Apple Is Talking to TV Companies About a Deal That Could Change TV Forever

[Steve Williams]

By Henry Blodget | Daily Ticker

Remember a few months ago, when everyone was hyperventilating about the forthcoming Apple TV?
This was the magical "sheet of glass" powered by Siri that Apple was going to start selling for twice the price of a regular TV.
Apple was going to go do big deals with the TV content companies, disrupt the cable companies, and drive its stock straight to $1,000 by revolutionizing the TV business.
Well, no one talks about the Apple TV anymore.
We're not sure why.
We doubt it has been shelved completely. (We hope not, anyway). Maybe it has just been eclipsed by the iPhone 5 and iPad Mini.
But now Jessica Vascellaro and Shalini Ramachandran of the Wall Street Journal bring news that might explain the recent silence about this exciting new Apple product line.
Apparently, Apple has been meeting with cable TV companies recently pitching a new idea:
A cable set-top box that is built or at least powered by Apple technology.
This would presumably either be sold directly, via Apple stores, and replace cable customers' current cable boxes. Or it would be bought by the cable companies and rented to subscribers, the same way cable companies rent today's set-top boxes.
The advantages to this sort of deal for Apple are obvious:
Immediate access to live TV content that consumers are already paying for (and that, otherwise, Apple would have to license directly from networks)
A clever way of getting into the living room and TV ecosystem, without forcing consumers to change their TV-watching habits or TV providers or buy another set-top box
The same sort of "carrier subsidy" arrangement that has helped sell so many iPhones
The seamless convergence of today's TV with the future of TV, which is streaming and stored media delivered through iTunes, the Internet, etc.
It would set Apple up to gradually gain more leverage over the cable companies--until the day when Apple has enough households worldwide that it can go direct to the networks and render the cable companies dumb pipes.
All that would be excellent for Apple. And the technology could be incorporated into the Apple TV hardware (the "sheet of glass") and help Apple sell millions more TVs.
Of course, the cable companies aren't stupid.
They know exactly what Apple wants to do to them.
And although there are advantages to this arrangement for the cable companies, too--namely, they could insert themselves into the "new TV" ecosystem from which they are currently excluded (content delivered over the Internet), and perhaps get a cut of sales--they also might be helping bring about their own demise as the gateway to TV.
(The cable companies have a viable future, regardless of what happens to pay TV, because they're now the country's primary Internet access provider. Consumers need broadband access desperately--it has become as important to daily life as electricity--and cable companies can make a nice living off that alone. And they can make an especially nice living off it if, say, they were to share some of the revenue Apple generates from iTunes and TV sales).
In any event, there's a lot at stake for both sides here, so these will be tense negotiations.
But it might be that there's enough "win-win" potential that deals can get done.
And there's another thing to think about here.
Don't forget that Google just bought a company that makes set-top boxes: Motorola.
Don't forget that Google has its own designs on the TV business (Google TV).
Don't forget that Google is, even now, launching a full-fledged cable TV killer in Kansas City, with possible plans to roll out more super-high-speed broadband services elsewhere.
So it's a reasonable bet to think that Google also wants to become your cable set-top box.
That adds another motivation for the cable companies to negotiate with Apple. And it provides a motivation for the cable companies to negotiate with Google.
And then Amazon's also hanging around, with its own movie and TV streaming service. And Netflix. And Microsoft, which still hopes to leverage the XBox into the nerve center of your living room.
And then there are the cable and broadcast networks themselves--the content providers--who are watching their ratings tank as their audience moves to the Internet, phones, iPads, and "over-the-top" new TV services. The networks don't want to see their business models collapse. So it seems a safe bet that they'll want to stay in close touch with these negotiations, too.
Bottom line, it seems as though the future of the TV business is, finally, about to take a big step forward.
We're on the edge of our seats!

 

[Phelonious Ponk]

It's way past time. And if the cable companies don't get on board they will get cut out of content altogether. They'll be a "dumb pipe." With Netflix, Hulu, iTunes and so many other streaming options, the days of paying $100 a month for a cable package to get to the $30 worth of programming most us use are numbered. The cable companies will find a way to get in, or the streaming companies will find a way to get the programming without them.

It may or may not be Apple, but it will be.

Tim

 

[audioarcher]

With the technology we have now there is no reason not to have everything available online. The powers that be are the only thing getting in the way. I'm sure most content will be online eventually. It's anybodies guess who will control the market. Unless you have some insider knowledge. I don't think our free market is as free as we would like to believe.

 

[audioarcher]

The cable tv providers do have the widest coverage and best internet service. At least in my area. Based on that I think they will survive loosing tv customers to the internet. They will definitely loose a lot of revenue though. When someone figures out how to send very high bandwidth wireless reliably their days are numbered.

 

[docvale]

The idea to have a single machine (for example, produced by Apple) which, either integrated in a TV set or sold as a separate box, might allow you to access cable-TV, access normal TV channels, access Netflix and other streaming providers, access - through iTunes (and, ideally, supporting softwares such as Pure Music or Amarra) - music libraries, access internet radios, allow DVR, would be very interesting.

There would be a single machine, for the entire A/V digital entertainment, which might allow, through a single USB cable, to integrate any kind of modern entertainment with an audio reproduction system.

 

[Phelonious Ponk]

The idea to have a single machine (for example, produced by Apple) which, either integrated in a TV set or sold as a separate box, might allow you to access cable-TV, access normal TV channels, access Netflix and other streaming providers, access - through iTunes (and, ideally, supporting softwares such as Pure Music or Amarra) - music libraries, access internet radios, allow DVR, would be very interesting.

