Why Apple TV Will Kill Cable TV This Fall

Apple TV got a big boost last week when Apple (NASDAQ: AAPL) announced that it had formed a new partnership with Time Warner’s HBO (NYSE: TWX), and that it would be dropping the price of its set-top box by around 30%.apple-tv
Now we’re hearing fresh rumors that Apple will release its own subscription TV service sometime this year, and that almost every major cable network is on board to participate.
It isn’t always worth writing about rumors. But in the case of Apple, it’s pretty common for reputable news outlets like The Wall Street Journal to pick up on rumors that turn out to be extremely accurate.
The Journal reported that Apple is planning to launch an online television service in the fall. This is clearly a direct attempt by Apple to have its long-anticipated Apple TV streaming service kill cable TV once and for all.
While big cable companies had initially resisted the idea that “cord cutting” was a major threat to their businesses, it seems the industry is finally embracing this concept. Look no further than the 2008 launch of streaming video service Hulu for evidence.
Hulu – along with its premium version, Hulu Plus – is the result of a partnership between 21st Century Fox (NASDAQ: FOXA), The Walt Disney Company (NYSE: DIS) and Comcast’s (NASDAQ: CMCSA) NBCUniversal.
In 2013, these three media giants tried to sell Hulu. They then reversed course and decided to invest additional capital in the streaming service, in the hope that it could compete with Netflix (NASDAQ: NFLX). The Netflix vs. Hulu saga has continued since then with Amazon’s (NASDAQ: AMZN) Prime streaming service becoming a more relevant competitor over time.
The marketplace of Netflix vs. Hulu, with Amazon Prime somewhere in the mix, has been the status quo for the last couple of years. And that’s all about to change.
The graphic below, put together by The Wall Street Journal, illustrates the current marketplace and some of the upcoming changes that are expected, including Apple TV and PlayStation Vue from Sony (NYSE: SNE).
3.18.15 WSJ TV Table
I think Apple’s partnership with HBO will go down in media history as an important moment. When the service launches in April it will be the first direct partnership between Apple TV and a content provider. Previously, Apple TV could only be used to access content via content distributors like Google’s (NASDAQ: GOOGL) YouTube or Netflix.
According to the Wall Street Journal report, a number of networks are in talks with Apple right now regarding Apple TV’s subscription service. These companies include: Discovery Communications (NASDAQ: DISCA), Viacom (NASDAQ: VIAB), Scripps Networks (NYSE: SNI), CBS Corporation (NYSE: CBS), Fox and Walt Disney Company networks like ABC. Notably, the Journal suggests that NBC, USA and Bravo are not going to participate.
I encourage you to think back to the period in which Apple took on a broken, fragmented and once-powerful music industry. The industry faced massive challenges to its business model, both because of technology advancements and new forms of competition.
Apple answered the challenge by partnering with music companies to launch the iTunes store, making both iTunes and the iPod cultural icons.
I believe that Apple is on the brink of such an industry disruption again.
Considering the challenges presented by competing with Netflix, Amazon and countless other legitimate (and pirated) streaming services, it is just a matter of time before the cable industry comes to its senses and changes its business model.
According to the rumors, that time has come and we will find out this fall how Apple plans to revolutionize the cable industry.
I fully expect Apple TV to kill cable TV. But in doing so, Apple TV will save cable TV companies from a demise they should have seen coming.
DISCLOSURE: I personally own shares of Apple.

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