No Sex Please, We’re Apple: iPhone Giant Seeks TV Success

Tim Cook sat down more than a year ago to watch Apple Inc.’s AAPL 0.63% first scripted drama, “Vital Signs,” and was troubled by what he saw. The show, a dark, semi-biographical tale of hip hop artist Dr. Dre, featured characters doing lines of cocaine, an extended orgy in a mansion and drawn guns.

It’s too violent, Mr. Cook told Apple Music executive Jimmy Iovine, said people familiar with Apple’s entertainment plans. Apple can’t show this.

Across Hollywood and inside Apple, the show has become emblematic of the challenges faced by the technology giant as it pushes into entertainment. Apple earmarked $1 billion for Hollywood programming last year. But in the tone CEO Mr. Cook has set for it, whatever Apple produces mustn’t taint a pristine brand image that has helped the company collect 80% of the profits in the global smartphone market.

Apple’s entertainment team must walk a line few in Hollywood would consider. Since Mr. Cook spiked “Vital Signs,” Apple has made clear, say producers and agents, that it wants high-quality shows with stars and broad appeal, but it doesn’t want gratuitous sex, profanity or violence.

The result is an approach out of step with the triumphs of the video-streaming era. Other platforms, such as HBO and Inc., have made their mark in original content with edgier programming that often wins critical acclaim. Netflix Inc., which helped birth the streaming revolution, built its original-content business on “House of Cards,” a drama about an ethically bankrupt politician, and “Orange Is the New Black,” a comedic drama about a women’s prison. Both feature rough language and plenty of sex.

As a consumer-product company, Apple is especially exposed if content strikes a sour note, said Preston Beckman, a former NBC and Fox programming executive. For Netflix, the only risk is that people don’t subscribe, he said. “With Apple, you can say, ‘I’m going to punish them by not buying their phone or computer.’ ”

Apple has twice postponed the launch of its first slate of shows, moving it to March from late this year, agents and producers said. One leading producer with projects at Apple expects the date to be pushed back yet further.

Hollywood routinely humbles big companies that try to join its club. In 2014, Microsoft Corp. closed its Hollywood unit, Xbox Entertainment Studios, before it got off the ground. Coca-Cola Co. , which owned Columbia Pictures in the 1980s, found its success with “Ghostbusters” and “Stand by Me” was outweighed by expensive flops such as “Ishtar.”

Entertainment is “irrational and unpredictable,” said Peter Sealey, a consultant who led marketing for Coke’s Hollywood business. Apple excels at devices and Coke at soft drinks, he said, but “movies and TV are none of that. They’re emotional.”

Mr. Cook told analysts in July that Apple wasn’t ready to detail its Hollywood plans, but he felt “really good about what we will eventually offer.” The company didn’t make executives available for interviews for this article.

Hollywood is central to Apple’s strategy. As growth slows in the number of iPhones sold, Apple is trying to accelerate its services business, which includes the App Store, mobile payments and entertainment, including its music-subscription offering. It wants shows to support a video service on its TV app that could be bundled with subscriptions such as iCloud storage, said the people familiar with Apple’s entertainment plans.

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New Amazon Channels Data Shows Why Apple Wants to Copy It

Amazon has quietly become a major player in the subscription video sales business: Amazon Channels, the company’s platform for reselling subscription services like HBO and Showtime, now accounts for 55 percent of all a la carte direct-to-consumer video subscriptions, according to new data from The Diffusion Group (TDG).

53 percent of all consumers who don’t get HBO through their pay TV provider are purchasing it via Amazon channels, TDG estimated in a new report titled The Future of Direct-to-Consumer Video Services. Those numbers are apparently even higher for some of the other TV networks: 72 percent of Showtime subscribers get the network’s direct-to-consumer offering via Amazon Channels, and 70 percent of Starz a la carte subscribers receive it from Amazon.

The Diffusion Group arrived at these estimates by surveying a nationally representative sample of 2,000 adult broadband users. “We used an online panel comprised of several million double opt-in respondents, one of the largest in the country, and added multiple quality checks to best ensure accurate outcomes,” explained the company’s president and director of research Michael Greeson.

However, it’s worth noting that the relative size of these subscription services inevitably leads to small sample sizes, which can result in significant variation. HBO’s online service surpassed 5 million subscribers this year, while Showtime has more 5 million subscribers together with CBS ALL Access.

A Showtime spokesperson told Variety after the initial publication of this story that the percentage reflected in this survey for Showtime was significantly off, but declined to comment on Amazon’s actual share.

