Apple v. Netflix (Or, Maybe Apple Should Just Buy Netflix)

Well, the grand-daddy of all digital media rumors is back again.  Yesterday, Variety reported that Apple's quest to build its long-anticipated "Netflix Killer" is hot again in Cupertino.  More specifically, that Apple too -- like Netflix, Hulu, Amazon Prime, and virtually all OTTs and MCNs these days -- plans to "do an HBO" to accomplish its mission (i.e., have a significant focus on creating its own exclusive original programming to woo customers away from the other established streaming video services).

Variety's article is new, but certainly the inevitability of Apple entering the premium streaming video game -- as well as the article's focus on Apple's quest to create compelling and differentiating original content -- is not (I have written about it several times).  And, much like Apple finally choosing to focus on buying/building its own "Spotify Killer" on the subscription streaming side for music (and finally recognizing that the times had moved away from a "pay per download" model), Apple at long last will go the same route for video (initially focusing on longer-form premium video content like movies and series).

With this most recent story now breaking before Apple's upcoming announcements, it is worth revisiting my earlier analysis where I pit Apple v. Netflix.  In that direct battle royale -- which absolutely will happen -- who wins?  Let's analyze 5 individual battles that define that war.

(1) Content/Programming -- Let's take Apple first.  Apple will offer (i) both VOD and live/linear TV (Netflix only offers VOD), and (ii) both ESPN and HBO, the two premium channels that matter most (Netflix doesn't).  How does Netflix counter this attack?  In two ways (i) exclusive original "must have" programming like House of Cards and Orange Is the New Black (although -- as I wrote months ago -- you can bet Apple absolutely will get into that "originals" game as well (and smartly fast-track those efforts by buying a high-end and highly-respected production house with deep relationships -- or perhaps even buy a major Hollywood studio), and (ii) a significant depth of content that Apple will not have ... at least for a long time.  Advantage Apple.

(2) Distribution -- Apple's ecosystem is closed.  Netflix's is open.  That means that Apple's OTT video service will be bundled only into Apple products, whereas Netflix comes with virtually everyone else (including Apple TV -- although you can bet that Apple's Netflix-Killer will be front and center and free (at least for a while) on Apple TV's when it launches).  So, Netflix's sheer reach significantly outdistances Apple.  Oh yes, and Netflix already has built a massive customer base -- and is growing fast internationally.  Advantage Netflix.

(3) User Experience -- Virtually everyone on the planet has Netflix.  It's part of our Zeitgeist and its UI is practically burned into our brains.  So, it is easy to use.  But, Apple's hallmark is user experience -- a UI/UX that is both "pretty" (yes, that matters) and intuitive/easy.  And -- and this is a critical "and" -- Apple can do (and does) what Netflix and others can't.  It seamlessly integrates software/services with its hardware (including Apple TV).  That means that Apple's new OTT video service will be front and center and easier to use.  Advantage Apple.

(4) Price -- Netflix charges $8.99 monthly for new users, whereas Apple's "killer" service likely will cost significantly more.  ESPN alone costs cable/satellite operators about $6 monthly per sub.  Advantage Netflix.

So, we have a draw here, right?

(5) Business Model -- Well, here's the ultimate rub.  The companies' fundamentally divergent business models.

Neflix is a pure-play video service.  The company monetizes its service only.  That is its business model -- and that means that it must be profitable based on subscription revenues alone (unless and until it finds a way to effectively mine its treasure trove of customer data).

Apple's business model is fundamentally different.  For Apple, its "coming soon" OTT video service can be (and likely will be) a loss leader -- a losing proposition that ultimately wins.  You see, Apple's core DNA is unlike Netflix's.  It is hardware pure and simple.  Apple makes money (boatloads of it) by selling "cool" metal -- iPhones, iPads, Apple Watches, Apple TVs (and ultimately the iTV?).  That means that Apple's new video service is essentially a "marketing" expense that drives incremental hardware sales.  That also means that Apple can (and will) subsidize its content licensing costs -- and original programming efforts -- in order to keep its subscription pricing down.  Apple's massive cash hoard offers a lot of highly coveted freedom that others simply don't have.

How does Netflix match that?  Maybe, Apple simply buys Netflix with all that cash -- after all, as massive as Netflix is, its market cap is a downright paltry $49 billion compared to Apple's $643 billion, which includes about $200 billion in cash).  Now THAT would change the media landscape ....

5 Reasons Apple's Netflix-Killer Will Be a Smash Hit

The worst-kept secret is very much alive again -- i.e., Apple hopes to launch its long-anticipated (overdue?) OTT video service by fall.  To be clear -- with Apple, it has always been a question of "when," not "if" (I wrote about this about one month ago in a detailed overview of the entire OTT space).

