Our previous note highlighted two of the five implications of Apple’s actions to transform how TV shows are accessed. By pushing TV content towards a la carte pricing where consumers can purchase individual shows or smaller bundles of channels without ads, Apple could create new challenges for three sets of companies:
(i) cable companies like Comcast, Time Warner Cable
(ii) satellite companies like DirecTV, Dish
(iii) online content distributors like Netflix, Hulu
The implications for each of these groups is highlighted below:
1. Cable companies lose TV subscribers; become more dependent on broadband internet
Comcast has about 22% share in the US Pay TV market and as a result the digital cable business constitutes about 31% of Comcast’s value. Similarly, Time Warner Cable has about 12% market share and the digital cable business constitutes 35% of its value.
If iTunes / Apple TV can attract those TV viewers that only watch a certain set of shows or channels, this could lead to subscriber losses for cable companies as those viewers decide to pay only for what they watch rather than a larger (and more expensive) bundle of channels through their cable providers.
You can see how Comcast and Time Warner would be impacted if they lost share in the Pay TV market to Apple by decreasing the forecasts for Comcast Pay TV Market Share and Time Warner Cable Market Share.
2. Satellite companies in more trouble than cable companies due to absence of internet offering
DirecTV and Dish Network do not offer internet services themselves and instead partner with telcos (AT&T) to offer bundles of TV and internet. As a result, DirecTV and Dish are much more impacted by losses in Pay TV Market Share since their satellite TV businesses constitute 60%+ of their value.
3. Wider base of Apple TV users makes iTunes a more viable threat to Netflix
Netflix is emphasizing its “Watch Instantly” feature which is included in Netflix subscriptions and allows subscribers to watch films online through Netflix. Although Apple is currently focused on increasing its offering of TV shows through iTunes / Apple TV, greater usage of iTunes / Apple TV will put Apple in a stronger position in to challenge Netflix’s online film rental business.
Apple already offers film rentals through iTunes and we believe that over the long-run there is nothing stopping Apple from offering a wider range of rentals that could be comparable in scope to Netflix’s offerings.
You can decrease the forecast for Netflix Subscribers here to see how Netflix would be impacted if subscriber growth slowed as a result of greater film consumption through iTunes and Apple TV.
