Apple, Google TV: Does Pay as You Go Make Dollars and Sense?

Apple and Google are preparing a full frontal assault on the a-la-carte broadband premium TV content business. But can their offerings really upset the Cable and Satellite TV status quo?

Next week, on September 1st, Apple is holding their yearly “Special Event” at the Yerba Buena Center in San Francisco. As of yet, the company hasn’t given any indications what products might be introduced.

While it’s likely to be the next generation of iPods and perhaps even new iPads, there are some in the industry who believe that it will include a complete refresh of the Apple TV, reborn as an iOS device, complete with App Store and $1 per show pricing model as the “iTV“.

I’m not going to speculate precisely on what products are going to launch, and what features they will have, because I really have no idea. However, the concept of a la carte content for TV shows and movies — much like the way music is sold today for $1 per song on iTunes and Amazon MP3 today — that would compete with the traditional offerings from Cable and Satellite providers is intriguing.

Apple’s iTunes, which already serves up movies and TV episodes for purchase on iTunes for Macs, PCs, their iOS and Apple TV devices is a good revenue generator for the company, but at their current pricing structure of $2-$3 per show and $5-$10 per movie, it can really only be a supplementary service to existing home TV content consumption.

According to AC Nielsen, Americans consume on the average about four hours or more of television per day. At $50-$60 per week or even half that amount to satisfy an iTunes video habit, it’s still way too expensive to dump your Cable/DVR service and use Apple TV as it ships today as your exclusive content consumption platform, even if you don’t watch live or recorded television such as sporting events or nightly news programming.

In my home market of Northern New Jersey, local Cable services are provided by Cablevision/Optimum Online. “Basic” cable which replicates broadcast TV sells for $15.52 a month, and the “Family” plan, which has all the Tier 2 content plus the broadcast, sells for $55.95 a month. If you want all the HBO, Cinemax, TMC and Showtime premium channels, you’ll pay about $100 per month.

This type of pricing structure is consistent with many of the Cable and Satellite providers nationwide. If you want to be able to record your programming, many consumers opt for a DVR device like the TiVo (which goes for about $300.00 plus an annual fee of about $130) or pay approximately $10 per month from their provider which activates DVR capabilities in the Cable or Satellite set-top device, which may or may not have upfront costs associated with it depending on the promotion at time of sale.

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Even at a reduced rate of $1 per TV show, the theoretical “iTV” consumption model as it has been presented still doesn’t work out when compared to the maxxed-out $100-$120 per month cable and satellite packages, let alone the $60 family “Broadcast Plus” plans. Who wants to spend $30 per season of The Suite Life of Zack and Cody for their kids, let alone at the insanely ridiculous price of $86.00 it sells at now?

Arguably, these shows are currently sold as purchases, and not rentals, as they can be viewed over and over again, but it’s still too much money. At a reduced price of $1 per show, Apple would likely be using the rental model like they do with their movies — which requires that the content be viewed in its entirety within 24 hours after hitting the “Play” button.

For those of us with reduced attention spans or busy lives, that’s a major disadvantage from traditional DVR services like TiVo, which sets no limit on how long the programming can be retained once you’ve begun to watch it.

None of this also accounts for the fact that a device like Apple TV is a 100 percent broadband dependent product. You’ll still need a very fast Cable modem, DSL or Fiber-optic connection to make a service like iTV work effectively, even if it is smart enough to download everything you want to watch when your connection is idle, such as in the wee hours of the morning.

This also doesn’t take into account that many customers tend to go the “Triple Play” route, where Cable TV, Broadband and VOIP services are offered at a reduced “bundled” price, often with a reduced first year promotional rate which then increases but is still discounted than if ordered a-la-carte.

But let’s play with the numbers. If you decided to reduce your overhead by going with say, a $30 per month basic broadband, $16.00 per month Basic Broadcast cable, a TiVo at the yearly rate, and your 1 or 2 hours of Premium shows a day from Apple at the theoretical $1 per show (or $1 per hour, assuming half hour shows are 50 cents and not a full dollar), you would  come in at around $87.00 a month, assuming you bought only one $1 iTV show a day.

You can knock off $16.00 on the Cable part if you’re in an area with strong broadcast reception and you can install a Over the Air antenna on your roof, but in a lot of areas, DTV signal is weak, especially if you live in multi-family dwellings or apartment complexes, where Cable is essentially a requirement for basic TV.

However, with a family of four, it’s much more likely you’d buy at least two shows a day, which would bring you in at around $117.00 a month, less taxes. At three shows you’re at $147.00. At four, you’re at $177.00.

That’s still more than a CableVision “Gold” package with all the premium programming, Cable Broadband a la carte, and their $10 per month DVR service. It just doesn’t add up.

Oh, and if you think Apple’s going to pull the commercials from the $1 per play programs, you can forget about it. It’s going to be subsidized up the whazoo with advertising dollars to be able to compete at that rate.

To truly compete with cable and satellite, Apple is going to have to move towards more of a subscription model, which would have to be considerably LESS expensive than what Cable offers today, with much more flexibility on a-la-carte channel/content source bundles. I’m thinking around $50-$60 per month all inclusive for a typical premium package that would match a Cablevision “Gold” offering. And I’m not really sure that’s doable, even with Apple’s reach.

What about the other guys? Google has already stated that it intends to enter the TV market, with it’s Google TV. However, rather than act as a single content delivery source, such as the theoretical iTV with iTunes and App Store, Google TV is more of a platform for the cable companies/satellite providers and set-top manufacturers, like Android is for Cell Phones and Tablets.

As such, it’s designed more to integrate and consolidate the Web and Google’s properties such as YouTube with your existing Cable and Satellite, DVR and On-Demand content packages (such as NetFlix and other PPV offerings) rather than to replace it. And it’s this kind of model which I think makes the most sense.

What sort of pricing model would encourage you to replace your current Cable/Satellite content infrastructure with a Pay-per-show or subscription broadband-based service from Apple? Talk Back and Let Me Know.