Disney to Apple: Disrupting TV Won't Be Easy

By Markets Fool.com

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Apple's streaming service will be available on its Apple TV set-top box. Source: Flickr viaJon Hume

As far as new products go, it appears Apple is going through a mini renaissance. Recently, the company released a new product line it simply calls MacBook to complement its MacBook Air and MacBook Pro models. Of course, the first entirely new product since Steve Jobs the Apple Watch is available later this month with preorders started April 10.

Operating under the radar, perhaps because it's a service and not a product, is Apple's rumored streaming-television service. Reported by The Wall Street Journal last month, the service aims to have roughly 25 channels and cost in the neighborhood of $30-$40 per month. Subscribers would be able to "tune in" to live television through Apple's various iGadgets: iPads, iPhones, and its set-top Apple TV box.

In streaming delivery, Apple enters a crowded market but has several differentiators. Unlike single-network streaming services HBO Now or CBS All Access, Apple TV will have numerous content providers and -- unlike Netflix, the service will be live streaming. As far as streaming services go, the most comparable in terms of features is Dish Network's Sling TV. But if a report from The Street is true, Apple's finding out how hard it is to operate in the pay TV industry, unlike the music industry the company disrupted earlier this century with little initial pushback from record labels.

A delicate balance with suppliers
According to The Street, Apple is running into negotiating problems with The Walt Disney Company in regards to the number of Disney-owned channels the new service will carry. Apple wants to keep its total channel count low while providing highly trafficked channels like ESPN and The Disney Channel, while Disney wants Apple to carry most Disney-owned channels.

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This problem may be new to Apple, but serves as a general microcosm of the pay TV industry. Providers like Comcast and Time Warner Cable are required to balance subscriber demands for low-priced services with content providers that want higher revenue through a combination of more channels carried and higher per-subscriber fees for each channel. Unfortunately for subscribers, the networks have generally won out and cable TV has increased at four times the rate of inflation, partly as a result of rising content costs.

A further complication
Further complicating matters is a certain antipathy to Apple's current model. For content providers, the current business model of expensive, bloated pay-TV packages has been rather good to them, enriching athletes, actors, network investors and CEOs, and now reality stars (see: Kardashian family's $100 million TV deal) at the expense of subscribers. Therefore the status quo to a "skinny bundle" is a threat to their business model especially if streaming options become popular replacements for conventional pay TV.

For the best example of programmers' antipathy to this model, look no further than Dish Network's Sling TV. After the service surprisingly received buy-in from a host of programmers, it was revealed that Dish has a cap of 2 million subscribers less than 2% of the U.S. pay-TV market. Unfortunately for cord-cutters, that number isn't large enough to start a mass defection to streaming delivery.

For Disney, it makes sense to play hardball in these negotiations with Apple. If all Disney Channels are included on Apple TV, the service becomes perhaps more profitable than its deals with conventional pay-TV operators. If that drives up the price of the service to where it no longer offers value that's fine too; Disney's been a huge beneficiary under the current pay-TV model with its ESPN fetching a record $6.10 per subscriber monthly fee. You can bet that Disney's not going to allow Apple to disrupt its profitable business model as easily asApple did to music less than two decades prior without a fight.

The article Disney to Apple: Disrupting TV Won't Be Easy originally appeared on Fool.com.

Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.