This was supposed to be “WGAxit Week”. (Has that been coined yet?) I didn’t realize that voting started on Wednesday of last week and went for five days, so passed the deadline for this weekly “most important column”. (It will be next week’s story. It look like it passed, with 95% yes.) So fine, the story of the week is…
Most Important Story of the Week – Apple Unveils…More
Last week, we were looking forward to Apple unveiling something this week. And something was unveiled. In the entertainment space, “Apple Channels”–which is like Amazon Channels, but Apple–and Amazon TV Plus–which is like Disney Plus, but from Apple. Listen, I don’t want to be snarky here, but we still don’t know how well the product will work, what the content looks like, or how much it will cost. Those are almost all my categories to judge a product. (My 5Ps of digital video are: product-content, product-UX, pricing, placement and promotion.)
Still, I have to opine. Here’s the good news. I’ll have another article up tomorrow at Decider that somehow ties predictions about Apple with Batman. I don’t want to step on that article’s toes.
But Apple’s entry is so monumental that even those 1,500+ words don’t capture all my thoughts. I was actually surprised I didn’t see any “Winners and Losers: Apple TV Plus Launch” since those seem like the article de jour for media. So you know what? Shamelessly “borrowed” from The Ringer or Vox here are my winners and losers from the launch.
Winner – HBO
HBO is the must have streaming service that isn’t Netflix. AT&T is building a strategy around it. Hulu and Amazon had to have it. And once Apple sent invites, it had to get HBO on the platform for launch. I think Apple bent over backwards on deal terms to get it done. Sure, there were a bunch of stars in attendance for Apple, but the biggest star may have been HBO’s dragons.
Loser – Value Creation
When something is priced below market price, that should be the red flag of red flags that a company is using its size to “capture” value instead of “create” it. (And some of this is based on the surplus of rumors that Apple will charge $10 for HBO and Showtime.)
Ask yourself, if we know HBO and Showtime cost $15 on every other platform on the planet, how is Apple lowering the cost? I mean, it isn’t like Apple owns a factory where Apple created some more innovative method to manufacture “HBOs” and while it costs $15 for everyone else to “manufacture HBOs”, there method is 2/3rds cheaper. No, in a licensed content reality, every company negotiates with HBO to get authorization to distribute it. And they split the price customers pay. In the olden days–on cable–this was closer to 50/50 ($7.50 to Comcast, say, and $7.50 to HBO). The terms are better in OTT for the channels, so I believe it is now 70%-30%, as referenced here by Variety. Do that math and that means $4.50 to the distributor (say Amazon) and $10.50 to HBO. (Though, feel free to correct me if someone has seen the specific contracts.)
If those latter numbers are true, then Apple is paying $10.50 to HBO, and losing $0.50, while customers pay $10. That isn’t value creation. It’s value capture. It’s great for customers in the short term, but it just isn’t sustainable. It is like that old saw about “we’re losing money on every unit, but we’ll make it up in volume. Worse, I have a feeling HBO demanded extra fees in order to allow Apple to undercut their prices elsewhere. Or huge marketing spend commitments. Either way, Apple is losing money, which for most businesses (fine, all businesses) is unsustainable in the long run.
Winner – M-FAANGs being big, consolidated and boring
I’m gonna bang this drum for a little while longer. Almost all the M-FAANGs are getting into video. Almost all the M-FAANGs have a music service. Almost all the M-FAANGs have devices. Almost All the M-FAANGs have a social platform. Almost all the M-FAANGs are even launching subscription video services.
They enter each of these new lines of business (usually) not by developing some innovative new product or better operations, but by using size. That’s what Apple and Facebook are doing in video, what Google and Amazon are doing in gaming, and what they are all doing in devices.
Really, the only outlier here is Netflix: it is still just a video service, and I have to give them credit for that. They aren’t making a Netflix stick or a music channel or even a “Netflix for games”. And in a world with strong antitrust enforcement, I’d respect this. But I don’t think we live in a non-vertically integrated world anymore. So I worry about Netflix. (More on that tomorrow.)
Winner – Bundlers (and Loser: Everyone else)
I’m working on getting “bundler” to be used instead of “aggregators”. Alan Wolk used “aggregators” in a piece that beat me to the punch and obviously Stratechery uses it constantly. But whether it is bundler or aggregator, the point is the same: I can’t look at the state of the industry, and not see a group of people looking to bundle video, and hence offer a lower price to everyone as a result. Sort of like the old cable bundle, but digital.
Netflix stands in the way of this, but just barely. The big debate was, “Was Apple’s new launch a Netflix killer?” In a bundled world, Netflix looks like just another streaming channel. I made this the centerpiece of my article at Decider, so you can go there to read those thoughts tomorrow.
(Also, the dreams of both Apple and Amazon to own the entire content journey–via discovery and engagement–which means ending the concept of “apps” seems pretty far away. Even Apple admitted that, despite the hype, other bundlers like Hulu, Playstation TV and DirecTV Now won’t play inside their app.)
Loser – Traditional Cable TV
Cause, obviously? The more better options for cord cutters, the more people will switch.
Other Contender for Most Important Story – AT&T and Viacom Carriage Wars
Man, these black out fights feel old school now, don’t they? With all the news about Apple, and an old-fashioned carriage dispute doesn’t get the coverage it used to.
The thing we’re all looking for is that final change. That time when the blackout starts and never ends. (I suppose there is Dish and HBO, but that’s a premium channel, so viewed slightly differently and Dish and Univision, which also ended recently.) Tara Lachappelle in Bloomberg had the best take, linking to her article on why blackouts will become more frequent. In the end, Viacom and DirecTV ended up agreeing on an extension. So we continue to wait for when the cable bundle finally breaks.
Context – Ignore the yield curve (sorry Cardiff Garcia), but watch for Brexit.