Time Warner on Apple TV: Bold disruption or hopeless compromise?

Yesterday Bloomberg put out a story discussing a likely deal between Apple and Time Warner. The idea, apparently, is to bring Time Warner cable subscribers the ability to watch content via the Apple TV box in addition to being able to use the traditional cable set top box or iPad and iPhone apps.

As much as I think this is interesting, it doesn’t seem to line up with many people’s expectations (including my own) for a disruption in the TV market. Yes, it would be good for Time Warner because it gives their customers another way to watch content without having to be involved in the set top box distribution or maintenance. Apple shoulders that problem. And it’s good for Apple because it gives people another reason to buy a $99 box from the Mac, iPad and iPhone maker, sucking more people into it’s mobile and media platform.

But it doesn’t seem to do anything to disrupt. Forget commercials and scheduled watching of TV - the real problem with television these days is the geographic walls put up around the content. So you want to watch Game of Thrones? Good luck unless you have a cable subscription, in a certain geography, and subscribe to HBO. Don’t want cable? I guess you have to go the illegal route. Here’s a hilarious comic from The Oatmeal everyone should look at.

It seems obvious to me that the future of video entertainment lies in content creators actually being able to sell their content anywhere in the world. I think HBO and other specialty content creators need to grow some balls and figure this out. Netflix already has. There are no restrictions on where you can watch House of Cards, provided you pay a measly $8 per month for your Netflix account.

Apple needs to convince the big content creators to ditch their exclusive distribution through cable. It seems like Apple should be in the best position to do this, since it’s very similar to the app distribution model. Apple can make content available to anyone with an iTunes account, take care of distribution, and take a cut of the revenue. How is this any different from the clever things Apple has already done with music? It’s not (and if you disagree, tell me why in the comments).

A deal with Time Warner may just be a strategic first move to getting more people comfortable with the idea of watching TV on their Apple TV. And I’m not saying this is a bad idea. I’m just saying it doesn’t seem like anything close to a destination, but rather a tiny step along the journey.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 52 comments. Add yours.

Beezzy says:

HBO costs $10 a month, I get it on my Apple TV, iOS devices, and MacBook/Laptops. That would cost less or the same than owning the 3 seasons from iTunes in an entire year plus you get access to everything on HBO, well worth the price.

pinpoint007 says:

HBO isn't worth it for me since I'm only interested in GOT...I'd rather just buy it off iTunes at that point (but the delay in its availability does stink) .

EPJS says:

It's cheaper to buy it on Blu-ray. You get the Blu-ray, DVD, iTunes digital copy, and VUDU digital stream all bundled together for around $30-$40 depending on retailer.

Jake Peters says:

Wouldn't this allow Time Warner to distribute to a larger base? Now they can reach every tv in the US, not just their current region. They could wipe out all the other cable companies.

jdholland79 says:

Because time Warner ain't going to take it up the a** like the music industry did when they got roped in and intimidate by big brother apple they think they can bully everybody around but there finding out now some fight back

claustin says:

First time I've ever heard anybody defend Big Music. They're probably some of the greediest asshats on the planet. They fought tooth and nail to keep their dying business model alive and were dragged kicking and screaming into the digital age by Apple. Now we don't have to spend $15-$20 for an entire album that's mostly crap just to get one or two good songs. They were faced with either getting with the program and selling their content for a reasonable price or watch their empire crumble completely from the onslaught of file sharing. The movie industry faced the same problem, although you could argue they've come out of it better considering a movie you could have in the $5 bin at Walmart is still $9.99 on iTunes.

Now we've got one of the last visages of the old distribution model starting to be nudged and prodded into joining the rest of us in the new millenium. This is probably going to be the toughest one to crack, too. There's so much BS bogging down content with geographical limitations and distribution bureaucracy that limits what we can watch. For instance, I have DirecTV. I can't get FOX in my county because of some ridiculous contractual crap with the local affiliates. Yet the cable company and Dish Network have it. Guess what? I torrent all the FOX shows I want to watch.

