Last week, Apple made a ton of announcements including a new iPod nano, a new iPod touch, a new Apple TV, a new version of iOS, a new iPod shuffle and a new version of iTunes.  These are all interesting products, but in my mind, one of these – Apple TV - stands out from all the others because of the potential future impact to Apple and the entire media industry. Here’s why.

Up until now, Apple has only let customers buy content from iTunes.  You load iTunes on your (Windows, Mac) notebook, either rip your CDs or go to iTunes Store and purchase songs, videos and shows.  You then download music, audio, photos and video via the sync cable to your computer.  (Newer iPhones and the iPad can access the iTunes Store wirelessly). But, in all cases, you purchased all of your content from the iTunes store.  You couldn’t rent it like you do when you get a movie from places like Blockbuster (individual rental) or Netflix (subscription or group rental)

With the new Apple TV, Apple is offering an entirely new way to obtain rich media: they are renting it to users.  Take a look at the following diagram I put together to show what Apple is finally doing:

In the diagram, Apple TV (should really be called iMedia) accesses remote content stored on a number of servers via the Internet as well as remote content stored in the user’s iTunes library.  It then streams the content to the user’s HD TV, iPad, iPod touch or iPhone. This content is rented out on an individual basis to the viewing devices although I suspect at some point Apple will offer packaged services via a subscription service.

Also note that there’s a wall preventing other devices like those using Google Android and RIM BlackBerry to play in this garden.  User’s can’t (yet anyway) sync their iTunes library to non-Apple devices.  I hope that Apple will soon remove this restriction now that iTunes has become the de facto library for music and video for many hundreds of millions of users.  Allowing any device to connect with iTunes would increase sales of iTunes content. 

The battle here is on many fronts, but as far as the rent vs. buy distribution of rich media content (movies, TV shows, video, music, photos, etc.) the big battle is likely looming between Amazon and Apple (but could also include Comcast or Time Warner).  Amazon doesn’t sell SmartPhones, but they do sell Kindle eBook readers.  It wouldn’t be much of a jump for them to step up and produce a full color tablet and go head-to-head with Apple’s iPad.

But more important, Apple is focused on providing a ‘walled garden’ to content. Apple’s thesis is, “We provide great content on great devices.  You can access that content on any device as long as it’s made by Apple.  You can get remote access to really great content as long as you access it through us.”
 
Amazon has a very different philosophy: “We provide great content for any device.” Humm, that’s the same initial statement.  “You can access that content on any device and you can buy or rent content from us or anyone else.  We’re open. Apple is closed.”

There are huge shifts going on in the distribution of rich media.  We’re moving from a buy model to a rental model. The result is the same: you get to hear or view what you want when you want, but local ownership via downloading, while not going away, is being slowly replaced by remote access rental via streaming.
 
In the local ownership model, content is made available and stored in a library (iTunes Store, Amazon store, etc.).  User’s then select what they want to buy and download it to their local devices.  In the Apple iTunes case, users select a TV show, song or video and buy it.  The selected content is downloaded into your Windows or Mac notebook and then is further downloaded to your iPod, iPhone or iPad.

In the remote access (rental) model, content is also made available through the Internet. Users select what content they would like to view or in which they would like to listen, and the content is streamed to their device.  Ownership is retained by the content provider.  You simply get temporary access from which you pay either a rental fee or a subscription.
 
We’ve already seen a good example of how remote access can be successful with the acceptance of Pandora, the streaming service that tries to personalize channels of music streames based on your personal interests.  Another good example is the approach taken by RealNetworks for their Rhapsody service provided through Yahoo.  And, of course, another great of streaming remote access rental is Sirrus XM which is slowly migrating out of satellite-to-car radio to being a full-fledged subscription service on many devices including notebooks, handhelds and tablets.

While remote access via streaming works, there are still limitations in what you can access.  While Apple provides access to recently broadcast shows (e.g. accessing Modern Family the next day), there still not a generic way to access recently broadcast content which I call the ‘Morning after pill’ access “Did you see that unbelievable to American Idol last night?”  or “I’d like to see that summary of the World Series from Sports Center last night.”

In the end, I suspect users will desire to always own some of their favorite rich media content (favorite TV show, favorite music or favorite movie).  But, for much of the time, users will use remote access rental of content and get what they want when they want it via streaming from one or more services. 

Written By:

J. Gerry Purdy, Ph.D.
Principal Analyst
Mobile & Wireless
MobileTrax LLC
gerry.purdy@mobiletrax.com
404-406-5309
 
Disclosure Statement: From time to time, I may have a direct or indirect equity position in a company that is mentioned in this column.  If that situation happens, then I’ll disclose it at that time.