Showtime's streaming service will be exclusive to Apple at launch. Photo: Showtime.
This year's annual Apple (AAPL 2.15%) WWDC event probably won't include any updates on the Apple TV or the rumored streaming service Apple is working on.
However, just ahead of the event, premium cable network Showtime announced that it's going over the top with its streaming service -- still called Showtime -- exclusively launching on Apple products. The CBS (CBS +0.00%) subsidiary is following in the footsteps of HBO, which also launched with an exclusive window for Apple.
Apple's exclusive deals with Time Warner (TWX +0.00%) -- HBO's parent company -- and CBS indicate that Apple is able to offer them some incentive that other digital distributors were otherwise unable to provide. That bodes well for Apple completing deals with other media companies to (eventually) release a live television streaming service.
What's Apple offering Showtime and HBO?
HBO and Showtime both rely on their pay-TV partners for marketing, billing, and customer service, which allows them to focus on providing quality content. Neither company has much interest in establishing their own billing or customer service teams, and that's where Apple can certainly help.
Apple processes billions of dollars in payments through iTunes and its App Store every year. The back end for billing is already set up for almost everyone with an Apple device, since they must register for the App Store with a credit or debit card. That means Apple can turn on billing for Showtime or HBO with the click of a button. There are no other companies with as many credit cards on file.
Customer service is also a strong suit for Apple. First, the small number of devices Apple makes in relation to other electronics companies makes it easy to create a product that works across all of its devices. That reduces the number of customer service complaints. Second, Apple's has some of the best customer service in the world. It was one of the only tech companies to make J.D. Power's list of Customer Champions in 2014.
Beyond those two capabilities, Apple may be offering favorable revenue sharing agreements with the two premium networks. With exclusive deals in place, Apple stands to gain from increased hardware sales, so it can afford to leave a little more for HBO and Showtime.
Is this what regular cable networks want?
Cable networks want two things: more households receiving their channels, and more money per household. They accomplish this by bundling networks together to force more households to receive less popular channels, and then holding out certain channels until pay-TV operators acquiesce and offer more money.
The main reason HBO and Showtime are going over the top is to increase their reach: a goal they share with regular networks. Previously, a potential subscriber had to buy a cable package first before buying either of the premium channels. But regular networks are in the cable package by default, which means an over the top option might not improve their reach.
Still, as more people cut the cord, more and more networks have considered going over the top. CBS, for example, began offering its own streaming service last year. Most are ill-equipped to go it alone, and Apple is positioned to help them, as it's doing for HBO and Showtime.
Additionally, Apple may be prepared to offer better terms than cable operators since Apple can make money from hardware sales. That could become mutually beneficial as networks would support Apple's TV service and its products by promoting them in commercials.
A $150 billion industry
The average American household is expected to spend $123 per month on pay-TV this year, according to NPD Group. That puts the entire industry, and its nearly 100 million subscribers, at almost $150 billion annually.
With the growing dissatisfaction between customers and pay-TV operators as well as increasingly heated negotiations between networks and operators, Apple may have the timing just right, once again. Early success with HBO and Showtime may be the company's ticket to working out deals with other networks in the near future.