We're in the second decade of the digital revolution, and we should be able to watch what we want when we want to watch it for a reasonable fee. If they don't open their eyes to this reality and start seeing us as customers rather than just consumers whom they can dictate what content we receive, they're going to be in for a rude awakening. They're losing viewers who watch through traditional outlets and they're losing money.They deserve to. And don't mention Hulu. I get to pay for your premium service and still watch ads? No thanks.

Carioca32 says:

I don't think anybody is defending Big Music, the point is people use it as a case as to why the TV/Movie industry should get in bed with Apple. From the POV of the user, they are all superfluous, even Apple with its 30%.

In an ideal world, people would buy content from content producers, and cut the middleman (Apple, music industry) completely. If there are distribution costs involved, those should be transparent and warrant a 5% at most, never 30%.

claustin says:

That is incorrect information. Apple doesn't take a 30% cut from iTunes music sales. That's from app store sales and I think ibooks and magazines. It's been known for a long time that Apple never made a huge profit from music. It was basically a break even endeavor that they used so they had content to push sales of the iPod and later the iPhone and other other iOS devices. You have to have a middle man. There's simply no way around it. Content creators don't have the means to distribute their product to the masses. The difference is Apple is NOT trying to screw the musicians and people who actually make the product. They rarely even deal directly with the artists. They deal with the companies who up until Apple came along were the sole distributors of the product and were taking gross advantage of the creators. You have a flawed argument here. I think you just like bashing Apple. Apple revolutionized the industry and made it stupid easy for us to get access to the content that the media moguls were dead set against because it cut into their exorbitant profit margins. Don't get it twisted though. Apple's in the content distribution game to make money, but it's at the expense of the labels, not the creators.

Carioca32 says:

"Apple takes a 35% cut from every song and every album sold, a huge amount considering how little they have to do."
http://downhillbattle.org/itunes/

And I'm not bashing Apple on this, but Pete Townshend sure is, and I think he knows the industry better than us both:
http://www.huffingtonpost.com/2011/10/31/pete-townshend-itunes-digital-v...

No one is out to screw the musicians, that's a childish way to see the industry. Everybody wants to make money on their back, including Apple, but arguably, at least the record companies did something in return. That's Townsend's argument.

"Content creators don't have the means to distribute their product to the masses." Really? In the age of websites? Coldplay has its own website selling its songs and albums, who's the middle man there? The problem is that Coldplay would not be Coldplay without marketing and promotion, things that iTunes do not provide, but record companies do.

claustin says:

Ok let's dig right in:

That article is from sometime in 2003 or 2004. It's from a blog. It gives nothing to support that 35% claim. It also lists file sharing, copying music from your friends, and sending a dollar directly to the artists as acceptable alternatives. It mentions Kazaa for crying out loud. And I'm sorry, anybody that would say "considering how little they have to do" is completely oblivious to the logistics of what it takes to run an operation as big as iTunes. Here's a slightly more recent article: http://www.hypebot.com/hypebot/2013/03/apples-making-money-on-itunes-sal.... Apple makes 1% on music. The cost of operating iTunes is in the billions. You do the math. I can't find the one I was looking at last night, but it said Apple keeps 0.19 of each song sale, and after operating costs, profits maybe 0.02. It adds up at the volume they sell in, but it's not nearly as much as the labels. As much as you say Apple screws the labels, it's the labels who are abusing their musicians. Indy lables pay their musicians more, but get less exposure. Independent musicians get to keep the most, but also get far less volume due to lack of exposure.

Lots of bands have websites. I don't know about Coldplay, but most of those websites are run by the labels. The cost of running a website is pretty high. Probably pretty inhibitive for your typical independent artist after factoring in the cost of hosting the files and paying for the bandwidth for the hopefully millions of people who would download and pay for your music. Not to mention designing the site, setting up payment systems, maintenance, etc. Musicians are generally not webmasters. Any independent musician who tries to sell his music solely via his own website probably isn't going to be able to quit his day job. Middlemen are necessary evils for promotion and distribution. You just have to decide what type of middleman is more acceptable to you. I would have preferred a much larger shakeup to the status quo, but I'm fine with where things are presently.

edit: Missed the Townshend thing. He just sounds like a grumpy old man to me. Apple is not a music label (although I think that would be awesome), it is a technology company. iTunes is not a label, it is a store front for distributing content. Apple has no obligation or expectation of doing anything he's suggesting. Could they change some of their practices to help promote indie labels and independent artists? Maybe they will someday. But it's not their job any more than it is Walmart's job to make frozen TV dinners. They don't make it. They just sell it. If you want to point a finger at who's abusing musicians, maybe you should look at the entity that gets in upwards of 80% of each download. Big Music.

