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Netflix’s Apple TV Deal Could Signal New Business Model

Netflix’s Apple TV Deal Could Signal New Business Model:

The new Apple TV software update didn’t just bring better iCloud and iTunes Match support to Apple’s set-top box; it introduced a way for users to sign up and subscribe to select content subscription from the device, while paying for the services via iTunes.
In addition to enhanced iCloud and iTunes Match support, the new Apple TV software — as well as the third-generation 1080p Apple TV — allows users to subscribe to Netflix and directly from the device. Rather than creating a separate billing account, users simply pay with their existing iTunes account.
Sound familiar? That’s essentially how Apple’s in-app subscription model works in iOS. Although some magazine publishers and digital services companies initially balked at the idea of giving Apple a 30% revenue cut for in-app subscriptions, the changes Apple made to the program in June 2011 seemed to absolve most complaints.
It’s a win for users and content providers. One of the challenges that companies such as Netflix face is getting subscribers to follow through with the sign-up process. It’s one thing when the content is primarily consumed on the Internet. For more passive devices — like the television set — a user who has to go to a different device just to sign up may end up putting off the purchase.
On iOS, publishers who have embraced in-app subscriptions and Apple’s Newsstand have found great success in the model. One high-ranking publishing executive explained to me that his company didn’t really mind giving Apple 30% on digital subscriptions because subscription acquisition costs are usually more than that.

Implications for Netflix and Other Subscription Services

Peter Kafka at AllThingsD saw something else in Netflix and Apple’s new payment relationship: The potential for a new business model for Netflix.
On Tuesday, Reuters reported that Netflix was in talks with major cable companies about becoming an additional on-demand offering. In other words, cable subscribers could add Netflix to their existing cable packages as an add-on or bundled offering.
This is what Dish Network is already doing with its Blockbuster streaming service. Last month, Comcast created its own Netflix-like subscription streaming service, Streampix as a free add-on for Xfinity TV-bundled customers. Comcast customers who don’t have a qualifying Internet or TV bundle can get Streampix for $5 a month.
As Kafka points out, Netflix’s arrangement with Apple — wherein Apple handles sign-up and billing and Netflix offers the service — could easily be parlayed to a cable operator. Most modern cable boxes would be capable of working with Netflix with an appropriate firmware and software update (or, cable companies could rent new Netflix-enabled boxes to those user who don’t already have Netflix built into all of their home theater devices), with the added advantage of offering TV content from one box.
It would be an interesting move for Netflix — who is currently competing with cable TV Everywhere initiatives in a battle to secure content. In the past, Reed Hastings has named TV Everywhere Netflix’s biggest competitor, but in recent months the Netflix chief has moved his sights to HBO.
HBO is a premium content juggernaut, thanks to not only its licensing deals with major studios, but its stable of original, quality content. HBO’s TV Everywhere solution, HBO Go has been a huge success. It gives HBO subscribers access HBO content from the web, iOS and Android. HBO has also started to sign deals with consumer electronics makers, including Samsung, to bring support for the service to HDTVs and Blu-ray players.
As Netflix starts to shift away from just licensing content and tries its hand at creating its own original programming, it makes sense that the company could see itself as a kind of HBO-alternative, especially to cable companies that are looking to hold on to customers.

Potential for the Future Apple Television Set

What I find most fascinating about Apple’s new payment arrangement with and Netflix is the potential this could have on the mythical Apple subscription television service. Apple is reportedly trying to sign media partners onto its rumored service, but is struggling to make concrete deals.
The Netflix subscription offering could be the first step at testing the waters. If Netflix sees success with the offering, perhaps other subscription services — either over-the-air (OTA) or cable-backed — could come to Apple TV as well. An a la carte offering of premium content that is billed through one party and viewable on an array of connected devices could be a good start at disrupting the current cable business model.
What do you think of Netflix’s new arrangement with Apple? Would you like more video services to offer sign-up and billing through iTunes and Apple TV? Let us know in the comments.
More About: apple, Apple TV, cable tv, connected devices, netflix, social tv, tv everywhere
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