Can Apple TV Outshine Netflix and Traditional TV Broadcasters?

Posted by Ken Sawka on Aug 3, 2016 11:41:11 AM

Apple TV's competitive landscape

Apple has long been expected to “revolutionize” how we watch television.  Ever since it launched Apple TV in 2006, speculation has been rife that Apple would become a major force in video production and distribution.

Apple’s refresh of Apple TV last year - improving voice search with Siri and adding a bunch more apps - did little to quell that speculation.

Not Competing With Incumbents – Really?

When asked recently about the company’s plans for TV, Eddy Cue, Apple’s head of content and non-hardware products and services, said that Apple is not trying to compete with Netflix or Comcast as it continues to improve its video streaming services.  Cue – who oversees Apple offerings like Apple Music, iTunes, and Apple Pay – may have it only partially right.  As Apple ponders getting into the streaming video business by either acquiring or developing original content and streaming it on-demand across all its devices, it is trying to up-end two sides of the same video consumption coin: traditional TV providers and streaming services.  Its approach is likely to be effective at winning only one of those battles.

Historically, Apple has drawn competitive advantage from walking and chewing gum at the same time – exploiting inefficiencies in prevailing business models while creating a superior consumer experience.  iTunes was the first, and most well cited example of the firm’s prowess.

At its launch in 2001, iTunes accomplished two things simultaneously that no other firm was in a position to do.  Apple legitimized and standardized the legal, paid download of copyrighted music content while creating a seamless music listening experience across its devices.  No other company made the purchase, access, and consumption of audio content as easy as Apple.

Fighting a Two-Front War

But video is a different story, mainly because Apple is a relative late-comer to the party.  And, unlike with music, Apple has to fight a two-front war.  On one side are the traditional TV service providers like Comcast and DirectTV (owned by AT&T), and on the other, streaming services like Netflix, Amazon, and Hulu.  How will Apple fare against both sets of incumbents?

In the competition with traditional TV service providers, Apple stands a very good chance because this is a business model ripe for disruption.  As consumers get used to being able to watch pretty much any show at any time on any device (with live sports being the final, stubborn exception), satellite and cable TV providers are tied to legacy technology and business model anchors that make it exceedingly difficult to pivot.  Eddy Cue made note of the inefficiencies inherent in traditional TV services in an interview by Hollywood Reporter, “I get home and I want to watch a Duke basketball game; why do I have to go hunting to find out what channel it’s on?  Why can’t I just say ‘I want to watch Duke basketball.’ Or, even better, why doesn’t the system know that? ‘Here’s the Duke basketball game.’ Those technical capabilities exist today.  They just don’t exist for television.”

Cord-Cutters Rejoice!

Apple will harness three capabilities that could marginalize traditional TV providers:

  1. Platform. Apple has a well-developed platform in Apple Music into which it could easily add video content – whether originally produced by Apple or licensed from studios and production companies – providing a user friendly interface with vast content choices.
  2. Device Integration. Not only can Apple make the content you purchase available across any of its devices, it can achieve a degree of integration unmatched by any other player.  Traditional TV providers have tried, but have largely failed, to do the same.  Trying to watch a DVR’ed show remotely from my iPad is an exercise in frustration.
  3. Curation. One reason why I love Apple Music is its curated playlists and album suggestions that are pushed in accordance with music I have listened to previously.  No reason to think Apple can’t do the same with video content. 

Streamers to Apple: “Bring it On”

But, while Apple is busy marginalizing the TV service providers, it will have a very tough competitive fight on its hands against the streaming services.  Basically, there are fewer business model inefficiencies to exploit, and streaming competitors have the ability to be more innovative and deliver a consumer experience that Apple may be hard pressed to match.

Indeed, the three advantages that Apple has to beat the TV service providers – platform, device integration, and curation – may not work in the competition with the streaming services as they are already hallmarks of streaming services offered by Netflix, Hulu, and Google.

  1. Google has a well-developed platform in Google Play and is already integrating video with its audio content. Users receive free access to YouTube Red when subscribed to Google Play Music and the platform encompasses Google’s (a la carte) TV and movie streaming services.
  2. Netflix pioneered device integration, and not just across one family of devices. Consumers can seamlessly watch Netflix content across hundreds of devices, including starting a TV show on one, and picking up where you left off on another.
  3. Most streaming providers do curation:  Hulu queues up new episodes of shows a viewer is watching as they come out, while Amazon alerts users to new episodes of shows that users have purchased.  Netflix suggests content based on user viewing behavior and profiling, and even produces content tailored to viewer analytics.  Its decision to bid on and acquire the hit series House of Cards in 2011 was made because Netflix knew that users that watched the original British version of the show also watched Kevin Spacey moves and films directed by David Fincher, both of whom are a part of the American version of the show.

Apple, Differentiate Thyself

What, then, can Apple do to differentiate itself from the streaming services? 

First, Apple has the opportunity to best these competitors on content curation.  Apple Music’s content curation relies on both algorithms and human curation (in the form of live DJs on its Beats 1 channel), which many reviewers cite as setting the quality of Apple’s curation above the rest.  There’s no reason to believe Apple can’t do the same for video content. 

Apple is developing original TV content
Apple is planning to launch its first original TV series.

Second, Apple will almost certainly have to make a play forproducing original content, and come out with hit series on par with House of Cards.  Cue was coy when asked about the company’s plan for original content, but Apple reportedly has a reality show in development about app development cleverly titled Planet of the Apps, has long been rumored to be in the market to acquire a production studio, and may be working on an original TV series produced by Dr. Dre, who joined the company with Apple’s purchase of Beats in 2014. 

And finally, Apple must double-down on those features that are the hallmark of its entire user platform: Siri, user analytics, and a superior customer experience, to name three.

Ultimately, the company that can best integrate content on an easy to use platform that is device-agnostic may win the battle.  While it’s pretty clear that traditional cable and satellite TV providers will be hard pressed to do so, Apple may encounter stiffer opposition from streaming services that already have the necessary components to compete.  If Apple isn’t planning on competing with Netflix, it may want to reconsider.

Topics: Brand Insights, Innovation, Market Analysis, Technology/Telecomm, Product Positioning, Competitive Strategy

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