Losing a DTC opportunity

"Apple may serve as a distributor for many of these OTT services, possibly leading viewers to reorient and interact with their subscriptions through Apple TV, rather than the providers’ owned-and-operated apps." -Daniel Taitz, COO, Penthera

Direct-to-consumer brands have revolutionized the marketing landscape over the past few years, upending established industries like mattresses, eyewear, fashion and razors. While they don’t often get lumped into the DTC craze, streaming services from Netflix, HBO, CBS, Starz and Showtime have also bypassed traditional models to give consumers direct access to programming. These direct relationships give providers access to viewership data and insight into what and how people watch. Netflix has built a reputation as being ruthlessly data driven, using insights to dictate what content they create and license and how it gets marketed.

However, with the debut of Apple’s TV+ platform, the game stands to change. Apple may serve as a distributor for many of these OTT services, possibly leading viewers to reorient and interact with their subscriptions through Apple TV, rather than the providers’ owned-and-operated apps. This remains a possibility more than a certainty, as Netflix has resisted joining Apple’s launch. And big questions remain for those who have signed on: just how much control will the networks cede to Apple, and is there value in a cable-like structure after tasting direct-to-consumer relationships?

Amazon Prime has already built a similar platform, offering the ability to trial and subscribe to HBO, Starz, and CBS All-Access directly through their Prime Channels service. So users can, for example, pay $14.99/month to Amazon Prime to gain access to HBO’s content—without leaving the Amazon app or downloading HBO’s app. Just as the structure of Apple TV+ is unclear, we don’t know what exactly the content providers get from the relationship with Amazon beyond discovery on Prime’s platform and presumably most of the $14.99 monthly revenue.

They likely get, at the very least, a boost in subscribers. Starz’s COO Jeff Hirsch said earlier this year that his company’s relationship with Amazing Prime has gone very well. “We’ve been very successful in terms of driving customers to their platform, and they’ve been great partners in helping us grow digitally,” he said.

But does that increase in distribution of their content come at a cost? Does Starz (or any of Amazon Prime’s Channel partners) get access to viewer data? If Amazon and not its streaming partners get viewing information from all its Channel partners, Amazon will have secured a significant competitive edge.

Back in Cupertino, assuming it is able to make the Apple channels program attractive to other services, there’s the question of how users will benefit from a service like Apple TV+. Apple will, at least initially, benefit from the ubiquity of its devices and its brand cache and mindshare with consumers. But the honeymoon certainly has a shelf life, unless they stick the landing with all three key ingredients for a successful streaming video offering: content, quality of experience and discoverability.

Despite its legacy brand stature, content is the first thing that Apple TV+ has to get right, both on an original programming level as well as licensing and enabling access to other services’ content. To succeed, they must strike the right balance to drive maximum benefit for customers, streaming partners, and the company itself. Apple has yet to demonstrate the ability to produce any popular originals, let alone at a scale that would be needed to populate a Netflix/Amazon competitor. Plus, well established streaming services already well onto cracking the code on consumer loyalty may be wary of ceding their brand relationships with these consumers on any level. Apple remains non-committal on this question.

Given the increasing pace of innovation in this space, Apple will also need to create a compelling user experience in the race to win the streaming video consumer’s loyalty. Here, Apple boasts an impressive track record of creating devices that consumers love. But can they replicate the Midas touch they have shown with consumer devices? Having all your content in one place isn’t enough of a benefit to make Apple TV+ compelling. In fact, users already have their content in one place: their mobile device. Switching between apps to watch different shows and movies is probably not a huge pain point for users, so Apple will need to solve other user experience problems to stand out in the crowded field of streaming apps.

They are after all joining a race in progress, as streaming providers work to enhance their media viewing and consumption options and environments -- innovating for everything from content discovery, to streaming quality factors, from slick utility to the ability to watch offline. They’d be wise to prioritize innovation in these other areas, sooner than later, as they imagine the ultimate interface, utility and portability for consumers.

Penthera is a global software company that develops and deploys products to help OTT providers improve the mobile video experience and drive business results.