CORYK333 says:

Very nice write-up......was just as shocked as u were when I saw the OP defending "Big Music", especially since it has nothing to do with piracy (which is the one argument that I can see where both sides are coming from.......but this? Not at all)

jdholland79 says:

I mean it cool there working with apple but they don't want to give them full power over all there content Xbox would be a better choice anyway cuz the are a hell of alit more Xbox's. Out there then apples biggest failure apple tv

CORYK333 says:

Honest question.......how is the AppleTV a failure? Genuinely curious bc it's at a cheap price point, it's more of a secondary product for Apple (IMO), & it does what it's supposed to do which is media consumption (not 1 problem with the 2 I have). Unless you're considering it Apples "biggest failure" bc it didn't revolutionize the TV/cable industry.......which is not what the current version was/is intended to do & shouldn't be held against them. Plus it's not like they spend much $ on advertising it either, it's sort of just...there. I hope u reply bc I would love to hear your thoughts on why it's such a failure.

MSfromtheOC says:

Disruptions:
1. Motorola (I forget the name they gave the set top box division), Cisco, and other set top box makers would either go out of business or have to reduce the price of their boxes from several hundred $'s a box to $99. Monthly cable bills would drop by $15 to $30 per month depending on the number of boxes you rent per month.
2. Remember 40 years ago when you had to rent your phone from Ma Bell. Remember what happened when we were able to start buying your own phones.
3. OTT services would flourish as every TV would have access to the Internet.

This is more of a nose under the tent than a coup d etat.

jdholland79 says:

That may work if apple tv was a popular as the iphone/ipods but since apple tv is one of apple biggest failures I don't see that happening now maybe that would happen if they did that with a divice with a bigger user base lets say Xbox or ps3 or the Xbox one Or ps4 but it wouldn't happen on apple tv sorry just my opion

MSfromtheOC says:

Perhaps... but imagine if TWC customers had the option of a one-time $99 payment or $15 per month forever. Microsoft won't cut it... $500 for the box and $75 per year for Xbox live.

jdholland79 says:

That might work but I don't see it with a device with such a small user base let me ask you something how many people do you know with a apple tv plus look at all you get with a Xbox or a PS you get tv games music the internet and I don't know if apple tv plays games or not but I can guarantee that the graphics wouldn't touch Xbox one or ps4 graphics so for you 500 dollars you get so much more plus MS is in talk with several cable and satellite companies about making the Xbox one a set top box ever heard of Xbox tv

zurkram says:

Xbox is for kids, plus it's going to fail. Apple TV is for everyone.

jdholland79 says:

You must. Be cRazy dude apple tv is already a failure Xbox is the number 1 game console and the Xbox one will be no different look at all the exclusives games it got already announced for it you can do every thing with and Xbox look at the numbers before you try to win and argument cuz I guarantee you Xbox is and will always be more popular and a better entertainment machine then apple tv and so will ps4 for that matter

jdholland79 says:

Apple might got MS beat in the cell phone industry right now but apple can't touch the Xbox in the entertainment industry face it apple is good at some things Microsoft is good in other things at least give credit were credit is due and don't try to diss something just because your a fanboy look at the number how many people own a Xbox or PS3 and how many people own an apple tv guess who win I never said I didn't like apple just not apple tv and I was just making my case why Xbox would make a better set top box then a apple tv just because it does more has better specs and as any developer will tell you it makes sense to go with the one with a bigger user base. You make more money that way so tell me now is Xbox going to fail I think nit

zurkram says:

Sorry, read below and weep. Consoles are on the way out. Yes, Xbox one and PS4 will sell a few but not like before. And true gamers aren't happy about the addition if TV features. Why do you think Google just announced they are going to release an Android game console, to compete with Apple TV. Samsung just bought Boxee for the same reason. They're afraid of what Apple is going to do in the living room.
Besides why are you on an Apple site hating on Apple are you trolling?

http://www.fool.com/investing/general/2013/06/10/next-gen-gaming-console...

