In addition to the new iPad release yesterday, Apple also introduced a new Apple TV set-top-box (STB). The new STB didn’t add too many new features, so it was greeted with somewhat of a yawn by the tech industry.
But one new feature caught my eye. The new feature adds Netflix to the iTunes marketplace. On the surface, this move seems to be not too big of a deal. After all, Netflix has been available on OTT STBs like the Apple TV, Roku and Boxee platforms for years. The key difference here though is how the money flows.
Historically, subscribers to Netflix had to establish a billing relationship directly with Netflix, regardless of the platform they used to access it. With this new arrangement, Netflix billing is now handled by Apple’s iTunes store, meaning to the consumer, a separate billing relationship is not necessary with Netflix. Apple and Netflix have some type of billing relationship to ensure Netflix gets paid for Apple TV customers who access Netflix through iTunes.
That creates a very interesting relationship, worth noting. I’ve always felt that one key hurdle preventing OTT video from having an impact on the subscription pay-TV service was the billing relationships. OTT subscribers have to establish multiple billing relationships with multiple providers to access OTT content. Want Netflix content – pay Netflix. Want to add Hulu Plus to that, pay Hulu. Want an HD movie on demand from Vudu, then pay Vudu. Today’s customer needs to manage and track all of these different billing relationships. That’s a pain.
Contrast that with the one bill that is paid to the cable, DBS, or telco service provider for all of their video content. The billing clearinghouse function provided by traditional video service providers offers tremendous value to end customers.
OTT content providers have not historically offered that value. But as Netflix just demonstrated with Apple, it may be coming. Netflix is now pursuing cable MSOs for carriage partnerships. In so doing, they would probably surrender the billing relationship to their cable MSO partners, and begin to look like other cable channels, namely HBO, who Netflix sees as a main competitor.
The above cable MSO approach for Netflix is interesting. But a more interesting future, one that would have more competitive implications, is the emergence of an OTT subscription offer that also acts as the billing clearinghouse. An offer with one bill to pay for multiple OTT subscriptions. That looks more like today’s subscription TV model, and may entice more people to cut the traditional cable TV cord. We may have seen the first move in that direction, courtesy of Apple and Netflix.
It makes the widely rumored Apple TV launch, expected later this year, more interesting. Who better to offer this new OTT subscription service than say Apple, Roku, or Boxee? The device manufacturers seem to be in a better position to do this, than the traditional video service provider. Such a future may make cord cutting easier and more palatable to a wider audience.
