Why TV Viewers Will Sing Apple's Praises in 2012

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Apple productsIf one Wall Street analyst is right, Apple (AAPL) is about to make TV buffs very happy in the coming year.

Sterne Agee analyst Shawn Wu notes that the inevitable launch of a full-blown Apple TV in 2012 will also be accompanied by an Internet-based television service for which the channels and shows will be completely customizable. In other words, viewers will be able to choose exactly which cable channels or TV shows they want to watch, and not have to pay for the dozens -- if not hundreds -- of channels that they don't want.

"I finally cracked it," Steve Jobs told his biographer when discussing television, shortly before he died.

Jobs may have been talking about the interface, remote control, or perhaps cloud storage of content, but what if he was already thinking ahead to the biggest gripe that consumers have with their escalating cable bills.

Farewell to the 'ESPN Tax'

Traditional cable and satellite television bills are getting out of hand.

Media tracker SNL Kagan claims that ESPN sets distributors back a hefty $4.69 a month per home. Since ESPN is part of most standard cable packages, it's not as if couch potatoes that don't care about sports can opt out of ESPN without downgrading to the most basic of packages that includes mostly the over-the-air channels that they could get on their own with an HD antenna.

Cable networks also often force cable and satellite companies to carry their lesser channels in order to get the more popular channels. For example, Madison Square Garden (MSG) may require a company that wants its flagship MSG channel to also carry its rarely watched Fuse music video channel.

Letting the customers who ultimately pay the bills for these negotiated bundles decide what they want to pay for -- and what they don't -- is the right thing to do, but even the mighty Apple is going to have a hard time convincing broadcasters to do the right thing.

Apple TVApple TV Just Got Even More Interesting

If homes can save money by customizing their channel lineups, it will also mean that the content creators will make less. Audiences for individual networks will shrink, and with that the subscription revenue and -- for those that run commercials -- what advertisers are willing to pay for 30-second spots.

Networks are scalable businesses with high fixed costs. Production costs for new shows aren't cut in half if their audiences are halved. So what Apple is trying to do should be worrying cable network executives, while at the same time delighting the viewers who are left shaking their heads every month when the cable bill arrives.

Then again, if anyone can do this it's Apple. Record executives weren't ready for digital distribution when Apple made legal music downloads cool through iTunes. Nobody wanted a tablet until Apple rolled out the iPad. Apple has been successful because it can see where the market is heading before anyone else.

Cable networks will fight this to the very end, but Apple and its growing army of couch potatoes will get their way -- or abandon the networks altogether.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Madison Square Garden and Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.



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28 Comments

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onetaowalker

Sounds like a plan!

January 04 2012 at 5:38 AM Report abuse rate up rate down Reply
frank3dwx

I quit cable years ago. The cost is just ridiculous. No time to watch sports much anymore and rent from redbox from time to time. My TV signal comes in great plus its HD, unlike most of the cable channels.

January 03 2012 at 8:06 PM Report abuse rate up rate down Reply
browse62

I might be wrong, but reading about the mergers of the companies offering chanels (programming) to the cable providers, who now even offer their own programming, it appears that we are back to where we started before cable TV, i.e. only a few actual providers of programming. The federal government has allowed and formented this control over what we see via cable TV by allowing all of these mergers and by not regulating the cable industry in favor of the citizen. The solution is to require that each of the large cable companies, Comcast, Timer Warner and perhaps a few others, allow their subcribers to purchase only those chanels that they want. There is no doubt in my mind that the technology exists right now for everyone to input their own custom chanel list through their cable box. This would have to be mandated over a period of time in order to allow the current progamming contracts to expire, but could probalby be done within 5 years. Read my lips " No bundled packages", just opt for the chanels that you want to watch. This would really screw pro sports since the law currently allows and provides for requiring that cable companies offer and charge for viewing local professional sports. I have no interest in watching basketball or hockey yet I must pay for those chanels. As usual, the government is subsidizing the large corporations by requiring citizens to pay for services they don't want or need. It's time for a Congressional mandate to overide any FCC rules/regulations and provide the citizens full choice in what chanels they subscribe to.

January 03 2012 at 6:58 PM Report abuse rate up rate down Reply
AC

Before you all get too excited - don't be suprised if ESPN get $5.00 or more for "selectovision". The question to ask is how much will it cost to get everything you want from Apple (assuming they can provide everything) and whether the Internet providers will have to charge more (to compensate for loss of revenue) or you see a drop in download speeds due to all the additional traffic on the internet.

I'm not a fan of Cablevision, but I've already seem slower speeds as more and more use the internet, especially with smartphones adding to usage.