Amazon launched Channels as an add-on program for Prime Video subscribers at the end of 2015, and has since continuously grown the number of video services available through channels. The company also briefly experimented with selling its own niche video services through Channels, but gave up on that strategy earlier this year.

Sources at participating video providers have long told Variety that Amazon has become a massive reseller, easily outpacing Google’s and Apple’s app stores. The success of Amazon’s program also hasn’t been lost on Apple, which is reportedly looking to resell standalone video subscription services via its TV app on Apple TV and mobile devices. However, those plans may not materialize until next year, according to a recent Bloomberg report.

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Advertisers, Get Ready To Go Over The Top

by Bettina Hein

This will be the year the cable TV bundle dies a sudden death.

I know, the “TV is dying” cry has echoed time and again. But as audiences continue to consume content across online video, over-the-top (OTT) and TV, there will be increasing pressure for them to converge into a single integrated advertising buy – one that offers marketers an unparalleled combination of reach, targeting and audience data.

In the coming months, major online video and OTT providers, such as Google, Facebook, Amazon and Apple, will aggressively expand their streaming offerings to retain audiences and better serve advertisers. This will force at least one of the large cable TV providers to make a significant business model shift, such as developing an affordable streaming offering that is highly configurable to viewers’ tastes.

It’s been nearly a decade since Netflix and Hulu launched their initial OTT streaming services, just as many millennials were graduating from college and keen to avoid cable bills. This generation has led the way in the cord-cutting phenomenon; as of July 2016, nearly 40% of US millennial households relied solely on internet streaming and broadcast.

The OTT pioneers have continued to drive innovation, and as their market share grows, advertisers are taking serious notice. Roku’s recent partnership with media-buying behemoth Magna, which represents major brands such as BMW and MillerCoors, is a signal that mainstream advertisers are embracing the enhanced targeting offered by digital television, and they are driving those investments by shifting dollars away from linear TV.

Additionally, viewing options have proliferated: Amazon and Apple – neither of which have typically participated in the advertising supply side – are exploring ad-supported models for their robust streaming content offerings, Instant Video and iTunes. HBO Now has led cable networks in circumventing cable providers with direct OTT services, and traditional telecoms like Verizon have sought to bolster internet revenues through acquisition.

Of course, no one would expect the walled gardens to merely watch the OTT race stream by. Google, Facebook and Twitter have spurred shifts in viewing trends – as the distinctions between professionally produced and social content have eroded – and have built platforms designed to keep viewers consuming content within the walls for as long as possible.

The platforms spent much of 2016 addressing a key weakness in current OTT offerings: live viewing of popular events, ranging from presidential debates to Thursday Night Football and the Academy Awards. As the walled gardens’ live video capabilities become increasingly sophisticated, they’re creating more competition for linear networks by opening the distribution doors to brands and creators.

All indications point to social networks expanding heavily into OTT in 2017, with investments designed to appeal to consumers and advertisers alike. In the past few weeks, Google has revealed plans to improve YouTube ad performance by incorporating search history into targeting, while the financial community has openly speculated about an impending YouTube television service launch.

In the meantime, Google is partnering with broadcast networks seeking to get in on the streaming action and monetize their traditional TV content, like CBS’s forthcoming YouTube Unplugged live stream. While Facebook has kept its strategy closer to the vest, it’s reportedly building its own streaming TV app to encourage longer video viewing, and I expect moves from Facebook later this year – perhaps via an acquisition of an established OTT pure-play provider.

So what does this all mean? Viewers will increasingly take advantage of expanded live and traditional programming within their OTT platforms of choice, and cable providers will be forced to respond with a survival mechanism: the rollout of new streaming packages to counteract the drop-off in linear viewership and cable subscriptions.

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Apple Set to Launch Anti-Tracking Update for Safari

Apple’s ‘Intelligent Tracking Prevention’ will arrive on iPhones and iPads tomorrow as iOS 11 is rolled out, preventing third parties from tracking Safari users for more than 24 hours. The update will make life more difficult for advertisers reliant on third party data, as well as for the publishers who support themselves via these advertisers, and six trade groups have penned an open letter complaint against Apple in response.

The new anti-tracking technology, announced earlier this year at WWDC, will also arrive on the desktop version of Safari when macOS High Sierra is released later this month. Safari already blocks third-party cookies by default, but now cross-site tracking will be made more difficult, as websites will have cookies partitioned and deleted if users don’t return regularly to any website which tracks users.

