My new Apple TV. Image source: This guy.
Recently, Apple (AAPL +0.17%) started to ship the newest iteration of its Apple TV device, and I was among one of the first to receive the shipped product (a function of being among the first to place an order, not any special treatment). Overall, the device is congruent with the quality, design, and intuitiveness one expects from an Apple product; the Siri-integrated remote is a step above the prior generation's, and the incorporated app ecosystem is a huge step forward for the product.
If there was one complaint I had about the service, it would be the lack of non-video and gaming apps, although this may be a more esoteric complaint than a functional one, as most users will probably experience these apps on a Mac, iPad, or iPhone. In addition, as time goes on, most companies will probably bring an Apple TV-compliant application to market.
However, let's be honest: The growth of Apple TV is going to be based on its success of video apps. But Apple's biggest opportunity for Apple TV is perhaps hidden in plain sight because it's a business model the company already employs.
When is Apple's Internet-based subscription based TV service coming?
Earlier this year, The Wall Street Journal broke news that Apple was planning to launch a subscription-TV service. According to the article, Apple planned to charge $40 a month for a skinny bundle of stations -- 25 to 30 channels were discussed. This was different from the host of Internet-only bundles such as DISH Network's (DISH +0.00%) Sling TV, which offers fewer channels at a lower price point of $20 per month.
However, unlike Sling TV, which is targeted to those without subscription TV service, Apple has the benefit of millions of credit cards currently on file in its iTunes and App store, an already-existent transactional relationship with one-off music purchases, a budding subscription streaming-music model (more on this later), and significant brand equity and consumer goodwill.
After the report, however, multiple reports centered on Apple's trouble getting content providers on board with its new service. One of the more tense negotiations was Apple's spat with The Walt Disney Company, which wanted the service to carry all its channels, making it incongruent with Apple's goals of a cheaper, slimmer bundle. So while Apple's subscription TV service seems stuck in neutral, perhaps there's a better way to profit from television and movies delivered through its Apple TV.
What about Apple Music for TV?
If the traditional pay-TV service falls through for Apple, perhaps there's another way for Apple to monetize the non-music content available on its iTunes store -- and it's exactly the same as the way it's now monetizing is Apple Music service: a subscription-based model. For a fee, subscribers could view TV shows and movies already available on Apple's iTunes. And if this sounds eerily familiar, yes, it's because it is remarkably similar to Netflix's business model.
Of course, this business model loses the live-TV component, but this hasn't hurt Netflix too much in terms of subscriber growth. Another potential downside is that many content providers could balk at this idea, especially those from Disney, Fox, and NBCUniversal, which have a competing product of sorts with its Hulu subscription service.
In the end, however, it would be hard for content providers and movie studios to ignore the service if it grows like Apple Music, which now boasts 6.5 million paying subscribers. A two-day blackout for TV shows and a delayed rollout for movies could go a long way to convince these executives this would be another way to monetize this content.
Apple TV continues to be a small part of the company's top line, as would the delayed subscription TV service, but in the event the rumored bundle doesn't ever come to market (or even if it does), a subscription model for existing content could be easier to implement and a more desired product. Apple could model this service after Netflix or DISH's SlingTV, but I think the choice is quite clear here.
