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 ....

MCN Whistle Sports Scores $7 Million from BSKYB -- Here’s Why

Truly, the MCN world doesn’t sleep -- we are seeing a constant barrage of major strategic developments in the world of short-form video and mobile/digital-first strategies.

The latest data point?  Leading sports-focused MCN Whistle Sports -- still early in its first quarter (it only launched this past January) -- just received another $7 million investment from UK-based broadcasting giant BSKYB.  And, expect more significant sums coming soon to Whistle Sports -- which I just recently profiled the company and interviewed CEO John West here on my blog -- as part of its still-open Series B round.  This news follows Variety’s report just in the past couple days that Luxembourg-based RTL Group has acquired fashion-focused MCN StyleHaul.

Ahh yes, the growing internationalism of MCNs.  It ain’t just for U.S.-based media companies anymore (let’s not forget German-based media giant ProSieben's major investment in Collective Digital Studio and own Euro-based Studio71 which now aims to expand across the pond to the U.S.).  And, the rationale in this case is clear (just as it is in the case of StyleHaul).  Language is rarely a barrier in sports content, meaning that sports (just like fashion) travels well.  And, BSKYB -- already heavily and long-invested in sports -- can help to accelerate Whistle Sports’ international expansion (while it itself begins to play more aggressively in the mobile and digital-first content world, just as all other major “traditional” media companies need to be).  The Whistle -- which essentially is a digital and mobile-first ESPN for millennials, by millennials -- had just recently opened a London office.

Whistle Sports now scores 8+ million subscribers and 1.25+ billion video views, despite the fact that it is still early in its game.  That means that its growth is impressive.  And, BSKYB’s investment brings the company’s overall investment to $25 million from long-time media giant Bob Pittman and others.

I know Whistle Sports well -- and am proud to count it as a client and congratulate them on yet another major strategic victory.  I was first drawn to this MCN due to its impressive list of partnerships with virtually all major U.S. sports leagues, including the NFL and the MLB.  Being a deal guy, I know that finalizing deals with major players like those notoriously challenging and complex organizations are no small feat.  That reflects a highly talented and experienced executive team, led by CEO John West whom I have come to know.  And, impressive they are.

Whistle Sports -- always high on my MCN “hit list” for major strategic moves (others include StyleHaul (gone), Mitu Networks and DanceOn).  Not M&A yet.  No need to go deep when you have a team like BSKYB helping you to rush your international play-book ahead to an eventual major liquidity victory.

ESPN, the New YouTube for Brands? Welcome to The Age of Lifestyle Media Companies

ESPN is not just for us couch potatoes anymore.  It is now a home for those selling those very potatoes from which the chips-we-eat-as-we-watch are made -- i.e., major consumer brands.  Huh?  What?

Here’s the story.  ESPN just announced -- nay, invited -- major brands to develop programming for their distribution platform, initially focusing on its TV Everywhere app.  Not commercials.  Not ads.  Not traditional sponsorships.  Actual entertainment programming.  Engaging video.  Case in point -- major media company, Dick’s Sporting Goods (well, perhaps not “major” yet, but possibly with major aspirations to become one some day -- Marriott anyone?) developed the documentary series “Hell Week” for ESPN.

Pause and chew on that for a moment.  Dick’s didn’t go to YouTube first with its videos -- historically, the standard path for brand-backed videos.  It went to ESPN first.  And, it paid ESPN for that privilege.  That is precisely ESPN’s goal -- to become the first choice for major brands to produce original, differentiated and compelling programming for its audience.  Outside the YouTube ecosystem.  And, here’s the beauty of it -- not only does ESPN get compelling (hopefully) new programming developed on someone else’s dime, they also get paid by that content creator (in this case, Dick’s) for that privilege AND ... wait for it ... ESPN also gets to run their traditional ads against that programming which pay yet again.  That is some Trifecta!  Kudos to you ESPN!

ESPN is not alone in its goal of being “the first choice” over YouTube for video creators, including brands.  This “divorce” from YouTube -- perhaps not a complete divorce, but at least a trial separation -- is a persistent theme in digital media circles these days.  Content creators of all stripes increasingly loudly express dismay (that’s a soft way of putting it for some) over YouTube’s 55/45 revenue split to creators.  The result is a burgeoning number of YouTube alternative platforms that promise better times for those video creators who enter their world first.  Think big OTT guns like Netflix and Amazon.  Think old stalwarts like Yahoo!, Comcast and Xbox.  Think major MCNs like Disney-fied Maker Studios, Otter-ized Fullscreen and hot young MCN Whistle Sports (which bills itself as a new kind of ESPN for millennials).  And, think newbies like Vessel and Zealot Networks.  Something is most definitely in the air ... on the air?  Yes, in more places than ever before.  High times indeed for the creative community.

Which brings us back to Dick’s.  Dick’s is not alone.  Marriott, as glibly noted above, just recently busted a move (reference, too dated?).  Pepsi just made major “noises” to that effect.  Starbuck’s.  And an increasing list of “others” all trying to pull a Red Bull and smartly transform themselves into lifestyle media companies that are significantly more interesting -- and engaging -- to consumers (especially to the coveted mobile-savvy millennial).

In any event, ESPN’s bold move is not to be denied.  Or overlooked.  It is yet another major data point demonstrating that brands increasingly see (or strategically want others to see) themselves as becoming media companies.  My business team and I at Manatt Digital Media see this directly.  We have already guided brands in this kind of media morphology.  We just recently finished a media transformation engagement for a respected beauty brand.  

This is real.  It is not fashion or fad.  And it is accelerating ...

Brands -- grab your lifestyles now while they last!  And, become storytellers, not just marketeers ...

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."