Matthew Bullen says:

I'm sorry jdholland, but you are well of the mark here. Xbox is for gaming, everything else it does is just an added extra. For games its the best, but for media consumption it doesnt come close to the apple TV. You say over and over again ATV is apples biggest failure, but if that is the case why are they still making it and upgrading it. ATV at the moment is like apples baby, its is slowly growing into something special, it is just growing to slowly for our liking.
Now for where you are really wrong, i quote "and I don't know if apple tv plays games or not"! How can you write so many comments about something you obviously know nothing about. No, the ATV doesn't play games, unless you use airplay to stream it from your iphone/ipad, but that still works well, and is getting better all the time. If apple can make the graphics on an iphone as good or better than the first Xbox/PS2, imagine what they could do if they made a device the same size as an xbox? The point is ATV has endless possibilities, and the fact that its the size of a puck, not a breeze block! makes it a winner. ATV is the future of media consumption. Xbox's are awesome for playing games.

claustin says:

Agreed. For media content, all of the xbone's features are just another entry into the set top box market, along with roku, Vizio, Western Digital, etc. The Apple TV is far from a failure. It keeps gaining services and capabilities and sells more each year than the previous one. It's a device for an emerging market and distribution system for digital content. Some people may decide on the xbone rather than the Apple TV, but those are probably only the people who were going to buy the xbone anyway. They're looking at it as a game system that oh hey, also provides other content. Other people are going to go with an Apple TV or roku or whatever. I for one have 5 AppleTV's in various rooms in the house and they all get used frequently.My DirecTV only occupies 2 rooms. Who's going to put an XBone in 5 rooms? Nobody. And plus, screw xbox. PS4!

jdholland79 says:

You say windows phone is a failure but is growing world wide plus here in the USA but then a device that's been around 3-4 years you say is slowly growing and that it's not a failure but WP probably had more user in 1 year as apple tv has in three world wide so do you call WP a failure just because its ms but then anything made by apple can't possibly be a falure who's bias me or yall

zurkram says:

Microsoft will spend all of their money trying to copy Apple and will either have to shut down or go the way of IBM.

jdholland79 says:

You must be apples biggest fanboy first you think Xbox will fail but yet it already succeeded have you seen the numbers for pre orders the you think Microsoft will go broke copping apple well considering how deep of pockets Ms has and the fact that MS is the one innovating. Apple is going stagnant hell who copied who look at IOS 7 I stole alot of elemt from WP the lock screen for example and that's just the being so go ahead and think that apple is god and worship it in you. Backroom but it does cheat and steel and only people that don't have very good grasp on reality will act as tho apple can do no wrong

CORYK333 says:

You're really comparing a $500 game console to a $99 secondary media consumption device?? C'mon bruh

(Periods & commas are your friends, get to know them.)

icezer0 says:

FYI Xbox version of the time Warner app is coming in next month or so ... I work at twc

jdholland79 says:

And why do you think apple copied from wp8 well they seen that wp8 was growing and they were losing marktet share and why they still beat wp8 in maker share right now the can see the writing on the wall unlike all you fanboys who will never give credit were credit it due even if you woke up tonmorow and ms was beating apple in market share you would still. Not give me the credit it deserves just because I like all tek not just apple doesn't make me a fan boy just a fan of teck

zurkram says:

Lol! Just what I thought. A Microsoft fanboy Troll. Go back to NEOWIN fanboy! Apple is a leader, Microsoft is a follower. And so are you.

jdholland79 says:

