How Apple botched its TV expansion deals

By PON Staffon / Business Negotiations

Successes & messes

In recent decades, Apple often found success by charging headfirst into unfamiliar industries, from book publishing to music to mobile phones, and disrupting their longstanding business models. In the early 2000s, for example, the company’s cofounder, Steve Jobs, pressured music labels into replacing their model of selling $15 CDs with the practice of selling songs online for just 99 cents each. And when the iPhone launched in 2007, Apple convinced wireless carriers to drop carrier-specific software features to make Apple’s product more user-friendly.

So when Apple decided to take its Apple TV initiative to the next level, it wasn’t a surprise that the company tried to convince leaders in the media industry to replace their usual ways of doing business with some unconventional proposals. But this time, under the leadership of Apple executive Eddy Cue, the company’s aggressive negotiating strategy has so far led to a series of dead ends, as Shalini Ramachandran and Daisuke Wakabayashi reported in the Wall Street Journal in July.

A bigger bite out of TV

For years, Apple referred to its Apple TV streaming box, which allows users to stream content from other providers, as a “hobby,” according to Apple’s TV business generates just over $1 billion in sales, a sliver of the $233.72 billion Apple earned in its latest fiscal year.

But with sales of the iPhone in decline, the company has become eager to beef up its TV business in recent years. In 2009, Apple tried to entice media companies to contribute broadcast channels to its service by offering above-average industry fees, but they balked when Apple would take only some of their channels.

In 2011, Apple tried to reach deals with cable companies Comcast and Time Warner Cable for joint TV services. But Apple asked for too high a payment from subscribers ($10 per month) and was reluctant to share details about its proposed interface, sources told the Journal.

Two years later, a new series of meetings with Time Warner got off to a rocky start when Cue reportedly showed up 10 minutes late to a meeting at the cable company’s Manhattan offices dressed in jeans, a Hawaiian shirt, and tennis shoes with no socks. Apple’s aggressive demands at that meeting and other meetings that followed—such as saying that viewers should be allowed to skip ads in newly aired shows—led TV channel owners to wonder whether “the Apple guys” had “any idea how this industry works,” one former Time Warner executive told the Journal.

One cable-industry executive summed up Cue’s strategy as simply saying, “We’re Apple.” Another explained to the Journal that the TV industry was comfortable saying no to Apple because it didn’t need a “white knight to come racing in” the way the music industry had.

More unfruitful talks

In early 2015, Cue began pitching to media companies such as Disney, Fox, and CBS the idea of putting together a “skinny bundle” of about 25 channels that would include full current and past seasons of their hit shows.

Cue reportedly made unheard-of demands of Disney, including freezing the monthly rate-per-viewer Apple would pay to license Disney channels, such as ESPN and ABC, for several years. In the world of cable TV, channels rely on annual rate increases to drive profits, the Journal reports. Disney and other companies reasoned that if they agreed to Apple’s demand, traditional cable-TV distributors would pressure them to make similar deals. Once again, talks broke down.

Apple tries to go Hollywood

Following this string of failed negotiations, Apple was unable to announce a streaming TV service when it launched its newest Apple TV set-top box in September 2015.

Apple is now focused on revamping its TV device to allow TV networks and other companies to develop apps, and it’s also hoping to broaden its lineup of original programming. The company has begun meeting with Hollywood executives about creating high-quality shows and perhaps premiering them on Apple’s iTunes.

But those talks may also be off to a rocky start. Hollywood executives reportedly were “bemused” that Apple sent a little-known producer as a middleman to negotiations that typically would involve high-level players from all sides, according to the Journal.

Lessons learned from Apple’s hard-charging style:

Study industry practices. When negotiating in an unfamiliar industry, take time to learn about its dealmaking practices and standards. When you propose an alternative model, it shouldn’t just be because it would help you. Rather, you need to be able to compellingly explain what advantages the new model would offer your counterpart over the prevailing one.

Fulfill cultural norms. Norms surrounding meetings—such as what’s appropriate to wear, who should attend, and whether punctuality is important (hint: It almost always is)—can vary from one industry and culture to the next. When meeting someone for the first time, research the norms and expectations of her organization and industry so that you can make a great initial impression.

Analyze power levels. If an aggressive approach worked for you in one negotiation, don’t assume that hard-bargaining style will automatically transfer to negotiations with other organizations. Apple’s disruptive mentality was effective in industries that were desperate to innovate. The TV industry, by contrast, is not in such dire straits and had less of a need to do business with Apple. Thus, it gained bargaining power from its ability to walk away.