Here are 5 reasons Apple's "Netflix killer" will be a massive hit when the inevitable becomes reality:

(1) It's Apple!  That's all many of you need to know.  You will immediately sign up in droves just like you line up in droves anytime Apple launches a new hardware product.  No product reviews are necessary for you.  You just trust that it will be good.  It's downright Pavlov-ian -- you can't help yourselves.

(2) Many of you will ditch Netflix.  Yes, you and the rest of the planet already have Netflix subscriptions.  But, unlike Netflix, Apple will offer both VOD AND live/linear TV (Netflix's Achilles heel).  And, switching costs are low (essentially non-existent -- with two important caveats below).  All you need to do is go online and cancel. That's the beauty of Netflix and other non-linear TV OTT services for you.  (But, that's certainly not beautiful for Netflix, Amazon Prime, and Hulu.  That's a real problem that can be countered only with two things: (i) content -- both (a) kick-ass original content like House of Cards, and (b) content depth that Apple will not have for a long time; and (ii) price -- Netflix's price will be lower (although Apple can do what Netflix can't -- subsidize content licensing costs via hardware sales -- a fundamentally different business model)).

(3) Millions of you already have Apple TV's.  That means one software upgrade and BAM!, you got your iTV!  Netflix doesn't have that seamless "hardware/software" advantage (an Apple hallmark).  Of course Apple will place its new OTT video service front and center and give it to you for free (for several months).  The user experience will be compelling.  You will try it!  And, then you will let your credit card auto-renew.

(4) Millions more will buy new Apple TV's.  Heck, those crafty Cupertino-ians are practically giving them away now -- dropping the price to $69.  That's just two weeks of Starbuck lattes!  (And here's a tantalizing thought.  What if Apple's New "Netflix killer" is just the app-e-teaser for the main event -- its launch of the long-anticipated all-in-one real iTV -- something about which I first wrote 5 years ago?  'Tis a real possibility.  After all, Steve Jobs always called the current little Apple TV black box a "hobby."  This could be time for the real thing).

(5) It will feature ESPN and HBO.  This is the programming 1-2 punch.  Apple TV already is alone with HBO's new stand-alone HBO Now service (a 90 day exclusive).  And, Dish's Sling TV already cracked the code with ESPN, so the door is wide open for Apple so long as it pays just like the other Pay TV guys (which it absolutely will for ESPN, the most necessary programming ingredient).  Netflix, of course, doesn't have either.  (One more little detail -- don't forget that ESPN is owned by Disney, and Disney's Chairman & CEO Bob Iger sits on Apple's board.)

Apple's "Netflix killer" -- it came, we saw, they conquered!

Amazon-ics -- The Tech Giant's New Hollywood Math

Amazon is the new kid on the theatrical motion picture block, having just announced its Hollywood studio-like motion picture ambitions to produce roughly 12 films per year (at very indie-like budgets of $5-$25 million each).  Amazon already is a major player in OTT video, of course, with both Amazon Prime (including HBO-like original programming) and its "under the radar" stealth YouTube-like short-form video platform which continues to grow in prominence.  Bottom line -- Amazon is now a full-fledged media company.  After all, it just won its first highly-coveted traditional media accolade -- a pair of Golden Globes.

But, is it?  After all, despite its media trappings (or in spite of them), make no mistake.  Amazon still -- and always will be -- an e-commerce company first and foremost.   Everything else is just bait, luring you into its infinite store of possibilities that Amazon monetizes in bulk and at low low margins.  THAT, my friend, is Amazon's business model.  Get you into the store -- keep you there -- and make it easy for you to whip out your credit cards.

That means that video content -- in whatever form it may take (premium shorts, licensed movies, original programming like Transparent, and now theatrical motion pictures) -- is the marketing pre-show for that main feature of shopping.  In other words, content is a marketing spend, plain and simple -- and ultimate story-telling success is not measured by traditional Hollywood metrics (box office receipts).  The only metrics that matter to Amazon are traditional retail metrics.

That means that Amazon's business model is fundamentally different than that of any pure-play entertainment company.  Pure-play motion picture studios like Warner Bros. and pure-play entertainment distributors like Netflix can monetize one thing and one thing only -- the video content itself.  Their sole metric of success relates directly to the motion picture content (box office/ancillary revenues and subscription numbers, respectively).

Not the same case for Amazon.  Individual motion picture/content rules and metrics simply don't apply.  There are no box office receipts to tally.  No pure-play subscribers to count.  This is retail baby!  Amazon Studios succeeds if its motion pictures drive bodies into its virtual super-store and those bodies shop, shop, shop.

