Ever heard the expression "500 channels, and nothing to watch"? While for the most part, this truism still holds. The Wall Street Journal (WSJ) is reporting today that Apple is looking to change (everything) with new deals the company is floating to key content providers like CBS and Walt Disney Co (owners of ABC) and others. "If Apple signs up enough networks to launch a viable service-still a very big if-it could ultimately alter the economics of the television business." The Journal reporters Sam Schechner and Yukari Iwatani Kane wrote.

Steve Sechrist
Senior Analyst and Editor

Apple is planning to upgrade its AppleTV offering and already introduced in November-09 AppleTV 3.0 software, providing access to YouTube, and making it possible to buy or rent content from the iTunes store all without the use of a PC. It’s becoming the set-top-box (sans digital tuner) for the digital age and includes a 160GB hard drive to record and hold downloaded HD content. The box is also network aware providing access to local photo libraries, music content and the rest-but all via the walled garden of iTunes (not the open Web.)

WSJ reports that under the new scenario, Apple could offer "…media companies about $2 and $4 a month per subscriber for a broadcast network like CBS or ABC (Disney) and about $1 to $2 a month per subscriber for a basic-cable network, people familiar with the proposals said. …much higher than media companies receive from traditional distributors."

For Apple the big change would allow iTunes customers to rent TV content presumably on an a la carte basis rather than simply sell the content for viewing (now at $1.99 per show.) Renting TV programming on an ad hoc basis, via subscription, would finally break up the tiered pricing delivery model adopted by the cable and satellite industry…and the source of the truism expressed above (500 channels, nothing to watch.)

"TV business economics" was (still is) very much driven by the advent of cable TV, itself, finding its footing here in the US with government deregulation in 1972. But the boom in channel content came at a price-a fixed price, tagged to bundled services the industry calls "tiers." So while many (most) consumers had little interest in specialty programming, it was (still is) the "silver, gold or platinum package" with 100, 200 or 300 channels-or nothing at all. Originally tier pricing was a function of the analog delivery and the difficulty in separating out individual channels. But cable system providers also benefited from the tiered pricing structure and the local monopoly granted for operation in specific regions and (until now) have had no economic incentive to change.

But even apart from Apple, the digital (Internet) age now creates a delivery mechanism (ironically using that same coaxial cable) to supply broadband access to the home-albeit via a media PC. This is something not many are comfortable with, connecting the TV to a PC to watch programming. But the web does allow users to circumvent the tiered price structure of conventional cable systems and deliver the specific programming users want to watch (and pay for) without the hundreds of other channels in tow. Hulu and other web based offerings are growing in popularity and reportedly musing the subscription model as well.

So Apple is now looking to lose the PC, and create the digital set-top-box for the new decade with plans to include network TV programming. The offering will (hopefully) include only the channels folks want to watch (and pay for) creating a compelling alternative to cable and satellite services. 2010 may just prove to be the decade that we trade-in the "…nothing to watch" truism with "…everything I really want to see." - Steve Sechrist