Buying, Not Renting: Apple's Future TV Model

You used to be able to rent a single episode of some of your favorite TV shows via iTunes, and access them for a short period for your viewing pleasure. No longer: Apple, in what might seem like a surprising move, sliced the service, which it used to tout as one of iTunes' gems. Now you have to actually buy an episode for $1.99, though you then own it forever on any device and can watch it over and over wherever.

There's some evidence the TV networks themselves were uneasy with the $0.99 rental price but are happier with the $1.99 purchase price (implying users weren't watching many shows more than once—resulting in lower than expected revenues). But really this is all about the cloud, and how Apple's future in content providing will play out. The company just updated its Apple TV code so you can stream purchased TV content directly from Apple's server farms instead of having to download to your iPhone a show you've bought recently on your PC—it frees up your storage space lets you avoid having iTunes constantly open on your home PC.

"iTunes customers have shown they overwhelmingly prefer buying TV shows," an Apple spokesperson told AllThingsD. That's not to say "no one was renting" but that a small minority were. The Apple spokesman went on to say the upcoming iTunes cloud service "lets customers download and watch their past TV purchases from their iOS devices, Apple TV, Mac or PC allowing them to enjoy their programming whenever and however they choose."

Apple's trying to make you feel like you truly own the TV show you've bought, rather than merely borrowing it. Even if the acutal MP4 video file is sitting on Apple's servers rather than in your PC, it's flagged as something you've bought. It's ownership that comes with a 21st century bonus—whereas your DVD had to be carried with you if you were away from home and wanted to watch a favorite show, Apple now lets you access your "property" wherever you are.

This is actually Apple's model for music and iTunes Match. The service has been in the news because it's a way to legitimize previously pirated tracks, as you pay Apple (and, indirectly, the music labels) to cloud-ify your music. But it's also been mentioned this week as part of the hot debate about whether cloud iTunes will let you stream content to your devices—Apple says "no." But it's a technicality. From the user point of view, Apple will supply you any sort of content you like, from movies to TV shows to music, and it will pipe your previously bought content to you via a super-slick interface when you're mobile or accessing it through a different device, behaving as if it's a streaming service. All in the name of giving you seamless access to stuff you've bought.

That's very different than the emerging business models from firms like Rhapsody or Spotify, which uses clever tech to make its music-listening service seamless, but relies 100% on a rental model: If you stop subscribing, you lose access to your tracks. Netflix and Hulu's streaming systems are effectively similar. And there's a growing movement for renting movies through Facebook, leveraging the social network's massive reach, and giving renters access for a short viewing window to the movies they've paid to see.

What Apple is doing is deliberately setting itself apart from everyone else in the game. It wants to be the home base for TV shows you like enough to buy, rather than ones you'd merely rent. And Apple's not totally distancing itself from the "rental" experience because the purchase price difference isn't too much—another dollar doesn't seem too steep, and the total price is still cheaper than a venti latte...so consumers may well think "Why not? I can always watch it again." It's possible that, sensing this market space, and sensitive to Apple's huge reach, more and more TV show makers will pop free episodes online in the hope that an hour or so of Jersey Shore may get you addicted enough to buy the whole season. It's just a simple click on your Apple TV's remote to say "buy your favorites, instantly," and then you can watch an episode or two at night, and one more via iPhone on your commute into work the next morning.

Looming large in the background here are increasily loud rumors that Apple's going to turn its Apple TV "hobby" project into a real product, in an attempt to digitally revolutionize yet another market with a full-on Apple Television. Imagine how it'll work: Apple's slick UI will be slapped all over it, and an improved iTunes will be sitting behind it all, like the master control program—serving up purchase suggestions for TV shows, music, and movies using Apple's Genius system, and keeping tabs on where you are that particular episode of, say, The Wire so you can play it from the same moment when you pick it up via your iPad later on. It'll be a tight, controlled, monolithic system with a business model that Apple can easily sell to content providers.

Of course an Apple Television will also let you watch "normal" TV, but it's likely show rentals will not be part of the plan. Apple may—as it did with the cell phone industry—be trying to shake up the long-standing business model: TV providers like the idea of briefly letting you see a show when they decide, or forcing you to pay a premium to buy a DVD at a later date. But if an Apple Television sells well, Apple will be able to say "charge less, but let the user own it." And that will definitely appeal to the digital TV watcher of 2012.

