Steve Jobs after WWDC last year:
The problem with innovation in the TV industry is the go to market strategy. The TV industry has a subsidized model that gives everyone a set top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us… ask Google in a few months.
So all you can do is ADD a box to the TV. You just end up with a table full of remotes, a cluster of boxes… and that’s what we have today. The only way that’s going to change is if you tear up the set top box, give it a new UI, and get it in front of consumers in a way they’re going to want it. The TV is going to lose in our eyes until there is a better go to market strategy… otherwise you’re just making another TiVo. [you can't just partner with providers because] providers are local… it’s a Tower of Babel problem…
He’s still right. Apple’s latest hockey-puck-like Apple TV is doing pretty well, but it’s still an extra box to buy. Until somebody creates a cable box that people would be willing to pay extra for, the TV industry isn’t going to change. So who’s gonna make that box first? Well, judging from a few rumors that have circulated this week, it seems like Microsoft is getting pretty close.
Microsoft has already announced that the Xbox is getting live TV and DVR functionality, and it sounds like they’ve been talking to Comcast, Verizon, and other cable providers to make that happen. This is awesome for consumers: by the end of the year, your Xbox could become the only box you need for TV, games, Netflix, Hulu, ESPN, and all of the photos, videos, and documents on your network. The Xbox could be the very first home theater PC for a lot of people, and I’m sure that Microsoft wants to make that happen. You know, the whole “3 screens and a cloud” thing, that’s what they dig.
But for this thing to work, it has to be mutually beneficial for both the consumer and the cable provider. So why would the cable companies bite?
If the reports are accurate, the deals could be done within the next 30 days. The deals would allow customers to subscribe to TV packages through Comcast or Verizon Fios directly through their consoles and avoid the dreaded dance with the cable guy.
Fewer cable guys to pay, no more free boxes to make, fewer call center employees, and a whole lot less responsibility and embarrassment. The cable company’s job would be to keep the digital pipes flowing to the Xboxes in every home, and that would be pretty much it.
They would, however, lose their Video-On-Demand services, and that might be a big deal for them. It’s hard to say how profitable VOD services are and whether or not they foot the bill for the various expenses of maintaining cable boxes, but I think it’s safe to assume that they know VOD won’t last forever. Netflix, Hulu, and online services are growing, and if cable companies think the kids of today will start using Video-On-Demand instead of Netflix when they grow up, well, they’re laughably wrong.
Cable companies need to acknowledge where things are headed. They’re not going to make as much money in the future, but at this point there’s not a whole lot they can do to prevent that from happening. The best thing they can do to make as much money as possible would be to partner with Microsoft, ask for a cut of each console sold with cable capabilities (Microsoft is probably so eager to make this happen they would happily pay for something like this), be the first one to take the deal and advertise it like nuts so consumers will switch and you can start restructuring your company for the long-haul. It’s not fun, but what else can they do? Eventually Apple and maybe Google will offer even better offers, and that’s how cable companies will make a lot of their money, by licensing the ability to watch cable TV on third party DVRs.
Now, I’m not a cable expert, and specific sales figures of Video-On-Demand services are kind of difficult to find, so a lot of the above is based on my own limited knowledge of the way cable companies operate.
The way things are heading, however, isn’t just speculation on my part. Tech pundits have been talking about this stuff for years, and with the pieces starting to line up this week I wanted to point out how close we are to that future.
It really all depends on what Microsoft manages to negotiate with Comcast and Verizon in the next few weeks. If they can manage to get at least one provider on their side then cable subscribers everywhere will start writing to their local provider with a passionate fury, and eventually all of them will fall. If they can’t get anybody to bite, then we’ll just have to wait until they do.
It’s kind of depressing for the cable companies, sure, but things have been pretty depressing for them for a long time, so it’s all good.
For us, though, this is exciting stuff. The cable subscription will still be expensive, but for the first time we’ll be able switch between Oprah and Boohbah simply by waving our hand, and that’s definitely something to get psyched about.
“Xbox, Boobah whew!!!” – Even your Boohbah kid could use it