piper Jaffray's Gene Munster issued a report to clients shortly before noon Thursday with his own predictions. See below the fold. ]
But the most thoughtful analysis so far may be the one posted Thursday morning at Roughly Drafted Magazine by Daniel Eran Dilger, who looks at what Apple should — and perhaps more important, shouldn't — do with Apple TV.
"Analysts have voiced a lot of terrible ideas that would actually dismantle or saddlebag Apple TV," he writes, "converting it from a fun hobby into a burdensome money pit failure."
Here, in thumbnail form, are his take on what he calls some of the worst ideas:
- Add a DVR, perhaps by buying up TiVo. "The only thing worse than jumping into a dead market long after the lights have been turned out is buying out the leading failure in the market in order to do so."
- Add an optical disk, perhaps Blu-Ray. "Talk about snatching defeat from the jaws of victory: Apple has been pushing digital downloads as an alternative to the DVD for years now, with pretty decent success."
- Add an HDTV screen. "This one takes the cake for ridiculous."
"Apart from those top three ideas for wrapping an albatross and a millstone around the neck of Apple TV," he continues, "there are a variety of smart things Apple could add to their box to make it far more valuable."
- Add iTunes radio features. "Plug Apple TV into your speakers and have streaming radio with graphics."
- More alternative content. "…the other big free content source is podcasting."
- Add an iTunes Store, and an SDK for interactive content. "Make it easy to download little $5 games and app, and Apple TV will explode with the same software interest as the iPhone."
- Additional support for user created content. "How about a custom client for also accessing me.com email, contacts, and calendar on the big screen, navigated by the iPhone’s keyboard?"
- Consider the controversial. "There are a variety of competitive services that Apple might benefit from partnering with, including ad-supported Hulu and subscriber-supported Netflix." (link)
Dilger fleshes out each of these options in considerable detail and in his usual lively style. The full piece is highly recommended.
See also:
- Tuning into Apple TV 3.0
- Apple vs. Netflix: How do they stack up?
- Apple TV Take 2: What's the hangup?
Below the fold: Gene Munster's predictions.
- While Apple downplays the possibility, we expect the company to design a connected television over the next two years (launching in 2011).
- Separately, and in line with published reports, we expect updates to the Apple TV hardware with TV DVR functionality in the next nine months.
- We are modeling for Apple to sell 6.6m Apple TVs in CY09, which assumes a continuation of the y/y growth rate of 3x seen in the Dec-08 quarter.
- If Apple introduces new hardware in CY09 our estimates could be conservative; every 1m units sold adds $0.03 to our CY09 EPS estimate.
Source: Piper Jaffray.
It will be fun watching the Apple TV evolve. When Apple launched the iTunes Store, who among us thought it would blossom to become what it has today? No longer is the iTunes Store just music. Increasingly, we shop for TV shows and movies to rent or buy; download apps and books for our iPhones; listen to and watch podcasts; take college courses; and more.
My hunch is that given the explosive growth of game apps for the iPhone, that it's a matter of time before we see the iPhone, iPod touch, and future iPods adding the capability to control the Apple TV via WiFi. When that happens, we can expect to see the iPhone/iPod become the new TV controller. Look for an explosion of games for TV served by the Apple TV.
Of course, I could be wrong. But I like to think that if I'm imagining it, then it must be in late beta in Cupertino.
Right or wrong, I have a hunch the future could be a lot of fun.
I have already modified my Apple TV. I added it to my vehicle to when I pull in my driveway, I can "sync" my truck. This eliminates the need to connect my iPod to my truck and also eliminates the need to bring DVD's for my son. We just use the dvd player's screen to pick the music or playlist and for DVD movies also. Works great. My point here is that Apple teamed up with BMW and others to have vehicles iPod ready, sure would make sense with all the SUV's with DVDs and MP3s out there to team up and make vehicles "sync" ready.
@Stuart. Sydney.
Apple is not an underdog, this was irony. But it likes to portrait itself as stylish underdog fighting elegantly against the big bad guys(eg Microsoft, and btw, I have nothing to do with Microsoft).
And scores of people still like to believe that Apple's survival is still questionalbe and that is why they have to support it by buying its products, etc.
