Still No Love for Apple TV

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Apple (Nasdaq: AAPL  ) is in a pricing battle with its content providers again. It just can't seem to convince everyone that $0.99 is the right price for television rentals on the new Apple TV, and I can't say I blame media for putting up a fight. This is the same problem Apple had with the music industry as the iPod and iTunes grew to dominate the industry, but this time around Apple is only a small player in the media business.

Apple's problem right now is the litany of options content providers and consumers have in the television business. There's not only the normal network feed but also online shows, DVDs, and streaming content from partner/competitor Netflix (Nasdaq: NFLX  ) , etc. That leaves Apple in an unfamiliar underdog role; short of the smashing success we're accustomed to seeing from Apple.

Apple has signed up Disney (NYSE: DIS  ) and News Corp.'s (Nasdaq: NWS  ) Fox for Apple TV rentals, but even those wins come with an asterisk. Steve Jobs is Disney's biggest shareholder and Fox views the Apple TV deal as a test-run.

GE's (NYSE: GE  ) NBC Universal, CBS Corp. (NYSE: CBS  ) , and Viacom (NYSE: VIA  ) are having a much harder time being persuaded to join Apple. When talking about the $0.99 price point, Viacom's CEO simply said, "It doesn't work for us." This may not close the door for any of these companies, but Apple may have to be more flexible with price or offer a subscription model to persaude more content providers to hop aboard the Apple TV bandwagon.

Apple doesn't have nearly the bargaining power this time around that it did when the iPod ruled the music world. Media companies have other distribution channels and some appear entrenched against Apple's one-price model. Eventually, Apple gave in to the music industry, offering three pricing options. Could this be a similar roadmap for compromise with Apple TV?

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Fool contributor Travis Hoium watches too many movies on Netflix and does not own any company mentioned here. Walt Disney is a Motley Fool Inside Value recommendation. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor selections. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 27, 2010, at 12:10 PM, Henry3Dogg wrote:

    "Apple doesn't have nearly the bargaining power this time around that it did when the iPod ruled the music world."

    Stupid comment. Apple had to negotiate with the music industry BEFORE it ruled the music world.

  • Report this Comment On September 27, 2010, at 1:00 PM, TMFFlushDraw wrote:

    You're right on the initial 2002 agreement which was Apple with a vision and music execs with very little foresight. But as the two articles below reference, since then relations haven't been so friendly. It's only because of Apple's dominance that it was able to maintain 99-cents for so long. The 2009 agreement was forced because of complaints about DMR, competition from Amazon, Rhapsody, etc.



    Point is, Apple has very little bargaining power in negotiations with media giants right now. We'll see how it plays out.

  • Report this Comment On September 27, 2010, at 4:26 PM, jay2004a wrote:

    When is Apple going to increase shareholder dividends since they're holding onto anywhere between $35B - $55B in cash...

  • Report this Comment On September 28, 2010, at 11:47 AM, Ivan0310 wrote:

    I think Apple has stepped in it here and they are wary of expanding their reach with this program too quickly for fear of stepping on partners' toes or starting to compete in an industry where they'll get squashed.

    What I mean is stepping on their partner Netflix's toes by offering up a full-fledged competitor to their online streaming services which could hurt that deal and the future sales of their product. Jobs has referred to the Apple TV for a long time now as a hobby; he just recently stopped using that phrase with the newest refresh. However, if they want this product to become a success instead of an over-ripened piece of abandonware, they need to offer the studios something more substantial. This is important if they hope to compete with Hulu's subscription service.

    If they can't get buy-in from the studios, they will have a huge problem convincing consumers to continue to pay for a limited distribution service on top of the pay-for TV services like Comcast or AT&T U-Verse that they are already considering dropping.

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