[Image: Flickr user xJasonRogersx]

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5 Comments

  • Chris Sully

    OK, nothing against the author, but there is some important information missing here. The statement "iTunes customers have shown they overwhelmingly prefer buying TV shows" is based on a lie.  When Apple started renting shows, they were only able to convince a couple of networks to rent at $.99 (FOX and 1 other that I can't remember).  So, of the 100s of shows available on iTunes, only a select few could be rented.  Apple is basically saying that when given the option of A and B, people overwhelmingly did NOT pick C.  No kidding!
    I don't know anyone who would rather own a TV show.  Not to say those don't exist, but I would venture a guess that the majority of people simply want content cheap and quick.  If I can rent every show I watch for $.99 per episode, I can justify dumping cable.  If I can justify that, I can prove that purchasing an Apple TV makes sense.  If I buy an Apple TV, I am far more likely to then purchase other content, like movies.  Movies are something I would consider purchasing (for the right price) because I might watch them over and over.
    I think some real market research is needed here.  Go out and talk to real people who are considering a cable alternative.  Find out what they watch, how they watch it and what they are willing to sacrifice/pay to get this alternative.

  • Josh D

    An extra $1 might not seem a lot, but look at it from a consumer standpoint: The cost of me watching TV shows using Apple just doubled. That means $1.99 used to buy me two episodes of Modern Family; now I only get one. And $3.98 for two episodes, mentally, sounds like a lot compared to $1.98 - especially when it's free to watch TV (with a subscription), accessible any time if I have TiVo, and probably streamed on another website (legally) anyway.

    I have never been able to buy into the Apple system of TV renting/owning through iTunes simply because I like owning a physical object that I can bring to a friend's house, let my parents borrow, or just enjoy the add-ons of a Blu-Ray i.e. additional content.

    Whereas iTunes was revolutionary because the radio only plays one to four tracks of a CD at a time, so as a casual consumer, those are the only tracks I'm interested in, therefore I don't feel obligated to buy every song on an album, TV shows are inherently different. It's extremely frustrating to watch an episode midway through the season or watch two episodes and never find out how the survivors get off the island. Songs can be bought in any order and can bought as singles without losing the overall experience.

    The only use iTV (or whatever they will call it) has, is to finally connect the internet to TV. I.e. when I see a commercial for Domino's pizza, it automatically sends a message to my iPhone saying that if I call in the next five minutes, I'll get free breadsticks. Or when I'm watching a soccer game, I can look on my iPad and see statistics or while the game is live on my TV, I can rewind it on my iPad to see the goal again. Or that I can sit in my bedroom on my iPad and stream my TiVoed (yes I'm using it as a verb) content to the iPad while my fiancee is downstairs watching live TV on the bigger screen.

    Paying for the individual content doesn't fly with me - I enjoy randomly flipping through channels and finding new shows too much. It's like turning the Internet into an economic system where I don't pay a subscription fee anymore, I just pay to access individual sites. Sorry, I enjoy surfing too much.

  • Chris Sully

    Josh - You are spot on!  I would much rather rent than buy!  Love the TiVo reference and the idea of watching TV on the iPad (using it as another entertainment center) instead of another television.
    I am not a big channel surfer, but I will agree that finding new shows is fun.  That is what I use Netflix and Hulu for.  Also, Amazon often gives out the pilot episode of shows for free.  Very smart.

  • Marcos DEutra

    These are two different segments.
    One only wants to buy a TV show when he is a diehard fan. That's why we see old TV classics sold in big DVD boxes. Modern TV shows are mostly regarded as disposable, especially in a time where    we have Tivo and streaming. I wouldn't be surprised if TV networks started streaming their shows for free in the near future. Maybe that's why Apple is leaving this segment. Why pay one dollar for something one can get for free. 
    The same thought can be applied to movies. Some are disposable, old classics and kids movies that are played over and over and worth buying. 
    Instead of only discussing what is best for companies, let's go back to basic marketing and try to understand what people really want. 

  • Omar Yacoubi

    The extra dollar might not make that much of a difference for weekly shows, but I was hoping the rental model would take off for daily talk shows with dated content. Paying the 99 cents was worth it to skip the commercials in online streams, but the extra dollar has no benefit unless there was a particularly memorable interview, which is rare. I doubt that Apple will be able to get content owners to charge less for ownership, so rentals were the only hope I had for low-cost access to commercial-free content. Here's hoping for a subscription service!