The traditional television market is heading into a period of colossal restructuring just as Apple Inc. prepares to enter the fold.
On Tuesday, Pacific Crest Securities analyst Andy Hargreaves predicted Apple AAPL, -0.36% would launch a premium digital TV service that would “shift the landscape of pay TV.” He said he expects Apple to launch a virtual multichannel video programming service that would be priced and marketed as a “high-quality service,” costing around $40 to $50 a month.
Apple would offer better personalization and mobility than today’s pay-TV offerings, and would likely offer the linear feed of most major broadcast and cable networks as well as a “rich on-demand offering” and the potential to watch live sports, he said. Earlier this year, Apple began offering HBO Now to its customers for $14.99 a month.
“A well-executed Apple service could alter consumers’ expectations for a linear bundle and alter the competitive landscape,” Hargreaves said.
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Add that to Apple’s marketing prowess, and it could “drive relatively rapid share shift over a short time,” he said, impacting earnings per share by an estimated 3% at Comcast Corp. CMCS, +166.98% , 6% at Time Warner Cable Inc. TWC, +0.06% , 24% at DISH Network Corp. DISH, -0.69% and 11% at DirecTV DTV, +1.38% , if Apple were to capture just 10% of each of their video subscribers, according to Pacific Crest.
With numbers like that being thrown around, it’s no wonder the major players in pay-TV are starting to take notice.
On Tuesday, Verizon Communications Inc. VZ, -0.36% made a $4.4 billion bet on connected TV by buying content and advertising powerhouse AOL Inc.AOL, +18.62% It was a telling coincidence that the company was downgraded to underperform by Macquarie just before the deal was announced under the pretense Verizon was “losing its mojo.”
This is “the first step in an evolution that’s going to happen very fast,” said Sloan Seymour, executive vice president of online marketing agency PM Digital. “They’re wise to follow the consumers.”
The vast majority of media consumption now occurs on a mobile device, with more Americans abandoning expensive traditional cable packages.
The trend has shifted advertising budgets to mobile from traditional TV. It’s one reason AOL has invested heavily in mobile, video and digital advertising over the past few years. It’s that same reason AOL was so attractive to Verizon.
Date: May 12, 2015