Safari will identify, via machine learning, which domains have the ability to track users across the web. Any cookies stored by these domains will be usable in a third-party context for 24 hours, after which they will be partitioned: stored, but unable to be used in a third-party context. If a user hasn’t visited the original domain in 30 days, the cookies will be purged.

Apple has painted Intelligent Tracking Prevention as a tool for boosting user privacy. “It’s not about blocking ads, the web behaves as it always did, but your privacy is protected,” explained Craig Federighi, SVP of software engineering, at the announcement back in June.

But the advertising industry disagrees. Six trade groups, including the Interactive Advertising Bureau, the Association of National Advertisers, and the 4 A’s, called Apple’s approach “heavy handed” and “bad for consumers” in an open letter. “Blocking cookies in this manner will drive a wedge between brands and their customers, and it will make advertising more generic and less timely and useful,” they said in the letter. “Put simply, machine-driven cookie choices do not represent user choice; they represent browser-manufacturer choice.”

Apple retaliated, saying that the new technology protects users against tracking that is so pervasive it allows websites to “recreate the majority of a person’s web browsing history”. Many commentators however have pointed out that Intelligent Tracking Prevention won’t really affect big domains like Facebook and Google which users visit daily, but will mostly punish smaller publishers.

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The OTT Takeover

A few months back, the Streaming Media and Unisphere Research teams released a report on the current state of over-the-top (OTT) video. The report, “OTT Video Services—Innovation, Opportunity, Maturation & Technology Trends in OTT Delivery,” generated significant press around the idea that OTT viewing would exceed traditional broadcast TV viewing within the next five years.

While that projection was certainly interesting, what may have been missed in all the coverage of the report, which was sponsored by Level 3 Communications, is the fact that OTT viewing has moved from an also-ran position to one that arguably offers higher quality and more consistent delivery than traditional over-the-air (OTA) broadcast or even cable distribution.

This week, we’re presenting an updated version of the same report, as well as an accompanying infographic (see below or open in a separate window here) that illustrates a few of the key points about OTT’s hearts-and-minds campaign to displace tradition OTA and cable delivery.

The infographic highlights a few key differentiators between the nimbleness of OTT delivery options. One such point centers on the delivery of high-dynamic range (HDR) content: More than two-thirds of the respondents that offer OTT services signaled an intent to deliver in either deeper color depth (HDR) or higher frame rates (HFR).

While traditional broadcast is also moving towards 10-bit color depths, allowing for deeper blacks and brighter whites, the cost of implementing OTA broadcast gear is daunting—although, perhaps, not as daunting as the challenge of doing the same thing in cable distribution, since 10-bit delivery would require an update to infrastructure and cable set-top boxes

A few pieces of the HDR puzzle are falling into place, thanks to impending mass adoption of HEVC through operating systems—Apple’s macOS 10.13, also known as High Sierra, will support HEVC in its fall 2017 release—and upgraded internet streaming boxes such as the Chromecast Ultra.

A recent firmware update for a prototype Apple product, inadvertently released by the company on a public server, shows that an upcoming Apple TV product will support both 4K and HDR.

What’s interesting about the HDR options, as pointed out by iOS developer Gulherme Rambo in tweets about the new firmware’s references to the upcoming Apple TV device, is that multiple standards have emerged for HDR. The industry standard is HDR10 (for 10-bit delivery), but Dolby has also released Dolby Vision. In addition, it appears the upcoming device will also support Hybrid Log-Gamma, a royalty-free HDR standard developed jointly by the BBC and NHK as part of the advanced television standard (ATSC 3.0). (For a look at the competing HDR formats, see “The State of 4K and HDR 2017.”)

The fact that a relatively inexpensive internet streaming box can add in not just one but three HDR options should drive the point home clearly: OTT delivery is now the place to innovate, rather than relying on OTA innovation as had been done in years past.

Another trend the infographic highlights is a move towards multi-region delivery of OTT. While responses in past years had tended to balance between an equal number of survey respondents offering single-country OTT delivery versus regional or global delivery, this year’s responses show a marked shift away from single-country OTT offerings.

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Citi lists Netflix, Tesla as potential takeover targets for Apple

Citigroup listed seven companies as potential takeover targets for Apple Inc, including Netflix, Walt Disney and Tesla Inc, as a way to put its cash hoard of more than $250 billion to work.

With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for acquisitions or buybacks, Citigroup analyst Jim Suva said in a note to clients.

U.S. President Donald Trump’s tax blueprint, which was unveiled last month, proposes allowing multinationals to bring in overseas profits at a tax rate of 10 percent versus 35 percent now.

