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.

NFC and Internet TV Cause "Disillusionment;" That's a Good Thing

Some technologies are moving fast along the "hype" curve, indicating for Gartner that they are closer to having a real marketplace effect. Among those technologies are near field communications, apparently. Here's the July 2012 positioning on the hype curve.



In July 2011, here's where near field communications was positioned on the hype cycle curve:



You'll notice that NFC payment was at a peak of hype in July 2011. In July 2012 NFC and NFC payment are sliding down the "disillusionment" part of the curve, a necessary part of becoming important in the market. Internet TV likewise has moved into the "trough."

Apple Bought AuthenTec: It Needed NFC Fingerprint Sensors, Quickly

Apple now owns AuthenTec, which has a fingerprint authentication technology.

One would suspect that means Apple wants to use the capability in some way related to its new Passbook mobile wallet.

Fingerprint sensors can be used in many ways of course, but linking purchase authorizations to fingerprints obviously would make sense to people making mobile purchases.

Some of us have argued that the one company that could really shake up the mobile payments or mobile wallet businesses would be Apple, simply because Apple tends to create markets, rather than share them.

The issue, if that is what one believes, is that Apple creates new device markets. So what new device market could Apple create?

The closest analogy so far would be Apple's reshaping of the existing mobile phone market. As Apple now gets the majority of its revenue from phone sales, perhaps the mobile wallet effort is simply a feature designed to maintain that dominance.

Or perhaps Apple has something else in mind.

$1.3 Trillion Worth of Mobile Payments by 2017, Mostly for Physical Goods, Local or Remote

It makes sense that most of the transaction value in the mobile payments business will be for purchases of physical goods, either bought locally or on a remote basis. One percent of a very big number--consumer spending--is always a big number. Four percent of a very big number, which is the percentage of total consumer purchases Juniper Research expects will be transacted on a mobile device, represents about $1.3 trillion in transaction volume.

That would be about a 400 percent growth to 2017, from current 2012 levels. Physical goods purchases   will account for 54 percent of the total value of mobile payments by 2017,  Juniper Research predicts.

Not all forecasts are so optimistic. The Aite Group projects $214 in U.S. mobile transactions by about 2015. Aite Group predicts each one of the multiple categories of mobile payments will experience double-digit growth, with a 68 percent compound annual growth rate between 2010 and 2015.

U.S. Broadband Access Median Speeds Increase 20% a Year

Despite some amount of complaining about how slow U.S. high speed access is, and how much it costs, the clear trend over time is in the direction of faster speeds and lower prices, on a dollars per megabit per second basis.

The latest example appears to be packaging changes Comcast will be making, beginning with areas where Comcast competes directly with Verizon's FiOS network.

Apparently, customers currently buying 25 Mbps access and 50 Mbps access will get their speeds doubled, for the same price.

Other tiers will be reconfigured as well. Comcast's 300 Mbps service will sell for $119 a month, when Comcast had previously stated the tier would be 305 Mbps at around $300 a month.

The point is that broadband access speeds keep getting upgraded. And though formal price reductions no longer are very common, as they once were before 2004, for example, the faster speeds now are offered at much more affordable prices, on a dollars per Mbps basis, especially for FiOS customers and cable modem customers.

Since 1994, median advertised speeds have risen steadily, at about a 20 percent compound annual rate.

Big U.S. Retailers Join Forces to Develop Mobile Wallet

Wal-Mart Stores, Target Corp., 7-Eleven Inc. and Sunoco are among a dozen retail companies launching their own mobile payments system, the Wall Street Journal reports. 

The Merchant Customer Exchange, or MCX, is at an early stage, and represents the biggest move uet by retailers to take the lead in the mobile payments business that has largely featured initiatives by payment networks, though Google, PayPal, Intuit, Square and Isis (the mobile service provider consortium) also have competing services under development. 

Little can be gleaned about the specific approaches MCX will pursue. The main point is that the MCX venture shows the jockeying by ecosystem participants to lead or control the developing mobile payments business in ways that favor a particular segment. 

Retailers likely are most concerned about the costs. Processing networks are most concerned about preserving their transaction revenue streams. Banks are most worried about their fees. 

Point of sale providers are worried about replacement or substitute retail checkout systems. Mobile service providers and application providers are most interested in what could be gained in either the transaction revenue streams or new marketing and advertising services. 

E-commerce providers see opportunities to increase their sales share over physical brick and mortar retailers, while place-based retailers want to boost their share of online sales volume. 

Virtually all the contestants likely see upside in the area of customer knowledge, engagement and experience. 

Cable Prices Grow 70% Faster Than CPI, 1995 to 2011

Some products are difficult to assess, in terms of value for money. The problem occurs in the computer industry, where nominal "price" does not actually capture qualitative changes in the product. A standard PC sold in 2012 is much more capable than a PC sold in 1995, for example, whatever the nominal price.

Something of that problem is reflected in the prices consumers pay for cable TV service, to the extent that the channel line-ups are not equivalent between 1995 and 2012, for example. Cable operators argue that the dramatically higher number of channels in expanded basic accounts for the price hikes.

The argument is not without merit. But it arguably is a more subjective matter whether most consumers find the product qualitatively "better," in relationship to the quantitative increases in price.