Apple is not evil, it just uses naive people's perceptions (and its products look good, i agree with that).
@Asher Pat
Your intense loathing of Apple seems to cloud your ability to parse the logic.
If you stand back a bit, draw in some fresh oxygen and start thinking about the topic again … but with a phlegmatic and nonpartisan attitude, this topic might not seem so distressing.
Where on earth did you get the crazy notion that Apple is an underdog or a small company?
I have an Apple TV and wish it was a bit more of a home server. I currently have a Mac Mini sitting next to it, with an external drive hanging off the mini. The mini is our home web server, file server and backup machine, as well as holding the ripped movies the Apple TV puts on the screen. A single box for all this would be appreciated. Also, a better non-media file browser/server, similar to iPhoto would be nice. Some way to corral a bunch of text/pdf/office docs, shared out to clients around the house is what I'm thinking of.
"insuring that millions of rabbit-ear TVs won’t go dark for at least another four months"
They're not *insuring* anything. They may be ENSURING something.
ex ped: Right you are. Thanks.
Combining DVR and Tivo in the same group is silly, they are two different things.
It is the lack of DVR that keeps me from buying an Apple TV.
And why buy Tivo's crappy interface and functions when you can write your own and most likely better?
Yes buying tivo is a stupid idea but incorporating its functions is not.
For the read who seems confused by the role of Apple in CREATING a digital music marketplace for CONSUMERS (unless of course, that guys works as a music industry executive) – without Apple, there would no FUNCTIONING digital music marketplace outside of ILLEGAL Mp3 downloading. Apple has sold some 5 billion tracks or some $4 BILLION+ delivered to the music industry – prior to Apple. a couple hundred million? Yea, that's worthy of criticism only if you work for MS. The video is much more complicated but not by much. It comes down to the same – work with Apple (& othes) to deliver video content to the home or END up like the music industry – afraid to SELL to the pubic and where do you end up? Like the reader above, the brain hiding in a cave, afraid, unwilling or unbale to comprehend a sea change of everything new.
As much as I love Apple (own stock & iPod – still considering iPhone), I don't think that content makers should be be interested in partnering with device makers. The technology for viewing movies (streaming video) on your computer is already available. What matters more is that they defend their brand and provide content at prices that the consumer perceives as FAIR (and hence avoid the fate of the music industry).
Given all the crap content that is out there (TV, online); consumers will be willing to pay for quality content. My prediction is that existing online retailers like Amazon will be major players in this area since they have the ability to bundle digital content with tangible merchandise and secure payment systems. Give the consumer a product that they want/need/has value – don't focus on the technology.
Um, correct me if I'm wrong, but haven't the past couple of years seen record-high box office numbers…? Awfully presumptuous to say that Hollywood needs "saving"…
ex ped: You are partly wrong. Box office ticket sales actually fell 15% between 2002 and 2008, although by raising ticket prices, they've kept the gross roughly flat. Source: box office mojo.
>>>> more than 1 million XBox users have activated (for a $50 annual fee)<<<<<
Sorry little mistake on the XBOX there Netflix does not cost $50… it is free, with the sub they are already paying for XBOX live.
ex ped: Thanks for the clarification.
> insuring that millions of rabbit-ear TVs won’t go dark for at least another four months
ENsuring.
> (for a $50 annual fee) a Netflix (NFLX) app
This is not correct. Netflix requires Xbox Live Gold, which millions of 360 users already have – it's required to play online. Netflix does not require a separate fee.
ex ped: Thanks for the clarification. Fixed.
As a recording artist and songwriter, I remember the days before iTunes as being very scary. The original Napster – where people "shared" things that were not theirs – had us all looking for new careers. Apple gave people a sexy alternative to stealing music. Video is the next form of intellectual property to be saved by this technology.
@pk de cville: in “Thanks Hollywood, for the doing the right thing.” You mean the “right thing” for whom? Probably you mean “the right thing” for your precious cult, isn't it?