“Since one of the new administration’s top priorities is to allow US companies to repatriate overseas cash at a lower tax rate, Apple may have a more acute need to put this cash to use,”

Suva said.

The analyst is rated three out of five stars for his recommendations on Apple, according to Thomson Reuters StarMine.

The other potential acquisition targets include video game developers Activision Blizzard, Electronic Arts and Take Two Interactive Software as well as video streaming service Hulu.

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Is Spotify Going Bankrupt In 2017?

Wall Street is rejecting their IPO (again). A $1.5 billion debt pile is now a ticking time bomb. Major labels are taking 70+% of revenues. Is this the year that Spotify implodes?

Spotify is a damn good streaming music service. And they’re beating almost everyone at this game. That includes some of the largest companies in the world: Apple, Google, Amazon, and Microsoft. In fact, Spotify has double the number of paying subscribers that Apple Music has. Spotify may also have more customers than all of these competitors combined.

But at what cost?

Now, it looks like Spotify is postponing their long-awaited IPO. Again. According to details leaked by TechCrunch, the mega-streamer won’t be going public until at least 2018, thanks to continued Wall Street rejections. “The delay would give Spotify more time to build up a better balance sheet and work on shifting its business model to improve its margins,” TechCrunch reports.

“The financial climate has changed…”

A major problem is that Spotify simply isn’t making enough money. Go figure. They’re growing fast, but the underlying financials are rotten. “Three to five years ago, you could have an IPO based solely on user growth and promises of the future,” a TechCrunch source relayed.

“But the financial climate has changed now. Today you have to show some path to profitability, especially at the valuation that Spotify has been targeting.”

That might explain why Spotify is frantically trying to renegotiate its major label licenses. Currently, the company is paying at least 70% to the big three: Universal Music Group, Sony Music Entertainment, and Warner Music Group. According to data released last year, Spotify has paid a cumulative $5 billion in royalties since inception, none of which includes overhead, taxes, and guaranteed equity shares (if an IPO occurs).

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Tim Cook: TV Change is Coming

Apple doesn’t have a solid TV strategy yet. But CEO Tim Cook thinks he can see the writing on the wall—the much loathed cable-TV bundle is on its deathbed.

Speaking on the earnings call after Apple posted a record first quarter, Cook said (emphasis added):
The way that we participate in the changes that are going on in the media industry that I fully expect to accelerate from the cable bundle beginning to break down is, one, we started the new Apple TV a year ago, and we’re pleased with how that platform has come along. We have more things planned for it but it’s come a long way in a year, and it gives us a clear platform to build off of.

Apple is on the fourth generation of the Apple TV. It now has an app that makes recommendations across streaming-video services and has a universal search function; it is currently limited by only allowing you to find a program across a limited selection of third-party services, but it has the potential to become the online equivalent to a TV Guide for all programming. (The company is also developing a library of original content tied to its Apple Music subscription.)

Media experts have been forecasting the death of the traditional TV bundles for years (BTIG Research media analyst Rich Greenfield tweets with the hashtag “#goodluckbundle”)—and it hasn’t happened yet. But there has definitely been some movement, as Cook pointed out.

Popular cable networks like ESPN are losing subscribers because of unbundling, cord-cutting is becoming more common, TV brands like HBO offer their own subscriptions on platforms like Apple TV, and streaming services like Netflix are hitting member records.

So far, bundling hasn’t as yet disappeared in the US. It’s just taken on new forms.

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Facebook Tunes Into Television’s Market

The social network is developing a video-centric app for television set-top boxes, including Apple Inc.’s Apple TV, people familiar with the matter said, giving it a home for video content—as well as a new vehicle for video advertising.

The app is one of several Facebook projects aimed at making it a “video-first” company that can compete for television ad dollars. The social giant has been marketing its live-streaming capabilities, testing a new video ad product and integrating more videos into Instagram, its photo-sharing app.

Facebook is also in discussions with media companies to license long-form, TV-quality programming, people familiar with the situation said. A set-top box app would be a natural way to distribute that “premium” content and make it accessible on TV sets.
Facebook is already the second-biggest player in digital advertising, after Alphabet Inc.’s Google. But the social-media giant said last November that its main source of revenue, the news feed, was running out of room for more ads.

As a result, executives warned that revenue growth would “come down meaningfully” starting in the middle of this year. Facebook is due to report its fourth-quarter earnings on Wednesday, and analysts expect revenue to have increased 46%—the slowest rate of growth in five quarters—to $8.5 billion, according to Thomson Reuters.

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