The same consumers who delight in navigating the iPad still click frustratingly through cable channels to find a basketball game. Their complaint: Why can’t television be more like a tablet?
The technology industry is trying to address that question for the millions of customers ready to embrace the next generation of viewing options. In the process it could transform the clunky cable interface, with its thousands of channels and a bricklike remote control, into a series of apps that pop up on the television screen.
While still in its early stages, the idea has taken off among tech-loving consumers, and companies are trying to satisfy them. Already, apps for Hulu Plus, Netflix and Wal-Mart’s Vudu rental service, among others, are built into Internet-enabled televisions. Devices like Microsoft’s Xbox 360 and the streaming video player Roku let viewers watch apps that mimic channels. New sets by Samsung and others come with built-in apps loaded with television shows, movies and sports.
Apple has a video player called Apple TV with apps to Netflix, Major League Baseball and other content. Many media executives predict Apple will ultimately enter the television market in a more aggressive way with either with a new set-top box or an Apple-made TV set. Both would rely on apps scattered across the screen as they are on the iPad. Apple declined to comment.
“I’ve told my bosses, ‘This is beachfront real estate. Buy in now,’ ” Lisa Hsia, executive vice president of digital media at NBCUniversal’s Bravo channel, said of developing TV apps.
A model built around TV apps, however, could let viewers use favorite apps on the screen on an a la carte basis, thus bypassing cable subscriptions and all the extraneous channels they don’t watch. And therein lies the tension that has the television industry delicately assessing how to balance the current system with an Internet-based future that some feel is inevitable.
“The question that hasn’t yet been answered is whether television viewing will consist of a single app that mimics the pay TV bundle or a series of different apps that together form a content experience,” said Jon Miller, the chief digital officer at the News Corp., which owns Fox Broadcasting and cable channels like Fox News and FX.
A la carte apps would upend the entrenched and lucrative economics of television, which have long relied on a system in which cable customers pay for channels even if they don’t watch them.
The bundle setup helps little-watched channels bring in revenue from monthly cable fees and allows the most popular channels to get high fees from every subscriber, even the ones who don’t watch them.
The idea of undermining this model is so sensitive that media executives who think that apps are the future of television would not discuss the subject publicly, for fear of disturbing their cable and satellite partners.
But many analysts caution against predicting the near-term demise of cable and satellite delivery, pointing out that the spending and viewing habits of consumers are also firmly entrenched.
“The model we have is the model we have, and while it’s tempting to imagine an app for TNT and an app for ESPN, that’s not the likely outcome,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. A la carte apps might seem like a bright idea, Moffett said, but it is unlikely consumers would pay $20 a month for individual channels when the traditional cable bundle provides a bargain price. Currently, most TV apps created by networks work on an authentication model that requires cable subscribers to log in before gaining access to a channel’s app. The handful of apps already available on television screens also largely require a cable subscription.
For the most part, the apps being offered today are intended as complements to traditional TV viewing, and are available only on tablets and mobile devices. For instance, NBC Sports will soon introduce its “NBC Olympics Live Extra” app, which will allow subscribers to stream every Olympic event from London this summer. It is available only on iPads, tablets and other mobile devices, not on TV screens through Xbox or Roku. “No one on the digital side wants to take away audience from the TV,” said Rick Cordella, vice president and general manager for NBC Sports Digital.
Time Warner’s HBO still relies heavily on the cable bundle because it does not have the customer service or sales force of a company like Comcast or Time Warner Cable. But HBO Go does allow subscribers to have access to the pay channel’s library of almost every series, movie, documentary and heavyweight fights, directly on the TV screen, via the Xbox.
“The HBO Go app is seen as a doorway into the entire world of HBO programming,” said Eric Kessler, co-president at HBO. “That adds tremendous value to the subscription.”
As such, HBO Go could help the channel lay the groundwork to eventually break out on its own on an a la carte basis, even if that might not happen soon, said James McQuivey, an analyst at Forrester Research. “HBO has the largest subscriber base of any video service in the world, but they know none of their customers by name,” McQuivey, said. “That will be a huge liability in the future. HBO knows that; that’s why they need a direct relationship.”
The ability of any channel to strike out on its own, even strong ones like HBO or the Walt Disney Co.’s ESPN, remains problematic. ESPN makes about $5 a month from each of the country’s more than 100 million cable subscribers. If ESPN ever sold its live sports and talk shows directly to the consumer, it would need to charge several times that rate. “We have no plans to bisect our partnerships with distributors,” said Sean Bratches, ESPN executive vice president for sales and marketing.
But just as with previous transformations in television, the economics will have to catch up as technology evolves, said Jeremy Allaire, chief executive of Brightcove, a technology firm, based in Boston, that builds apps for media companies.
By 2014, an estimated 89.5 million people in the U.S. will use tablet computers, up from 54.8 million users in 2012, according to the research firm eMarketer. “You have to achieve scale before the economics will work,” Allaire said. “But at some point, we think direct-to-consumer will be very important.”
Cable and satellite companies have sped up the development of their own TV apps in the hope that they will eventually mimic the set-top box. In an ideal cable industry model, customers will have one or two apps that offer hundreds of channels rather than dozens of apps for individual networks. “You download all these apps and then you get app fatigue,” said Matt Strauss, Comcast Cable’s senior vice president for digital and emerging platforms.
“Apps create amazing experiences,” Strauss said. “But I believe most customers and households are still looking for an aggregated experience that’s intuitive and personalized.”