Well, I can smell the fear of the worshippers here, after all, Apple was able to intimidate the spineless Big Music because iPod was overwhelmingly dominant (but Apple is still an underdog, ye right). Compare this to video content: Apple domination in video delivery and reproduction/viewing is just not there, actually, Hulu, Microsoft, TiVO, NetFlix have the lead. So what is a pious worshipper to do? Try to help Apple project its bullying domination onto the video content sector before it is too late. Oh my, a small company like Apple will not survive not being able to dominate another sector, oh no, we must do something, let’s persuade the video world that Apple is their only chance. Sure.
There are so many nuances with the Apple TV that minor additions and changes may not be enough. Maybe Apple should just evolve the whole system into a gaming platform with music and video features. I just feel like the Apple TV is just another item that takes up space next to the cable box, game console, etc…
Apple should:
1. Buy Netflix. Its pricey right now at 2 Billion but they have the cash.
2. Write an Apple program like only they can that basically does what the US mail and Netflix do now. You have a que. Your Apple TV or computer downloads the top 3 movies in your que. You can watch at once as many as you currently pay netflix for. When your done you hit return movie button and the program begins downloading the next in your que.
3. this would instantly kill the competition.
4. Apple could do this w/o Netflix but netflix has a base of subscribers that would immediately be Apple's and Apple could make this an Apple only service giving it a leg up.
"Hollywood sheep, welcome to the brave new world where you will be kept on a tight leash by Jobs and legions of Apple worshippers."
Wow. PGM – Pretty Good Metaphor.
Another PGM is "Hollywood lions, welcome to the brave new world where you will help move history into the 21st Century Internet through the good work and innovation of Jobs' Apple.
(And just in the nick of time, because Microsoft's intent to control all content distribution through its proprietary DRM boondoogled albatross was defeated by your wise actions.)
Thanks Hollywood, for the doing the right thing."
Remember Apple TV essentially is a computer similar to iPhone and the new generation iPod Touches. With the big money is Nintendo Wii/XBOX gaming, it will be just a matter of time before Apple goes after their lunch.
If Apple expands iPhone SDK to work with Apple TV and have the Iphone and iPod Touches view and control their apps wirelessly over TV, the gaming industry is ready for a shake up.
Apple TV will eventually prove to be the trojan hobby to take over the gaming world.
They need to work out deals with the studios that allow you to load your current DVD collection onto a daisy chain of time capsules and buy from them going forward. I know you
there are ways to do it now but some still follow rules.
My biggest disappointment with two years of ATV is not being able to download desirable movies, or an old movie of my choice. They are either unavailable to rent whereas you can buy or unavailable, period. The selection seems saturated with silly teen-comedy stuff. ATV is terrific for YouTube clips.
Can Apple save the world? The media just can’t stop with this Apple licking, it’s nauseating.
As for Hollywood, let's examine how Apple "saved” the music industry? Once under the spell of Jobs, spineless execs of Big Music bent-over and oiled it to Apple, even though Apple was less than 10% of their revenues. The “correct” world order was established (with the Apple collaborating promoters in the media intimidating anyone who dared to challenge the domination of the “little company that could”, the world most dominant underdog) and guess what? Music companies are staring down a big hole, only now they have a bolding guy with black turtleneck sitting on their neck and gripping them tightly.
Hollywood sheep, welcome to the brave new world where you will be kept on a tight leash by Jobs and legions of Apple worshippers.
I think Apple has a great hobby/toy on there hands with Apple TV. All the product needs is the capability to browse the Internet and connect wirelessly or wired to modern TV. For let's say $2.00/month, users will be able to not only browse the internet, but go to view media at Netflix, Hulu, Joost, etc. The fact is that Apple TV should not be for gamers or computer users. Simply a media product to facilitate new forms of media programming available on the web.
I love my AppleTV's but I think Apple needs to allow you to purchase HD movies on the device or through iTunes, currently you can only rent HD movies as well as buy HD television episodes.
Also moving to a Netflix style subscription for the AppleTV with a tiered limit of movies in a week period (6 in a 7 day period for example) would allow for more adoption of the device and more monthly revenue for the company.
I don't care about a TV Tuner/DVR and Apple wouldn't do that as it takes away from the revenue generating aspect of the device (why buy it when you can record it and save it.)
I think the AppleTV has been the sleeper in Apple's portfolio since it's inception and slowly but surely, Apple will find a way to market and sell it eventually, after all the iPod didn't hit the floor running either.