Deutsche Bank Discusses The Implications Of An Apple Pay TV Service

In a report published Wednesday, Deutsche Bank analyst Bryan Kraft discusses several implications of a potential

Apple Inc.AAPL

pay tv service.

Are Media Companies Playing With Fire?
Kraft noted that the answer to such a question lies in whether a new pay TV bundle is cannibalistic or additive to pay TV profit pools on a net basis. At this time, the programmers believe that Apple's pay TV service (along with Sling TV) could be an opportunity to monetize some of the approximate 18 million TV households that do not currently subscribe to a pay TV service. According to Kraft, "unchecked cannibalization" of pay TV by skinny bundles would create challenges for all of the TV-focused media companies, although some more than others, because the big bundle underpins the economics of most of the industry.

Reaction To Consumer Demand

Kraft pointed the obvious that "no one wants all the channels, everyone wants all the channels they want" and that basic and Family packages have not attracted many subscribers historically. The analyst added that this is unlikely to change much just because a service is streamed instead of broadcast. Kraft continued that the industry's hope is that pay TV profit pools will increase through growth in pay TV subscribers, then up-sell of some of these subscribers to bigger bundles. This is akin to Sling TV service that attracts consumers to a $20 price point with no equipment installation or contract; but then up-sells to "Extra" packages.

A positive For Advertisers
Kraft stated that a digital streaming model would make TV advertising a better business because programmers could sell targeted, dynamic ads into both live TV and content consumed on-demand. Advertisers could potentially use Apple's data for targeting, and commercial viewing would increase based on the assumption there would be no DVR to enable commercial skipping.

Bottom Line

Kraft suggested that an Apple TV service is unlikely to be a meaningful profit opportunity for the company given the programmers will likely take the "lion's share" of the economics. An Apple TV could also lead to an opportunity for programmers to also sell to

Google Inc.GOOG

The analyst indicated that programmers would feel less threatened by Apple's hardware focus than Google's advertising intentions.

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Are Media Companies Playing With Fire?

A positive For Advertisers

Bottom Line