Apple aiming to tempt traditional TV viewers

Millions of video clips are available for viewing free on the internet, through video sharing sites such as YouTube or MySpace and hundreds of other websites.

Yet the appetite for watching traditional television does not appear to be waning. Nielsen, the media research company, released a study this week showing that the average US home now receives a record 104 television channels, eight more than a year ago.

The actual television set itself is also featuring more prominently than ever before: the average US home now has more televisions than people, according to Nielsen, with 2.8 sets compared with 2.5 people.

Connecting the 110m US households that watch television with the hundreds of channels that they increasingly demand is a hugely profitable business for cable and satellite operators, such as Comcast Corp, Time Warner Cable and DirecTV.

However, there is a question whether the imminent introduction of Apple TV – potentially the most user-friendly device yet to allow people to set up a wireless connection between their television and computers and watch video content stored on their hard drives – could undermine the business of cable and satellite operators.

“It [Apple TV] isn’t the first attempt at solving the ‘last 10 foot problem’ of connecting the PC to the TV but in light of Apple’s track record with music it is likely to be regarded as the most credible,” says Douglas Shapiro, analyst at Bank of America.

Yet to have any impact on the business of providing multi-channel television, such online video needs to be a replacement for the services offered by cable and satellite. Operators are increasing choice for the viewing public by making popular programmes available on-demand.

Also, in the US the growing use of digital video recorders means people can easily record favourite programmes and watch them when they want.

Indeed, the focus is on providing more high-definition channels to allow the growing number of people who are investing $500 and more in top-range, flat-panel televisions to watch high-quality content. In contrast, internet videos, such as that on YouTube, are generally of relatively poor quality, and short in duration.

The Apple TV does not offer unlimited access to video on the internet but instead mainly allows users to watch content stored on Apple’s iTunes online music and video service. As a result, Mr Shapiro says it is a “supplement to traditional pay-TV: it isn’t a threat to cable or satellite within a reasonable investment time horizon”.

Indeed, large cable companies such as Comcast have stressed that the growing demand for internet video is good for them, not bad, as it is one of the factors fuelling consumer willingness to pay for faster broadband connections, many of which are provided by cable operators.

For the media and entertainment companies that make movies and television shows, the introduction of Apple TV and other digital outlets is also increasingly being regarded as an opportunity to make more money, not less.

Beth Comstock, president of digital media and market development at NBC Universal, said even a year ago there was a concern that digital distribution would eat into television audiences.

“Growth [of digital businesses] is not at the expense of TV audience,” Ms Comstock said. “The internet does not cannibalise our TV audience, a fear we had even a year ago. We find it reinforces and actively builds brands.”

Apple’s iTunes service is already one of the most popular ways of watching professionally produced video content on computers. Many media groups are licensing their movies and shows to iTunes, and people are paying to download them.

Yet in terms of concrete revenues, these distribution methods are barely significant relative to the large amounts generated from cable and satellite operators and the sale of DVDs.

Ms Comstock herself is charged with ensuring that NBC Universal generates $1bn of digital revenues by 2009. Although significant, even such an ambitious target compares to total revenues last year of more than $16bn.

The real loser of a successful Apple TV launch could be DVD sales and rentals. “Efforts to connect the PC to the TV, particularly Apple’s, could eat into the home video rental or DVD sales pie,” says Mr Shapiro.