Netflix and Apple TV - is there a battle?
I’m writing this in response, albeit belatedly, to a post by John Martellaro at MacObserver - How Netflix is Slowly Killing Apple’s TV Hobby. It seems this is all I’ve been blogging about but I feel I have to respond to some of these articles because they are getting significant uptake on the ‘Net. This particular article results in 45,700 hits on Google. Besides the obvious Apple TV criticisms, the reason I picked this article was the flawed financial analysis it uses to prove its point, which is a red herring, the article would stand up better if the author just opined that Netflix will give Apple a run for its money. In any case, the article goes on to base it’s revenue estimate for Apple from Apple TV hardware and software to be $182M (gross) with an estimated ~400K units sold. The article then compares this to Netflix’s gross revenue of $1.36B. The argument then goes on to say that Apple doesn’t have the millions of subscribers that Netflix has and how the Apple TV business to date can’t compare to the mighty Netflix.
There are so many things wrong with this analysis that I don’t know where to begin - but, hey, I will! First and foremost is that Apple TV is not the only outlet for video content from iTunes. In my opinion, Apple is more concerned about revenue from iTunes content than Apple TV units sold. Apple TV is an extension to their media strategy - albeit one that has not penetrated the market like the iPod has. Secondly, Netflix’s sole business now is based on renting physical media - they themselves have a huge challenge in front of them to change their business model to compete with iTunes. iTunes has a huge headstart over Netflix in terms of digital content market share. Thirdly, Netflix does have a relatively large library of older content available in the US only (there is no Netflix streaming in Canada, UK, etc). In comparison, iTunes has music - the big money maker - but also a huge TV and growing movie library. Apple is fighting the uphill battle with Hollywood to get the latest and greatest content, including HD. iTunes is international and hopefully, slowly but surely they get the same level of content for all countries. The US is a big market but the rest of the world counts for something - Netflix has a big job ahead to establish international presence.
I could go on but I think that conclusion of the “Slowly Killing…” article is false and likely too early to call. My opinion is that we are in the early days and nothing is clear yet. In fact, Apple maybe viewing the Apple TV as a “hobby” to see how this plays out. If there’s money to made here, I doubt they will let Netflix walk away with it.
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Comments
Netflix apparently wants very badly to be on a plethora of devices; if only Apple would allow them on the Apple TV …
It’s simply a matter of Apple realizing that the ownership model that works for music simply does not work for most TV content. Except for a few personal favorites with genuine replay value, TV is a disposable commodity: own a few, rent most. And who wants to allocate scores of gigabytes of space to accumulating HDTV shows with no replay value? Apple obviously recognizes that the hybrid ownership / rental model works for movies, why not let us have the same thing for TV shows?
netflix merging with my TiVo box for FREE will definitely effect my movie rentals on my apple tv - but I use my apple tv mainly for just streaming media from my mac still these days anway.
Who knows? The hacking community might get that new Netflix movie client on the Apple TV. I also agree about the TV rentals but I’m thinking this is more a TV network restriction rather than Apple?
Note that Netflix movie streaming is “free” for subscribers (and only in the US :-(). You have to wonder if this a feasible business model for more up to date content? When their physical media business starts to slow down - will they offer up to date content for such a cheap price? We’ll see.
I think of ATV and Netflix as two different animals. I have both; I can stream Netflix on my Mac now and also have a Roku player alongside my ATV. Why can’t they both co-exist? Does one have to die? What for? What really sux and what the real “enemy” is is cable television (which I do not use) from which ATV and Netflix (and Hulu and their ilk) can steal revenue share.
The margin for profit in the itunes media space is relatively slim. itunes is part of an ecosystem designed to push hardware which ultimately acts as a halo for the entire Apple product line. While the Apple TV may be coined as a hobby, it’s a serious one as it is the only player for HD movie rentals. The HD limitation to the Apple TV is a media incentive to encourage the sale of the Apple TV. Apple is a hardware company, the software is the hook. Which is interesting as many other companies sell hardware at a loss initially and make up for it with software and the hope that the product will continue to sell as the cost of production lowers. The iphone app store is a good example. apple covers the distribution frot-end and back-end for only 25% of the app cost. Realistically they could walk away with more but the incentive stimulates development of the platform which encourages people to buy the phone.
The iPhone model could work for the apple tv, if regulated. Netflix would be a great addition (or Hulu for that matter), however with streaming media, Apple can no longer guarantee a contiguous user experience and we all know that Steve loves a homogeneous user experience.
personally, Netflix has way to go before its ready for “watch it now” to really take off. I bootcamp PlayOn to a PS3 and even with cable broadband the quality is to low to read subtitles. do i think that Apple can offer a competitive digital subscription, based on it’s current infrastructure? No, not without reducing the bit rate of the media.
Netflix ha already adjusted the price point for the addition of Bluray, when the cost of the digital media service increases with widespread use we will see the same increase again.
Is it really so unreasonable to think there may one day be a Netflix client on the AppleTV? I really hope so. I would have bought the Roku box already, but I don’t want another box connected to my TV. I’d even pay the $99 that the Roku cost to have the functionality integrated into my AppleTV.