January 03 2012 at 3:27 PM Report abuse rate up rate down Reply
Sonja Dunbar

We are retired and so FED UP paying the high cable bill for very few channels that we actually watch. And, even those channels that we do watch run so many reruns and marathons that it's just not worth it. I do enjoy watching QVC, but the rest of the shopping channels could go. There have been rumors through the years that we were going to be able to choose to pay for only the channels we want/watch, but guess the big cable/satellite companies had their lobbiests out there in full force to fight that. I agree with the person who mentioned how much paid programming (infomercials) are on even the major networks and not just in the middle of the night, either. And, I CAN'T STAND the trashy "reality" shows that are on all over the place and repeated constantly. When I surf the channels I see the same shows over and over. Most of them are just plain filth!! If Apple does come out with this, we will be right there to sign up if the price is right!

January 03 2012 at 2:45 PM Report abuse +1 rate up rate down Reply
Robbie

Pigs get fat. Hogs get slaughtered. I can't wait to barbeque some Comcast ribs smothered in tangy sauce.

January 03 2012 at 1:46 PM Report abuse +2 rate up rate down Reply
melwinchell

I think the customizable lineup sounds great, however, there is no way that dinosaur, Comcast, will ever permit that nor will they ever develop the technology to enable it.

Also, this writer is completely off base about advertisers- they will willingly pay whatever they have to to advertise to the EXACT demographic they desire, as opposed to advertising on a channel lineup with various types of shows.

January 03 2012 at 1:06 PM Report abuse rate up rate down Reply
2 replies to melwinchell's comment
bggdg

I doubt Comcast can stop it.

For one, the FCC adopted "net neutrality" regulations last year.

For another, IP networks transmit information by "packetizing" what isbeing sent into a series of packets comprised of 1's and 0's, which are then transformed into the original content at the other end. That's a liong way of saying that packets of 1's and 0's that represent video are generally indiscernable for packets of 1's and 0's that represent voice, or text.

For these reasons, I can get a Comcast broadband conneection into my home, and yet use Vonage's voice application for telephony service.

To be sure, Comcast isn't likely to be jumping for joy at this development. The one thing they might do is to begin charging more for higher bandwidth consumption. Vidoe is very bandwidth intensive, so even if Comcast can't throttle traffic based the traffic representing an Apple TV service, they can charge a premium for the increased bandwidth that would be consumed by Apple TV customers. And since those customers will be consuming far more of Comcast's network resources, I couldn't really blame them for doing so.

January 03 2012 at 2:50 PM Report abuse rate up rate down Reply
hlair

Cable TV has a flawed "Field of Dreams" business model built on arrogance. Cable MSOs have had no incentive to control content costs, since many receive dual direct revenue benefits from selling and collecting content costs. De facto ala carte will happen due to the subscribers' extreme dislike of cable. Apple advocates understand the strategy of paying more for their devices and getting specific aps (e.g. music). Google advocates understand the benefits of targeted ads covering the cost of content. Amazon advocates understand the value of tracking interests and economically facilitating products of interest. Siri-powered voice activation via the Cloud will circumvent the obsolete cable set top box. The use of behavioral marketing and targeted ads will help offset the content costs which will no longer be passed on with impunity. The alternatives have a great chance of succeeding; since they are supported by extremely well financed,creative zealots.

Cable TV has always been able to raise subscriber rates with impunity (Craig Moffett term). For that reason they have adopted a flawed revenue model that has reached the tipping point. Not only is the poverty level a problem, there are over 60% of the Gen Y's at risk.To quote Pogo, we have met the enemy and he is us. Netflix has more subscribers than Comcast; and satellite has 30% of the market, for a reason. Subscribers are creating a de facto ala carte. Unfortunately as long as cable owns the content and sells it, as well, there appears no way to circumvent the continued rate increases to their suicidal final demise. But there are some ways for cable to survive .Cable has to eliminate its “Field of Dreams” mentality. Cable can become a positive influencer by changing their revenue model. Internet has proven there are targeted ad models that work. Cable must incorporate a targeted ad strategy along with reducing subscription rates to absorb future content increases. The hybrid model would be based on social media interests and preferences, starting with direct ads on all time shifted programming. Groupon like infomercials, with word of mouth on steroids, group buying, and urgency to buy. Amazon like preferences and alerts. Cable is currently using data from demographics and set-top boxes, a flawed strategy, with privacy issues. They could be using analytics from behavioral marketing data.
Not sure they are interested in constructive suggestions?

January 04 2012 at 7:13 AM Report abuse rate up rate down Reply
eloise

I have been wishing for this for years.I am frequently awake in the middle of the night and there is little to watch other than paid programming. I never watch paid programming. PBS is getting to be not much better. I guess I could watch some of the DVR'd programs. To get the stations I want I have to pay for almost a hundred I never turn on. Irritating.

January 03 2012 at 11:16 AM Report abuse +1 rate up rate down Reply
rjoh959287

Thank You,Thank You I am so tired of all the Shopping,Religious and Sports Chanels.I want to Pay for what I want not 95% of crap so I can watch 4-5 Chanels I prefere.How do I sighn On? I am with Bright House at present Some one please let me in

January 03 2012 at 11:03 AM Report abuse +3 rate up rate down Reply
Mike

I already have this service with netflix on line.

January 03 2012 at 10:38 AM Report abuse +2 rate up rate down Reply