Using BATNA to Create Leverage

If you're trying to gain concessions or get a better contract price, raise the value of your best-alternative-to-negotiated-agreement, also known as BATNA. Apple seems to be doing this with the Apple TV. Some quick thoughts:

  1. Apple is creating an Apple TV app store with interactive, subscription-based sports content apps from MLB and possibly the NFL. This creates a way for sports content providers to reach their audience directly, without licensing the content to a cable sports network like ESPN. This kind of distribution alternative improves the value of Apple, MLB, and the NFL's BATNA relative to ESPN, which has historically aggregated sports content and made it available through ESPN's cable channel. As Apple aggregates interactive, subscription-based sports apps from content providers like MLB and the NFL, and the audience for these apps grows, Apple's BATNA improves while ESPN's BATNA declines.
  2. The Apple TV app store makes Apple an aggregator of interactive app content, or content that can be manipulated by the app software infused into this content, versus static television content that cannot be manipulated. Aggregated, interactive app content increases Apple TV differentiation. The content specificity enabled by the Apple TV app store and by convenient/fluid Siri search also disaggregates cable channel aggregators like ESPN. ESPN provides an aggregated sports "buffet" rather than only covering specific sports like MLB or the NFL.
  3. The Apple TV app store will draw user time/attention away from the cable networks, likely hurting television ad sales.

Apple's efforts create pressure on cable networks to negotiate with Apple, as the value of the networks' BATNA -- preserving cable channel aggregation and/or the current system of lucrative affiliate fees that networks receive from cable companies -- goes down, while the value of Apple's BATNA -- a varied offering of subscription-based, interactive/specific app content -- goes up.

Given these dynamics it seems likely that major cable networks like ESPN and Disney will eventually offer interactive, subscription-based content apps through Apple TV. And the outcome probably won't be all broad-based, buffet style content apps or all highly specific content apps: a subscription-based ESPN app will likely exist alongside a more specific, subscription-based MLB or NFL app. Users will have more than one choice, depending on the job-to-be-done. Casual sports fans might prefer the ESPN app while hardcore baseball fans might prefer the MLB app.

I should say up front, I could easily be wrong about all of this. There are strong structural impediments to the changes detailed above, as noted by Ben Thompson at stratechery.com. Only time will tell.

The author owns stock shares of Apple.