Apple is prepared to start selling TV shows for one dollar to build interest in its celebrated new iPad. Today, television shows on iTunes sell for $2.99, but Apple is hoping that the reduced price will either juice interest in its new shiny hardware and/or stoke overall TV episode sales.
But this is about more than TV. Apple is starting a small revolution in three big categories.
The first is with the e-reader market. Apple's competitive advantage in this world is not books -- Barnes & Noble and Amazon have been in the book business a lot longer than Apple -- but entertainment. To be successful to potential e-reader buyers, Apple will market the iPad as an all-encompassing entertainment hub that, oh by the way, can also read books. That means building an e-book platform but also the apparatus for consuming music, television, movies and forthcoming digital platforms. The e-reader world is responding. Amazon recently acquired a touch screen technology company and is rumored to be building a color screen in response to the iPad.
The second level Apple is testing is the TV market. Having revolutionized the a la carte music market by selling individual songs on iTunes, Apple is moving on to the a-la-carte television market by selling individual TV shows on iTunes for a dollar. This will be a fascinating move to watch because the TV market has long been the opposite of a-la-carte. On TV, it's all about bundling: cable charges viewers for access to thousands of shows at one flat rate. Even Netflix, which rents and streams TV shows and movies, charges a monthly fee for X number of rentals rather than charging individually for specific shows. People are used to paying for television, but (unless they've been downloading TV episodes from iTunes already) they're not used to paying for individual pieces of TV content. We'll see how this shakes out.
The third level Apple is challenging is the computer market. The Apple iPad is a simple personal computer. It can run Microsoft Word*, it can access the Web, and do other computery things. But the Apple iPad can't multitask -- not yet anyway -- so it cannot be a first-order work computer. The difference between the iPad and other personal computers -- and I think this is key -- is that most PCs are work machines on which you can procrastinate, whereas the iPad is an entertainment machine on which you can work. That's a big difference and the iPad's profit margin relies partly on consumers' willingness to move into the second category.
*As commenters point out below, Apple has not announced that the iPad will run Microsoft Word, only that it will be compatible with Word.
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