What Would Apple/Hulu Wrought?

And we thought Wednesday’s business-level announcements created tumult in the market!  Thursday was even more complicated, exciting, and potentially disruptive, and in addition may present even more widespread impact.

The story that Apple may buy Hulu is certainly the most disruptive of all.  Apple has been the major disruptor of the broadband market, by being the major driver of change in mobile broadband.  The company has also been the master of the “fenced garden”, the product ecosystem that’s closed enough to give Apple considerable control over leveraging all aspects of its revolutionary products without being blatantly anti-competitive.  So Hulu is clearly an intersection of these things, and to understand the problem it might pose we need only look at AT&T and Verizon, both of whom have reported.

AT&T and Verizon both demonstrated that their profits, revenue growth, and future depend not on wireline telephony, not on wireline broadband, but on wireless and television services.  The two companies gained in the last quarter totally on the strength of these two areas.  Apple could threaten both the areas, and at the same time, with a Hulu deal.  Where would Apple be likely to promote Hulu given Apple’s fenced-garden approach?  With iPhones and iPads, of course, but also with the hope of reigniting its Apple TV initiatives.  Mobile video not only generates more traffic for operators, it also represents a key element in any operator content monetization strategy.  If Apple, who is the largest single provider of appliances capable of delivering mobile video, launches its own approach it makes it much harder for the telcos to monetize video.  If Apple creates a strong multi-screen strategy around Hulu, i-stuff, and Apple TV, then there’s no real ground left for the telcos to attack.

But while Apple might logically push Hulu hardest within its chosen profit ecosystem, it can do other stuff too.  Hulu would almost certainly be added in some way to iTunes, even if the site also remained available independently.  That could promote iTunes more broadly for non-Apple users.  Apple could supplement the premium Hulu offerings with what it already has in the iTunes portfolio, too, and it would have more leverage to become a major provider of streaming video, and thus a major broad-level proponent of cord-cutting even for wireline users.  If Hulu does in fact become a foundation for a multi-screen approach, screen-switching could be added to Apple’s iCloud features, binding video and iTunes to the cloud.  Of course, Hulu apps would bind both to the iPhone and iPad.  Get the picture?  We have a growing media-based service complex.  We have what the operators hope to get with their own service-layer approach, but we have it quickly—which operators have been unable to realize.

Telco responses to cable competition were built around a simple principle; take the fight to the enemy’s homeland.  U-verse had one of its best gains ever in the last quarter, for example, and FiOS is a poster-child for telco TV.  Without these TV properties to value the access network, it’s hard to see how either company could sustain investment in consumer broadband—so it gets carried on a platform it could never hope to justify alone.  What then in the mobile space?  What’s the service that will make mobile profitable?  After all, telcos can’t expect at this point to become handset and tablet manufacturers to compete with Apple, so they can’t threaten Apple’s core base.  The truth is that services are all they have, their last hope.  The news yesterday only makes it crystal clear; without a service layer no access carrier can hope to show long-term revenue and profit gain.  There are no low apples left, only one high-flying one!



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