Once again you so how ignorant you really are and the facts are the facts you are the biggest apple fanboy ever they can do no wrong and everybody else can do no right this is the last time replying to you cuz you just don't get it apple is not the savor of the world not everybody likes apple don't you get it apple ain't god but you seem to think they are maybe you should make your own church the church of jobs or Ichurch would be good names have a nice life apple preacher
and who's the follower I decide not to be a sheep in a Hurd by using wp8 but I'm called a follower but you are part of a herd the herd that use iPhone you follow just because your friends have a iPhone you do I do my own thing not just part of the crowd like you apple fanboy

MSfromtheOC says:

Enough with the Apple Microsoft flame war. We're talking about two very different things. If the cable company lets their customers use a game console, AppleTV, Roku, etc. instead of their set top boxes, we might have a competition.

BUT, if a cable company like TWC, Cox, Comcast, etc. opted to either sell the Apple TV as their set top box, or have an exclusive deal with Apple the situation would be very different. Even in this case, I don't believe that Microsoft would lose a single XBox sale.

The article today talks about TWC/Apple discussions. Regardless of what you think about Apple, no one can say they are lousy at negotiations with content companies. They continue to get what they want. Having sat on the other side of the table with Microsoft, I can tell you they are not nearly as good.

The situation here is not the boxes, it's the contracts.

jdholland79 says:

That's fair I was really getting the point of why TW cable would ditch the cable or satellite companies to go exclusively with apple not when there are better alternatives lets say for example that TW or dish or direct tv released a Xbox one with a tvtuner built in and they give you the option a Xbox one or a apple tv what do you think the majority of people going to pick and that not just me talking out my rear MS is rumored to be in negotiations with telecommunications companies about that same thing they want to use the Xbox one as a set top box well have to see were that goes but I still don't think that TW cables going to be stupid enough to go with a device like apple tv with its limited user base over cable\satellite at least not when it comes to exclusivity.

claustin says:

that's an interesting scenario. Sure if MS landed a deal to use the xbox as a set top box people would go for it over the gratuitously priced HD DVR's that Dish and DirecTV peddle, not to mention the usually crappy boxes that cable companies utilize. However, MS isn't going to give it away for free. You'd probably still have to pay an at least subsidized price for it. Now let's say that a company offers you a subsidized xbox or a free AppleTV (because let's be honest, the AppleTV wouldn't need subsidization). Now what is the consumer who isn't interested in playing games going to choose? The DVR portion of today's boxes would be a moot point, because you can stream all the content whenever you want. That would make for some interesting competition.

jdholland79 says:

Especially. Since when cable is installed you get the set top box with it no charge I mean I pay a monthly 7 dollars but I don't pay anything for the set top box so tell me how its going to grab customers by say oh now you have to pay 99 dollars up front ontop of installation just to get cable you think alot of people are going to go like yeah sign me up for more monie when I can just get the DVR and not have to pay the extra 99 dollars for outdated ruko wanna be known as apple tv I love my iPhone I like apple I just think they need to ditch apple tv stick with the areas there good at

MSfromtheOC says:

1. Typical household won't buy multiple XBox's, but they do have multiple TVs.
2. The AppleTV is not much of a failure. It's sold 3x or 4x the number of all other streaming boxes (including Roku) combined.
3. I don't think that the cable companies will be able to do a favorable deal with Microsoft. If you want to use it as your set top box, it will be $600 (the extra $100 for the TV tuner and special version) plus don't forget that Microsoft charges almost as much every year for XBox Live as Apple gets for their AppleTV.

It's not a game console, yet. But the most popular portable game console is the iPod Touch. It will be interesting.

jdholland79 says:

Google making a console with android and it will suck trust me consoles are not going out even when google releases that console with android that had just as good graphics as a iPad I mean and I pad s graphics good for what it is but it is by no means a Xbox one or PS 4 si why you sit playing bejeweled. I'll be play a real game called call of duty ghost on my Xbox one and god of war for my ps4 plus its so easy to steal games and root android I will be surprised if any big name companies wanna make games for it they wanna get paid so console are not on the way out not everybody wants to go back in time and play a google console running android that has graphic like a snes

Carioca32 says:

Let me ask you Chris, what happened to the music industry after Apple got into it? I know it might be good for musicians, but how is the industry as a whole? Why should the TV industry look at that example and let Apple do the same thing to them?

claustin says:

screw the music industry. They've been abusing musicians for decades, lining their fat wallets with album sales while musicians made most of their money from touring. Big Music needed to be knocked down a peg anyway. I applaud Apple for pushing them off their pedestal. Bring on Big TV.

