Analysts: Comcast-Apple ‘No big deal’
March 25, 2014
By Colin Mann
Following reports that Apple is in talks with Comcast about teaming up for a set-top box service that would allow users to stream live and on demand TV from the cloud, analysts at Barclays Capital have suggested that while streaming of live TV is inevitable over time, given the move to IP-based platforms, they consider any such resultant development is likely to have a marginal impact, if any.
Asking the question: ‘Is Comcast enabling Apple or is Apple enabling Comcast?’ Kannan Venkateshwar and Ben A. Reitzes suggest that any relationship between Apple or for that matter other companies looking to get into the TV market (Amazon, Google etc.) and a cable company depends on what content rights either party has.
“In this respect, MVPDs enable a revenue stream more than $100 billion to content owners through affiliate and retrans fees and advertising and bring a 100 million subscriber base to the mix. Apple today does not own the rights to linear TV which enables this revenue stream nor does it bring a subscriber base for any linear service. Also, Apple’s key product offering for content (iTunes) is a non linear product offering without advertising for the most part.”
They say that as a result, in order to offer any credible product, Apple with either have to (1) rely on an MVPD’s linear content rights or (2) pay for these rights on its own. “In this respect, as we noted in our recent note (please see ‘DISH-Disney deal: What does it imply?’ Mar 5, 2014), the DISH-DIS deal sets up a potential framework for non-traditional players to get into the linear TV ecosystem. However, the latter is likely to be a lot more expensive for the likes of Apple as they do not have any subscribers as of today (vs ~million for Comcast). Consequently, in our opinion, any deal between Apple and an MVPD like Comcast is likely to be in a form where the MVPD’s app appears on Apple TV along with other non linear offerings like Netflix. Such an arrangement would imply that any subscriber to such a service will have to be a Comcast subscriber who happens to have Apple hardware rather than an Apple customer who becomes a Comcast subscriber.”
Similarly, as to ‘What does Apple have to offer Comcast?’, they note that when Apple entered the smart phone market, it enabled a much higher pace of mobile data consumption which also benefited the service providers. “Therefore, a valid question to ask is what Apple offers MVPDs, especially those who already have an advanced cloud based TV offering. While the widespread availability of tablets and smart phones as well as Apple’s expertise on simplifying the user experience could be value adds, we note that most cable companies have already integrated the TV viewing experience with mobile devices and are now taking this to the next level with WiFi.”
In terms of user experience, they note that TiVo has been around for more than a decade with a product offering which has always been substantially better than the average MVPD user experience but has never been allowed into the distribution eco system in the US on a wide scale. “If an MVPD was looking to upgrade to the best possible user experience, it would much easier and cheaper to sign an agreement with TiVo than with Apple,” they advise.
They admit that while they consider the news not to be of much significance, it does highlight one important aspect of what they have been speaking about for a while now. “Over time, we believe the Internet is likely to fragment into multiple managed services with those having the ability to pay (like Apple) seeking preferential access to the last mile. In other words, some of the content from the Internet is likely to seek an alternative, off line path to the home,” they suggest.
“While this is likely to raise questions on net neutrality, in our view, this is likely to be a completely different commercial service offered by cable companies to companies like Apple who want to have an off network presence apart from a presence on the Internet. In fact, this is likely to flip the whole net neutrality debate on its head as large internet companies like Apple and Google, who have been supposedly the victims of the net neutrality debate thus far, are likely to actively seek an alternative path outside the Internet for higher quality of service, especially when it comes to video. Therefore, instead of the entire focus of net neutrality being on the distribution leg, we believe increasing focus is also likely to be paid to the edge providers, if services similar to what the WSJ article seems to imply become more widespread,” they conclude.