iTunes Pass Could Be the Key to Digital TV

Read this news today with great interest:

Apple, EMI unveil iTunes Pass

Apple has just launched a new service called Pass for its popular iTunes music store.  It’s like a season pass for a favorite artist, in this case the electro band Depeche Mode…  Before thinking this is Apple’s entree into the music subscription business, which is something Steve Jobs has pooh-poohed in the past, note that iTunes Pass is quite different.

Under an all-you-can eat music subscription plan at a place such as Rhapsody, you have access to the material only as long as you keep paying a fee. With iTunes Pass, you own the content that has been downloaded, even after the pass expires.

I’ve written a bit about this in the past, but it’s shocking to see Apple so close, and yet so far, from what might be a truly disruptive innovation in digital television.

The iTunes Pass is the right idea, but the wrong market.  We don’t need this for music, we need this for digital television & movies.

When Apple launched Apple TV, it highlighted the ability to subscribe to a season of television.  The idea was you pay a fee up front, and then as episodes of that show come out, they would automatically download to your iTunes (and then synch with your AppleTV), allowing you to watch a show with both digital convenience and without waiting until the end of the season to buy a DVD.  This was a great concept for a few reasons:

  1. Ability to easily “catch up” with a season/show that was already underway.  This is a very common problem, particularly with serial shows where you miss the first few episodes before friends/news reaches you with a recommendation.  (This is the reason I didn’t get to watch 24 in real time until Season 3…)
  2. Ability to “own” the shows permanently – not a transient state like a traditional DVR.
  3. Ability to watch on TV.  Let’s face it, that’s where you want to watch the show, not on your PC.
  4. Automatic download, in the background.  Shows would be waiting for you as they appeared.

The problems, however, with the execution were equally significant:

  1. Lack of seasons.  For many shows, Apple provided the current season, but not previous seasons.  Thus, if you wanted to watch “Lost”, you couldn’t “catch up” with Seasons 1 & 2.
  2. Timeliness.  Next day would have been OK, and in the beginning that was the plan.  In reality, some shows would show up days or weeks later.  Ideally, the download would literally begin at the official showtime EST in the US.
  3. Pricing.  They used DVD pricing, which frankly is just ridiculous.  The idea that you’d reasonably pay $30-$50 for a season of TV that can be had through traditional distribution channels for free makes sense in the historical model of buying specific shows/seasons in low volume, but isn’t a mass market play for general television consumption.  If in a given season (Winter 2009) I’m watching 6-8 shows, there is no way you are going to get $200+ out of me for the privilege unless you 100% substitute for my cable bill.

The pricing issue in particular led me to a hypothetical model that could potentially benefit both Apple & the networks by disintermediating the traditional cable/sattelite duopoly.  Basically, every network could attempt to become “HBO”.  HBO pioneered the idea of a premium channel – an extra monthly charge you’d pay for unlimited access to content.  Thanks to the VCR, that also included the ability to “time shift” that content for your own use.

On iTunes, NBC could be as valuable as HBO.   Imagine an iTunes Pass where, for a monthly fee, you could subscribe to The Office.  You would automatically get new episodes as they come out, as well as download old episodes (like a podcast).  These would all be watchable on AppleTV, as well as your iPhone.  That’s something worth paying for.

Now imagine that for a monthly subscription fee, you could actually do that with any NBC show.  The Office.  My Name is Earl.  ER.  30 Rock.   Whatever you want.  You would become an “NBC subscriber”.  NBC would have a premium revenue stream, and would then focus on providing high quality content to lure in new subscribers, and to keep existing subscribers.  They would also have their own “distribution channel” within iTunes – they could now launch new shows and pilots for a fraction of the cost & risk by delivering them to people automatically, and making the marginal cost of subscribing to a new show effectively zero for the user.  Sunk cost.

Subscribing to a network could be an upsell from an individual hit show.  Subscribe to The Office for $5/month.  Or subscribe to all of NBC for $10/month.  Network families could offer the same bundle of channels to individuals that they currently offer to the cable & sattelite companies.  Get the entire family of NBC channels for $15/month.

There is likely some price in that ballpark where NBC would be agnostic between someone watching them on cable vs. subscribing on iTunes.

Per-show pricing doesn’t get you scale.  But owning a customer relationship as a network is incredibly valuable.  These subscriptions could also be platform agnostic long term – no reason you can’t have versions that support Amazon, Apple, Microsoft, Netflix, etc.

People already are beginning to question their premium movie-channel cable subscriptions in favor of Netflix/Blockbuster service.  Network subscriptions could substitute for the primary cable bill.

Right now, I watch shows on Fox, NBC, ABC, HBO, SCIFI & FX.   There is a price where I’d gladly shift over to a digital subscription to get the benefits of the content combined with the benefits of professional, digital files that I could watch anywhere, anytime (time shifting & location shifting).

The thing that I love about this model is that, from a games theory perspective, there is significant value to the first “defector” – the network that moves to this pricing model first.  For example, if HBO offered this service through iTunes, I’d subscribe immediately.  Obviously, the cable & sattelite companies would fight this tooth & nail – but I’m not sure they have a leg to stand on in preventing this.  After all, Comcast can’t prevent NBC from offering channels to DirecTV, etc.