Will Apple’s Spectrum Bet Pay Off?

I took some heat a few weeks back when I suggested AT&T’s move to cap bandwidth use by its 3G  data subscribers bolstered the case for adding support for removable media to the iPad. With the cost of wirelessly getting content onto the iPad increasing, I argued (to the scorn of some readers), Apple could do right by letting iPad owners side-load content downloaded on other devices to the tablet using SD cards or USB drives.

Whatever the merits of that case, Apple CEO Steve Jobs has stirred the issue of removable media anew with his response to an email query from a MacRumors user last week. The subject matter was regarding Blu-ray Disc drives on Apple laptops and desktops.

“Bluray [sic] is looking more and more like one of the high end audio formats that appeared as the successor to the CD – like it will be beaten by Internet downloadable formats,” he wrote.

After his questioner suggested it was the lack of DRM on MP3 files, at least in part, that made downloads take off, Jobs added:

No, free, instant gratification and convenience (likely in that order) is what made the downloadable formats take off. And the downloadable movie business is rapidly moving to free (Hulu) or rentals (iTunes) so storing purchased movies or TV shows is not an issue.

I think you may be wrong – we may see a fast broad move to streamed free and rental content at sufficient quality (at least 720p) to win almost everyone over.

So there you have it. Apple really, really hates the idea of removable media. Heck, it doesn’t even like the idea of local storage. As NewTeeVee’s Ryan Lawler points out, the next version of Apple TV will reportedly ship with only 16MB of on-board Flash memory. That pretty much rules out downloading and storing a lot of content on the device itself, let alone off-loading it to a Blu-ray disc.

Apple has gone all-in for streaming — perhaps from the cloud — as the primary means of getting content onto its devices. While that has distinct strategic advantages for the company — such as by locking both users and content providers into Apple’s platform — it’s not without risks, especially for users.

In addition to the rising end-user cost of wireless data consumption I noted in my earlier post, the total available wireless broadband capacity in the U.S. remains tightly limited. iPad owners will not be the only ones trying to use it either; the number of advanced mobile devices, not to mention the amount of content, is poised to explode over the next few years. Bandwidth constraints could be a serious drag on consumer satisfaction and content providers’ mobile ROI.

Last month, President Barack Obama signed a presidential memorandum seeking to make an additional 500 Mhz of spectrum available for commercial use by mobile broadband providers over the next 10 years. But that spectrum is far from in the bag.

Broadcasters are concerned some of it will come from their airwaves; cable and telco providers that have invested billions in their own wire-line broadband infrastructure over the past decade don’t want to see public resources handed to potential competitors. Both are fighting the initiative at the Federal Communications Commission. Congressional approval is also needed for some elements of the president’s proposal. Given the current political climate in Washington, this is far from a sure thing.

Yet without that additional spectrum owners of Apple wireless devices may find themselves using Wi-Fi a lot more than 3G. In short, Apple seems to be making a very big bet, in its own business and on behalf of its users: that the current and looming constraints on wireless bandwidth, somehow, will resolve themselves in reasonably short order.

So what does Steve Jobs know that the rest of us don’t about how all this will play out?

Question of the week

Is Apple betting too much on cloud-based streaming?
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Paul Sweeting

Principal Concurrent Media Strategies

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3 Comments Subscribers to comment

  1. I really love netflix inetgration on the Xbox 360 but it isn’t always reliable. I have media on a server that can stream to my TV or my mobile Apple devices (thank you air video) so easily that my wife can even run it all.

    There are a lot of benefits to streaming content but it doesn’t mean storing copies on your own drives is going to die. If I stop paying for netflix I lose all access, where I can watch my own stuff whenever I want without extra costs.

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  2. Interesting stuff, Paul. With AT&T and (soon) Verizon killing all-you-can-eat data, it will be very interesting to see how data consumption is affected. I think carriers will have to make it very easy for consumers to access content (via Wi-Fi, femtos, etc.) without paying out the nose if cloud-based streaming on mobile gadgets is going to gain much traction anytime soon. But unless carriers are involved in the content revenue stream, there isn’t much incentive for them to do so.

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    1. I agree Colin. There’s a huge question hanging out there regarding carriers’ participation in the content revenue stream. And I don’t get the sense that the content guys have really grappled with it yet. If you look at the announcements coming out of DECE (now Ultraviolet) they never mention it, and no carriers are members of the group.

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