Carioca32 says:

I completely agree with the screw part, but I do not applaud replacing one middle man with another.

The point is that Apple destroyed the music industry, so for better or worse, it should be no surprise that no one else wants to deal with them. Apple gets 30% for managing a closed garden that only reach its own hardware customers, we still overpay for content, and content producers still get underpaid for it.

I say screw all middle men.

claustin says:

Your "point" here is nonsense. Apple SAVED the music industry. In an era where the music industry was losing millions, maybe billions, to illegal downloading (I don't like the term piracy), Apple presented it with a viable storefront to sell it's content. The music industry thought the answer was to sue the pants off people to try and scare everybody into continuing with their decades-old business model rather than identify the trend to and embrace digital music. Apple saw a void in the market and filled it by making downloading music legally easier than illegally, while also offering higher quality files and comensation to the label overlords. While I would have liked to see the labels crumble, I think the way it shook out is fine. I'm not saying it's perfect, but this whole "destroyed the music industry" thing is nothing but hyperbole. The music industry is doing just fine, unless you want to talk about the travesty that is Justin Beiber.

SonOfPearson says:

I'm waiting for the the first regional cable company to go national by allowing people all over the country to subscribe to their service and access it on ATV. Reduce the price and they would start picking up customers all over the country. Then you would see true competition in the cable industry as people now have a choice and other cable providers scrambled to catch up.

EPJS says:

In New York we do have a choice, between 4 different providers.

Depending on where you live, it's either Time Warner or Cablevision, as 1 of the options. And the other 3 (all over) are: Verizon, DirectTV, and DISH.

claustin says:

Haha holy crap that little comic strip sums it all up perfectly.

kenny huynh1 says:

If AppleTV adds Safari in its next update, i believe you can see atleast one ATV in every house with wifi. Whom ever compared the selling numbers of AppleTV and Xbox ever thought that they came out in different years? I like to play games but never wanted Xbox. Not a cabletv fan but own an AppleTV 3 to surf youtube on lazy times and love the models in Vimeo ;-)

Carioca32 says:

I have a web browser in my TV and you know what? Its useless. Its hard to type, hard to browse, hard to reach content since there is no Flash (I know, but its still around in a big way), hard to navigate since website menus are not meant to be navigated without a mouse etc. You have a much, much better exterience using a tablet.

I don't see anybody buying an ATV just to use Safari.

CORYK333 says:

Same as you.......the amount of YouTube/Vimeo I watch on my AppleTV when nothing is on cable surprised me quite a bit.

EPJS says:

In my opinion, this is a good thing. Cable companies charge extra per box. If you have 5 boxes in your house, that's an extra $25 per month. If you can reduce the number of boxes by having a few Apple TVs, that's good. I just hope the other cable companies follow suit.

Hamble says:

When pirating music became so easy that non-geeks were doing it, parents were doing it and even grandparents, the music industry stuck its head in the sand and tried to add more and more draconian Digital Rights Management to their content, which just made things worse. It took Steve Jobs, Eddie Cue and Apple to teach them a bit of common sense - most people want to be honest and are quite happy to pay for great content if it's easy to do so. Make it easier to buy digitally than pirate it, and you will be rewarded.

The TV industry still fails to understand this. Piracy of TV shows and movies is currently annoying and difficult enough that the masses don't do it, but it's getting easier all the time. Unless they wake up and embrace an easy digital distribution model, be it iTunes or their own, they will continue to lose revenue to piracy that could otherwise be paid to them.

Forget Apple disrupting the TV industry - first the TV industry needs to realise its time to disrupt itself. They're not at the tipping point of 'getting it' yet, but it's close.