First introduced by Steve Jobs as "a hobby," it has been four years since Apple TV hit the market. If judged by this week's announcements, one could argue that it remains just that: a hobby.
As usual, press coverage has been deafening, the subject beaten to death. Nonetheless, it is among this week's top OTT stories. For one, the embedded hard drive is no longer, a direct consequence of the shift from a download-to-own model to a streaming model. Second, the cost of the box was lowered to $99 (more in line with competitors). Third, and in support of the new streaming strategy, iTunes has added 99-cent TV show rentals. Fourth, Apple TV is no longer limited to iTunes content but now includes support for the nation's most popular subscription-based video streaming service - Netflix - and the world's most popular online video streaming site - YouTube.
As well, Netflix continues to expand its streaming library. Epix, the newest PayTV movie channel, is negotiating to provide streaming rights to Netflix for movies from Paramount, Lionsgate and MGM. Netflix is reportedly paying $1B to Epix over the life of the deal.
In our opinion, it is not the $99 box that matters (it's just another run-of-the-mill Internet set-top box), but the one-two punch of 99-cent TV shows and Netflix streaming; a combination with disruptive potential. That was a very smart move on the part of Apple, as Netflix support has become an entry-level expectation for net-enabled TVs and video platforms. As Steve Smith recently opined, "(t)he new Apple TV integrates the two services that matter most to me already for my TV, and now I don't have to fire up the Xbox to Netflix." Netflix provides the library or back-catalogue content, while Apple TV provides the newer shows that consumers want to watch.
Among the problems with this strategy is that it requires consumers to buy another "black box" to bring OTT content to the TV. In an age in which new HDTVs increasingly feature embedded Internet support and a number of OTT video services (e.g., Netflix, Amazon, and Vudu), the need for a secondary box is dwindling; the functionality is quickly leapfrogging adapters and becoming a regular attribute of new TVs. Given Apple's hardware exclusivity (unlike Netflix, Amazon, and Vudu, iTunes is only offered on iDevices), it is more likely that this trend will compel Apple to introduce its own TV versus becoming an app on someone else's television.
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