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Thursday, March 22, 2007

Apple TV in the UK PayTV market

I’ve just been looking at the Apple TV box specifications all day and been scratching my head trying to figure out for what purpose the strange not-so-beastly device has been placed on planet earth. Well planet USA – Brits will have to wait a little longer to sample the delights.

The specifications seem horribly basic for a modern consumer electronic device:
  • a tiny 40GB Hard Disk - I’ll have that in my non-Apple phone in a couple of years;
  • a limited set of supported Video Formats– H.264 with not-so-Fairplay DRM and MPEG-4 Simple Profile;
  • a limited set of outputs – HMDI + Component Video – what no European SCART?
  • No modem – just WiFi and Ethernet connectivity;
  • No TV record capability; and
  • No DVD play capabilities
Of course, it is an esoterically pleasing little box, has a beautiful little remote and no doubt a jaw dropping user interface. One of the reasons that the user interface is so beautiful is because the functionality is so basic – it basically plays content that has been synched from a user’s computer which in turn Apple hopes has been bought from their i-Tunes store.

It all makes sense if you look at it from a PC-centric point: AppleTV allows you to play your content on your TV as the iPod before it allows you to play your content on the go. Of course, Apple would prefer you to buy the content from its i-Tunes store, but I suspect that as with mp3’s before it – if you can manage to get the content onto your PC in a non-protected format from another source, then AppleTV will sync and play it.

The interesting part for me is not in slagging off the vision of Steve Jobs, but the disruptive role of AppleTV in the payTV value chain.

Although I whinge about the limited formats options, Apple puts GooTube to shame. The quality of the Apple solution is not only higher because of the formats, but because it is a download solution, it generally beats the best effort streaming network centric solution of GooTube. Also, it helps that you can play Apple content on the iPod and TV screen as well as the PC screen. The GooTube solution looks cheap and nasty compared to the Apple solution. The GooTube solution is also currently heavily subsidised by the Google search engine near-monopoly rents.

Next comparing the solution to the BT Vision solution which is basically Freeview + PVR + IPTV. Well the BT Vision box is not-so-free (£90 for installation and connection and you have to be part of the BT broadband ecosystem) and you seem to pay for content on a on-demand basis or by subscription, but the box is closed to non-BT acquired source material. However, you can record DTT content onto the larger hard drive and share it with other wifi networked devices.

The interesting part here is the relative costs of the end-to-end delivery mechanism - who has the cost advantage?
  • GooTube featuring the 100% in-house built Google Distributed SupaComputer and Advertising MegaNetwork with User provided access;
  • Apple featuring the Akamai provided Content Distribution Network and the in-house built i-Tunes store with User provided access; or
  • BT featuring the in-house owned IP-content network and the Microsoft IPTV platform with User provided access bought from BT.
In terms of devices: GooTube accepts anything, Apple sells and makes a profit on each device, whereas BT subsidises the Vision box with the ISP access fees.

The Virgin Media (cableTV) model is remarkably similar to the BT architecture and probably will be similar to the forthcoming O2, Orange and Vodafone clones – except theirs will no doubt feature some kind of mobile revenue cross-subsidy.

Yet to be revealed is the BSkyB model: but it doesn’t take Albert Einstein to figure out the route the content will arrive and the place where it will be stored. It also isn’t difficult to figure out there is going to some sort of subsidy from the monthly subscription revenues and there will also be an attempt to get incremental advertising revenue. I’m not sure BSkyB will bother with a pay-as-you-download model, perhaps very limited as per current Sky Box Office and Live Events such as concerts, boxing and wrestling but they will probably use the satellite broadcast network as a delivery mechanism.

It all makes for an interesting review of the UK PayTV market by OFCOM. From an economist point of view, how do you regulate a market where there is so much technological and value-chain disruption going on? It certainly smells like bonanza time for the crystal ball soothsaying industry…