To Change TV, Change the Way People Pay

"If Apple really wanted to change the way people watched TV, it would change the way people paid for TV," argues Peter Kafka. That pretty much is the dilemma for anybody who really wants to disrupt the existing TV business.

To change TV, you have to change the way people pay, and the current arrangement is too lucrative for content owners and distributors to contemplate, unless Apple or some other company showed up with enough money to at least make a major change revenue neutral.

Of course, new formats, including "direct to YouTube," are in an experimental phase. That will continue to be an important venue for niche content.

So far, though, content creators tend to go where the money is, and that is traditional TV networks.

But Apple can’t do that. No single company can. The U.S. subscription TV business generates about $90 billion in annual subscription revenues. To offer a revenue neutral business model for the content owners, a disruptive provider would have to offer something on the order of $30 billion to $40 billion in revenues for the content owners, annually.

So far, nobody has been able to do so, at least in part because the assumption is consumers do not really want to pay for all that programming. They only want some of it. As in the music business, the equivalent of songs, not CDs, is the model. So any attacker would likely find that what it really could sell is less than $30 billion to $40 billion.

The business model would be upside down from the beginning.



There is another angle. Apple's talks with cable operators about a possible Apple set-top box will run into the same brick wall Microsoft did when it proposed a similar Microsoft decoder. The cable executives see the set-top as the gateway to their business, and were determined to keep Microsoft out. They aren't likely to view Apple as less of a threat.