For television networks and cable broadcasters, Apple's new 99-cent TV rentals represent neither an existential threat to the industry nor the future of the medium.
Much is being made of Apple's announcement that it will offer first run shows from ABC and Fox for rental the day after they air for less than a dollar.
The reality, however, is that despite the highly publicized launch, analysts say the new iTunes offering will not jeopardize television's status quo — a multi-pronged source of revenue that now combines advertising dollars, syndication deals and retransmission fees.
“The upside with 99-cent rental is significantly smaller than the downside,” Arash Amel, a digital media analyst at Screen Digest, told TheWrap. “For more networks to get involved they’d essentially be emphasizing a deal that gives them millions of dollars on the digital side while risking the billions of dollars they get in carriage deals and retransmission.”
Indeed, last year, a total of $1 billion was spent on all online downloads, a figure that’s expected to rise to $3.6 billion by 2014. That’s big money, but it’s nothing compared to the billions networks routinely bring in from their retransmission deals and ad sales. Those could potentially be endangered should cable networks get angry over the fact that networks are casting their lot with online video, which is widely believed to be cannibalizing the pay TV business.
Translation: Don’t expect NBC-Universal, Time Warner, or CBS to follow Fox and ABC’s lead. Apple expended a great deal of effort trying to get other networks on board, but largely struck out in its efforts.
“There won’t be any pressure for the networks to join up,” Dan Rayburn, an online video analyst, told TheWrap. “It’s pretty easy to pass up now, because there is no penetration of Apple TV. Maybe if they sell 10 million in their first year, the networks will take notice — but that’s not going to happen.”
Moreover, it hasn’t been demonstrated that there is a significant appetite on the part of consumers for paying to rent TV shows, especially when they can be purchased and fully owned for just another dollar.
“Consumers don’t view episodic TV as a pay-per-view business,” an individual at a rival media company told TheWrap. “Consumers are going to DVR shows or maybe buy a DVD set, but the online audience is less than 1 percent. Networks don’t want to disrupt the TV ecosystem for 99 cents.”
"Apple doesn't have a compelling product, and their Apple TVs haven't sold well," the individual added.
Apple has never said publicly how many Apple TV boxes it has sold, but analysts told TheWrap they believed the number to be around 3 million worldwide. That, however, is likely to grow, especially as a result of Steve Jobs' hyping it Wednesday morning, as well as the drastic price-slash to $99.
That doesn't mean there is a market for TV rentals, however. Even if viewers are willing to pay to watch shows they missed, it’s not clear why they would opt for the rental option where they have just 48 hours to watch the entirety of the show from the time they push play.
Furthermore, as CNET reports, Amazon is currently allowing users to buy many ABC and Fox (as well as NBC, CBS and others) shows for the same 99 cents they would be paying to rent them from Apple.
ABC’s involvement is understandable. Steve Jobs is the largest shareholder in Disney and the two companies have forged a close working relationship.
As for Fox, there has been speculation that Rupert Murdoch is agreeing to the deal to improve his relationship with Apple. Not so coincidentally, the News Corp. mogul recently touted plans for a national digital newspaper to be distributed exclusively as paid content for tablet computers like the iPad.
“There’s no logical reason why they should get involved with Apple TV beyond the fact that they could,” Amel told TheWrap. “I suppose it does allow them to appear cutting edge and experimental.”
By being early adopters, Fox and ABC do ensure that they get favorable terms for providing content.
“The first priority for Apple if they want to sell their device is to be able to offer content,” Tony Wible, a media analyst with Janney Montgomery Scott, told TheWrap.“That means that instead of being 50-50, the split for content providers is probably more like 60-40.”
When it comes to threats that Apple TV poses to the cable business, that too appears to be overinflated. The country may be in recession, but price-conscious TV customers aren't likely to cut their cable cord for online video en masse.
‘These services are sidecars to get more TV content,” the rival media company executive told TheWrap. “The people who buy an Apple TV are ravenous consumers of content, so they’ll have cable as well.”