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Prediction on How the Apple iTV Will Succeed

Will Richmond of Broadband Directions shares his insightful picks for 'seven broadband video trends' in 2007. His company is a market intelligence and consulting firm specializing in broadband-delivered video. The following is the first prediction, you can read the remaining six at his website.
Apple's iTV box will likely succeed (but only if more than just iTunes video is easily accessible). This is clearly my most controversial prediction and the one I will devote the most ink to. Let me stipulate upfront -- standalone appliances like these are indeed the "third rail" of consumer electronics. I understand all the reasons why they don't succeed. And the list of failures is long and undistinguished.

However, my bet is that is that if ever a company stood a chance of succeeding and a box potentially met a clear consumer need, it is Apple and iTV. (by the way, "iTV" is just a code name, expect a new name prior to launch). Apple's user-centric design, functionality and coolness quotient are its key differentiators.

First, for those of you who missed it, back in September Steve Jobs pre-announced the company's iTV box. Product pre-announcements are very rare for Apple. The iTV teaser suggests that Jobs wanted to both lay some pre-launch buzz groundwork and also simply couldn't contain his enthusiasm for this product's market opportunity.

To understand iTV's market opportunity, it is necessary to understand current broadband-delivered video viewership. As I see it, the amazing ramp up in broadband video consumption this year is surpassed by an even more amazing fact -- that virtually all of this viewership has occurred on users' computers.

Think about it -- virtually all those clips, full-length programs and movies are consumed on the PC, not the TV! Nobody could have predicted that. But of course the TV is still the preferred viewing device for just about everyone. So logic suggests that if someone could make an affordable, easy-to-install box that unshackled users from their computers, allowing them to easily bridge the PC/broadband world with the TV, there would be a market for such a product.

And that this could be far more than a niche opportunity, given that it could potentially disrupt cable and satellite operators' set-top box/walled garden stronghold.

iTV's success turns on one key factor: Apple's content strategy for the product. And the hitch in iTV's potential is that to date Apple's content model has been to aggregate paid-only media in iTunes, its digital download store. The company has gotten off to a decently strong start selling TV programs and the like on an 'a la carte' basis for $1.99 or more. But carrying over this paid approach is not a strong enough content strategy to support iTV.

In fact, in the music world, a recent Ipsos study showed that only 25 percent of MP3 owners use fee-based download services. That's been OK for iPod sales because many people still have large CD collections (or share theirs with friends), which can be easily ripped to iPods. But what would the equivalent source of video content be to support iTV? Possibly DVDs, though converting them for iPod use is far from a mainstream activity (plus, why bother anyway?).

How about the free video podcasts from a Byzantine array of providers also available through iTunes? Doubtful. Quite simply, if Apple extends its iTunes paid approach to iTV it would be forcing iTV buyers to pay for each and every incremental piece of video content to get value out of their iTV purchase. The number of people willing to shell out $299 for an iTV box without readily available free content is tiny.

Therefore, the alternative -- providing easy TV-based viewing of free, ad-supported broadband video -- should be iTV's core value proposition. Cracking this nut allows Apple to break open the video distribution value chain, with consumers finally getting TV-based access to the broadband content they love. And it positions iTV as the key building block in making 'long tail' video content accessible on TVs, potentially setting up Apple as a longer-term competitor for all video services (i.e. a possible competitor to cable and satellite).

Exactly what content should be easily available through ITV is less clear to me. Certainly a key selection criterion is video that is either NOT currently available through cable or satellite. Many video content providers still dreaming of becoming a digital cable channel would salivate at the opportunity to be accessible on consumers' TVs. Plus broadcast and cable TV networks would love a way to get their broadband-only webisodes and other 'broadband channels' all the way to the TV.

But the most tantalizing content deal would be one with Google/YouTube. Consider how many YouTube devotees would love to get convenient access to this content right on their TVs. Since Apple has no in-house advertising skills and assets, and Google is the reigning advertising king, a partnership would be mutually beneficial. With Eric Schmidt, Google's CEO, now on Apple's board of directors, the personal relationship between him and Jobs would help clear the way for a deal.

Packaging and offering easy access to ad-supported video would be a big content strategy departure for Apple, but a necessary one for iTV to fully flourish. Remember, selling hardware is what Apple's really all about. Given Apple's famous appetite for secrecy, I expect we'll only find out how Steve Jobs has decided to play his hand upon iTV's official launch. If it's to be iTunes-only paid video, I'll downgrade iTV's likelihood of big-time success considerably.

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