Apple has enjoyed great success with iTunes in part because it adopted the purchase-to-own model that had been so successful with CDs and records before them. However, Apple didn't simply mirror that model. By allowing consumers to purchase the vast majority of songs as singles, it provided better perceived value, Such an option was also a natural fit for the iPod, where playlists made it trivial to create the digital equivalent of "mix tapes." The iPod's capacity for thousands of songs was also no match for most albums that typically had a dozen or so songs.
When Apple moved into movies with iTunes and then Apple TV, it first stood fast to the purchase-to-own business model that had worked for music. But as it launched the second major release of the Apple TV software, it acknowledged the popularity of rentals. Again, Apple merely offered a means of consuming media familiar to what consumers had adopted at video rental stores and video on demand. And again, the move complemented Apple hardware, in this case Apple TV, which brought iTunes movies to their best consumption environment within the home.
In addition to the more than 12 million songs and 8,500 movies Apple now offers through iTunes, it has a catalog of more than 55,000 TV show episodes. And just as music has the pocketable iPod and movies have the big-screen capable Apple TV, Apple is on the verge of releasing a device that is a perfect match for them in iPad. While the company played up the slate's content convergence capabilities at the iPad's launch, video remains the medium at the intersection of popularity and purpose for the iPad -- as Switched On discussed last April. No 3G? No Flash support? No interest in reading? No gaming skills? No problem.
Apple is about to ship a device that could redefine the TV set. Now it just needs to redefine TV service.
But to really exploit the TV-on-iPad opportunity, Apple needs to again optimize its content distribution model. By creating an unlimited option for TV show rentals, Apple could not only compensate for the current lack of Hulu on the iPad, but position for a competitive edge against Hulu's future, which is likely to include HTML 5 and subscriptions. It has been said that Apple has an aversion toward subscriptions, but the company offers two of its own in MobileMe and AppleCare, and the success of cable and satellite providers as well as Netflix provide ample evidence for consumer's acceptance of TV subscriptions.
Once again, Apple would be doing no more than offering the dominant consumption business model, but optimized for one of its platforms. Furthermore, the company would have incredible pricing leeway given that open access to the iTunes buffet would include many of the advantages of a DVR subscription. And if Apple really wanted to avoid subscriptions per se, it could offer pre-paid access as it has for 3G on the iPad, with a lower fee offering a limited number of TV episode rentals per month and a higher number offering unlimited rentals during the month.
One open question, of course, is whether networks would agree to such a plan given potential coercion by cable companies that account for the overwhelming majority of their income. Indeed, there would be both similarities and differences when compared with the Hulu-on-Boxee conflict. But at least Apple, unlike Hulu, isn't owned by the studios, and so is therefore less likely to bow to their whims so readily -- as NBC likely well remembers. And Apple has vast financial, legal and lobbying resources that make it a far less vulnerable competitor than Boxee.
Finally, with a TV show rental plan, Apple could certainly continue to sell TV shows a la carte as it does with songs and movies. Some might opt for this as an alternative to purchasing TV shows on DVD. And faced with this new option, that business would likely be cannibalized. But the overall effect would be to greatly expand the appeal of using iTunes for TV as something other than a hangover remedy, easing the pain for those who forgot to set their DVRs, or the forgettable bit breeder filling the hard drives of avant garde cable cord-cutters. Apple is about to ship a device that could redefine the TV set. Now it just needs to redefine TV service.
Ross Rubin is executive director of industry analysis for consumer technology at market research and analysis firm The NPD Group. Views expressed in Switched On are his own.