That means freedom.  Business and creative freedom.  Case in point, Amazon's series Transparent.  Transparent is content built not for a mass audience, but rather for a passionate niche audience -- and that is good enough.  No pressure for it to "succeed" in a traditional studio way.  And, Amazon's newly-announced indie-like theatrical film strategy follows that same playbook.  Produce "smaller" films for passionate niche audiences (niche audiences that it has already identified precisely via the deep shopping metrics and profiles that it has capture on each of us -- and continues to capture on each of us -- via our ongoing shopping habits).  Release those small films theatrically first (both domestically and internationally), thereby marketing Amazon to passionate audiences in a highly visible new way.  Collect whatever box office receipts that come (which is seen as being pure gravy).  Perhaps also collect some industry accolades for them (after all, underlying economic freedom leads to creative freedom which may lead to more celebrated films) -- more great marketing.  Subsequently, exclusively feature them on Amazon Prime (more marketing).

THAT is Amazon-ics.

The studios don't have it.  Netflix doesn't have it (although Netflix's pure-play subscription model also allows for more business and creative flexibility as well in its pure-play model, because the only metric that matters is overall subscription growth; hence Netflix's own revolutionary moves that have led to the two phenomena of "binge" viewing and true "day and date" theatrical/digital release (its upcoming plans for Crouching Tiger, Hidden Dragon 2, among others).

Interestingly, other major tech titans have something like it. Apple, Google and Samsung similarly use content as advertising to drive their underlying core business models of hardware sales and advertising -- not primarily to monetize the content itself.  Again, that leads to more business and creative freedom.  Here is my recent discussion in that regard.

What does this mean for filmmakers and we, the audience?

Right now, indie filmmakers should rejoice because they have a new potential home for their labors of love, the success of which is not measured solely by the box office revenues they generate.  That means more indie-like stories will be told.

And, that means more movie variety for all of us.

Intel May Do What Apple Can't -- Lead The "Unbundling" Revolution

I have written literally for years now that Apple inevitably will launch an "all-in-one" flat-screen iTV to penetrate the living room -- the last bastion it has yet to dominate (I predicted 2012, but now it looks like this year).  The major stumbling block -- and likely the ONLY stumbling block at this point (since my bet is that the hardware design has long been developed) -- is the services piece.  And, even more specifically, the key television content (think ESPN here) necessary for Apple to revolutionize the over-the-top (non traditional cable) television experience.  To go boldly where others like Apple have tried to go before ... but have failed so far.

This is the "unbundling" dilemma facing Internet-based OTT service providers (Netflix, Google, Hulu, Amazon Prime, Vudu) in their continuing battles against the cable incumbents who refuse to allow content providers (like ESPN) license their content stripped out (i.e., unbundled) from traditional cable packages of multiple channels.  The OTT guys want to offer consumers a la carte "cable" programming.  The Cable/IPTV guys do not (for now).

So, who will win this battle royale?  Ultimately, consumers always win.  If they want something -- like individual channels (ESPN) -- they will get them, and business models will adapt.  Consumers likely will pay more for those precise channels they want.  And other channels simply will need to adapt their programming in order to survive.

What about the big cable guys?  What does this mean for them?   Well, they will increasingly become the purveyor of the pipes necessary to optimize the overall online television revolution (which ain't a bad thing, by the way, because those broadband services are much higher margin businesses than the content service provider businesses themselves).

Perhaps surprisingly, tech "dinosaur" Intel may be the one to crack the code -- to begin this unbundling revolution.  Why Intel?  Because Intel soon will launch its new virtual cable OTT television service.  And, Intel is taking a novel approach -- actually a similar approach to what Google is doing -- which is to roll out its new service on a city-by-city basis (rather than national) so that it may have more flexibility in negotiating key programming license agreements (including perhaps the holy grail of ESPN).  According to TechCrunch, this plan "also lets Intel work around holdouts in key market rather than having to delay a launch entirely."

But, wait, there's more.  At least one cable behemoth is not threatened by Intel's pursuit of the living room -- and is actually joining Intel on the couch!  That one brave soul, for now, is Comcast.  Future hardware with Intel chips apparently will be able to stream live Comcast Xfinity programming within the home and without the need for a traditional cable box (here are more details hot off the presses at CES).

One more cool thing.  It is reported that Intel's new virtual cable TV service also may try to make DVRs a thing of the past.  How?  According to TechCrunch, "Intel's technology could allow people to recall and watch any programming aired in the last month on the channels they subscribe to.  That means no worrying about scheduling what to record."