Will Apple TV kill cable/satellite? Netflix? Retail rental?

RoughlyDrafted had a great post yesterday that predicts Apple TV will knock out Netflix and brick-and-mortar rental stores with one deadly blow.

Apple also couldn’t force all of the labels to sell their movies in iTunes as digital downloads. It could, however, get them all to sign up for movie rentals if it matched the rules the studios have laid out for Pay Per View TV and every other digital rental service. So Apple did. And after things begin to sell, Apple’s movie rentals will obsolesce the NetFlix mail model and the mainstream rental store. This is as obvious as the big Apple logo on top of the box.

I agree that Apple TV will have a major impact — due to Apple’s great brand equity, Apple TV’s intuitive interface, and participation by all the major studio players — but I don’t think Apple will be able to clear the field the way the iPod has done in the MP3 market.

The TV/movie consumer market will be much more fractious than the MP3/music download market. On the surface, things looks almost identical to the pre-transition from CDs to download music delivery — a few major distributors that control most of the content, a mature market with widely available retail channels, nearly all sales on a single format, and consumer interest in electronic delivery.

For several reasons, though, I don’t see the same monolithic transition from DVDs to electronic delivery.

1. Consumer demand for electronic TV shows and movies will not nearly as great as demand for MP3s, i.e., it’s plenty easy to watch movies and TV now. Cable and satellite DVR/PPV already do much of what electronic delivery of movies and TV promises, i.e., making more content available at more times. And the new-generation content is headed for the same place as the other: your HDTV.

2. The pricing for movies and TV shows does not favor Apple the way it did with music. Consumers headed to Napster, Kazaa, et al., and ultimately to iTunes Store because they wanted to pay $.99 for a single instead of $15.99 for a CD. There is no equivalent savings with movies and TV shows; Apple and cable/satellite PPV will rent the same new release movies for roughly the same price.

3. Pirated movies are not driving huge numbers of movie consumers to digital movies the way Napster, Kazaa, et al., drove music consumers to illegal downloads. The market for digital movie downloads will grow much slower in some part because there’s not a lot of free content out there to juice the demand.

4. Apple will not have same market power with Apple TV that it has with the iPod. A few years ago if you wanted to legally download and play music on an MP3 player, your only practical choice was the iPod. With movies, you don’t care whether the one you’re watching tonight came from Apple TV, cable PPV or a DVD.

5. Competition. With the impending death of DVD HD, Blu-ray HD will get a solid push from the studios and device manufacturers for Christmas ‘08. Apple TV has a lot of advantages — content from your easy chair chief among them — but Blu-ray is conceptually easier to digest for people that have DVD players. Also, Apple cannot position itself as a true Comcast killer until it has licensing deals in place to deliver live programming like sports, news, award shows, etc., which will probably happen but not in the near term.

6. Apple TV requires a capital investment of at least $229; Netflix and retail rental require only the DVD player you already have. Apple will bring down the cost of Apple TV over time as it does with its other products, but it’s hard to compete with free.

RoughlyDrafted says Apple TV will succeed by freeing consumers from the tyrany of The Man.

Delivering movie rentals is just a way into living rooms for the new box; once there, Apple TV will pipe the world to users over the impartial Internet Protocol, without any external filters imposed by big businesses. No cable cartels, no telephone company filtering or NSA spying, no Blockbuster, no FCC, no MPAA, no Microsoft, no Think Tanks in the Public Interest, and no witch hunting fundamentalists hell bent on inflaming perpetual wars.

I agree with that completely; I just don’t think it turns Apple TV into the iPod of home entertainment.

It will have an effect, though. As Apple TV grows its movie library and drops in price, the convenience factor starts to outweigh cost for a lot of consumers. A $99 Apple TV with access to a 10,000-title movie library starts to look a lot better than waiting for DVDs to come in the mail or stopping at Blockbuster to pick one up.