Apple TV-Service Proposal Gets Some Nibbles
By SAM SCHECHNER And YUKARI IWATANI KANE
CBS Corp. and Walt Disney Co. are considering participating in Apple Inc.'s plan to offer television subscriptions over the Internet, according to people familiar with the matter, as Apple prepares a potential new competitor to cable and satellite TV.
The proposed service by the maker of iPhones and iPod music players could, in at least some scenarios, offer access to some TV shows from a selection of major U.S. television networks for a monthly fee, according to people familiar with the discussions. Apple is pushing to complete licensing deals and hopes to introduce the service in 2010, some of those people said. It is unclear whether any networks have signed on yet.
Spokespeople for Apple, CBS and Disney declined to comment.
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 service could undermine the big bundles of channels that cable, satellite and telecommunications companies, including Comcast Corp. and DirecTV Inc., have traditionally sold in packages to subscribers.
Comcast declined to comment. A spokesman for DirecTV said, "It's difficult to gauge how competitive they will be without seeing the packaging, presentation and execution."
Apple is dipping its toe into the cable subscription model, but still needs to sign up networks, Sam Schechner reports on the News Hub panel.
The video strategy is part of Apple's plan to overhaul its iTunes store. The store currently sells downloadable music, video and applications like games, entertainment and productivity tools for its touchscreen devices, like the iPhone and iPod Touch. Apple recently bought music-streaming service La La Media Inc. as part of its plan to offer consumers more ways to access and manage their music purchases, according to people familiar with the situation. Similarly, the TV subscription service would be in addition to the way Apple sells individual TV shows.
Apple is revamping iTunes as it finalizes its plans for a tablet device, which is meant to be a multimedia gadget, according to people briefed about the product. The multimedia tablet is expected to be larger than an iPhone but smaller than a laptop computer. People briefed by Apple say the company is aiming to launch it by the end of March.
Apple faces an uphill battle assembling a critical mass of TV networks to sign up, a factor that could delay or scuttle a launch. A broad swath of media companies—including News Corp., Viacom Inc., Time Warner's Turner Broadcasting and Discovery Communications Inc.—appear to be opposed to or leaning away from signing on, at least to Apple's initial proposals, according to people familiar with the matter. It is unclear if NBC Universal, in which Comcast is buying a controlling stake, is interested.
As part of the Apple service, CBS is considering offering programs from both the CBS and CW networks, according to people familiar with the matter. CW, a joint venture between CBS and Time Warner Inc.'s Warner Bros., airs shows like "Gossip Girl" and "Vampire Diaries" that are among the most popular purchases, per episode, on the iTunes video and music bazaar.
Disney is considering including programs from its ABC, Disney Channel and ABC Family networks, according to a person familiar with the matter. Disney has in the past been among the first to jump into online video, including on iTunes. Apple Chief Executive Steve Jobs is Disney's largest individual shareholder and sits on the company's board.
In at least some versions of the proposal, Apple would pay media companies about $2 to $4 a month per subscriber for a broadcast network like CBS or ABC, and about $1 to $2 a month per subscriber for a basic-cable network, people familiar with the proposals said. Those amounts are in some cases much higher than media companies receive from traditional distributors. The question is whether selling fewer networks at higher prices is better business.
Apple's TV proposal may be changing as the company woos networks, according to people familiar with the matter. An initial version of the proposal had envisioned selling access to advertising-free shows from a bundle of top cable and broadcast networks—the "best of television"—with a consumer price tag of $30 a month, according to people familiar with the talks.
Some media companies say the proposed Apple service could undermine the lucrative business of selling bundles of big and small cable networks to distributors like Comcast and Time Warner Cable Inc. That concern is less central to CBS, which owns few cable networks. But for companies with large cable-network portfolios, selling only some of those channels to Apple, even at inflated prices, could cut into revenue.
Some executives are also concerned that the Apple service wouldn't include advertising, at least in some of Apple's proposals. U.S. broadcast and cable networks sold $43.4 billion in ads in 2008, according to TNS Media Intelligence.
"You don't want to shoot a hole in the bucket to create another revenue stream," one media executive said.
It is also unclear how many shows from each network could be made available through the Apple service. Networks' rights to TV shows online are snarled in a tangle of licenses with the studios that produce them. It is possible some shows produced by outside studios for a network could end up left out of an Apple offering, according to people familiar with the discussions.
Apple's initial proposals were reported in November by the Web site All Things Digital, which like The Wall Street Journal is owned by News Corp.
Even if Apple is able to launch the new service, it faces a good deal of competition. Movie rental company Netflix Inc. is expanding its customer base for its streaming video servicethrough partnerships with consumer electronics manufacturers and videogame console makers such as Microsoft Corp. and Sony Corp. Video site Hulu, which offers TV shows from several networks over the Web, is also looking at the possibility of launching a subscription service. Hulu, which is owned by News Corp., NBC Universal and Disney, has become the second-most popular destination for online video, after Google Inc.'s YouTube, with 657 million video streams in November, according to Nielsen Co.
Meanwhile, cable companies are rolling out their own services that put cable-TV shows online for existing subscribers, giving them more reasons to keep their subscriptions. Comcast brought out its system nationwide on Dec. 15, offering its subscribers online access to some programs from 27 cable networks. Time Warner Cable and Verizon Communications Inc. are testing similar offerings.
According to Adams Media Research, Internet spending on movies and TV shows is expected to more than double to $1.14 billion in 2010 from $472 million in 2008.