There would be a single machine, for the entire A/V digital entertainment, which might allow, through a single USB cable, to integrate any kind of modern entertainment with an audio reproduction system.

The machine is called a modem hooked to a big pipe. The only thing standing in the way is the business model (well, there's the FCC) to support it. Make providing direct internet access as profitable as a signing contract with a cable network for the producers of the programming and the deed is done. And so is cable TV.

Tim

 

[amirm]

The article is simple speculation. There are no quotes from any insiders. As such, I would not put much weight on it. Sure, as consumers everyone would want a bargain, getting their programming for less with AppleTV. But just because I wish I could buy a new BMW for the price of Honda Civic, it doesn't mean someone will offer it . The system of channels and cable carriers is baked solidly with the content owners. Unlocking that is beyond simple wishes.

The only thing that may be going on here is doing what Carriers are doing which is to allow *existing customers* to use other terminals to access their bits as has been done with Panasonic STBs and Xbox. That reduces their costs and they still get their subscription dues.

 

[docvale]

To me the idea of having a single unit which works as a crossover between a computer and a cable-TV set, allowing to have all the functions of the separate components, which sends A/V signals through HDMI and audio-only through USB is very appealing. Whether it will be by Apple or whoever else.

It's not better. It's just simpler. And I don't think we have any.

 

[Phelonious Ponk]

The article is simple speculation. There are no quotes from any insiders. As such, I would not put much weight on it. Sure, as consumers everyone would want a bargain, getting their programming for less with AppleTV. But just because I wish I could buy a new BMW for the price of Honda Civic, it doesn't mean someone will offer it . The system of channels and cable carriers is baked solidly with the content owners. Unlocking that is beyond simple wishes.

The only thing that may be going on here is doing what Carriers are doing which is to allow *existing customers* to use other terminals to access their bits as has been done with Panasonic STBs and Xbox. That reduces their costs and they still get their subscription dues.

I'm not wishing for a bargain, just options; specifically the ability to purchase the programming I want instead of buying packages full of stuff I don't want. iTunes vs. albums full of filler. And yes, the content providers and cable carriers are locked in contracts. And a lot of people are going around them, myself included. You guys tell me what the best series on TV are, I try an episode or two on Netflix, Hulu, iTunes...when I find something I like, I watch the whole thing, sometimes spending weeks watching 4 or 5 seasons of a great series (just did it with Breaking Bad, then switched over to iTunes when I got to this season). I never watch regular TV anymore. Neither does my son. If my wife could break her Lifetime habit, we could fire the cable company and never miss it. $99 a month for bad chick flicks. I'm sure I'm not the only person in America doing this. I gotta believe the numbers are growing.

Tim

 

[docvale]

Tim,

I see your point. In my case, I've never had cable TV and my Netflix subscription is more than what I need. To me it's even impossible to watch more than a TV show per time: too time consuming.
But the thing changes for many other people: just think about families with kids. In that case, a larga variety of programs is a must.

I doubt that Apple, or whoever else, will break the philosophy of the packages (unless they'd less individual "events" at outrageous prices). Packages are convenient for the companies, and they rule. Some of them even reduce the quality of the service in favor of price increase (e.g., AT&T and data plans for smartphones).
What a "concept" company like Apple might introduce instead in a bridge device, something which might reduce the number of the boxes and remotes we had around, while switching from live TV (aren't we watching sports, sometimes?), to a streaming archive, to pay-per-view, to personal archives of movies or music.

 

[amirm]

I'm not wishing for a bargain, just options; specifically the ability to purchase the programming I want instead of buying packages full of stuff I don't want. iTunes vs. albums full of filler. And yes, the content providers and cable carriers are locked in contracts. And a lot of people are going around them, myself included. You guys tell me what the best series on TV are, I try an episode or two on Netflix, Hulu, iTunes...when I find something I like, I watch the whole thing, sometimes spending weeks watching 4 or 5 seasons of a great series (just did it with Breaking Bad, then switched over to iTunes when I got to this season). I never watch regular TV anymore. Neither does my son. If my wife could break her Lifetime habit, we could fire the cable company and never miss it. $99 a month for bad chick flicks. I'm sure I'm not the only person in America doing this. I gotta believe the numbers are growing.

Tim

As I mentioned, it is a given that the consumers want this. Question is, what would a cable channel which today gets $1.50/subscriber whether any of them watch that channel make a living tomorrow when they are unbundled. Some are taking that chance and going direct online. Most are happy staying put until the next guy who has to run the company decides to risk his executive bonus to take that gamble .

 

[Steve Williams]

As I mentioned, it is a given that the consumers want this. Question is, what would a cable channel which today gets $1.50/subscriber whether any of them watch that channel make a living tomorrow when they are unbundled. Some are taking that chance and going direct online. Most are happy staying put until the next guy who has to run the company decides to risk his executive bonus to take that gamble .

How did that Dickens novel A Tale Of Two Cities start...

"it was the best of times, it was the worst of times"

 

[audioarcher]

As I mentioned, it is a given that the consumers want this. Question is, what would a cable channel which today gets $1.50/subscriber whether any of them watch that channel make a living tomorrow when they are unbundled. Some are taking that chance and going direct online. Most are happy staying put until the next guy who has to run the company decides to risk his executive bonus to take that gamble .

Good point.

If the networks actually had some pressure on them to have good programming we might get some decent content for once.

I don't really see a need for TV channels any more. All we need is content on demand like Netflix works. This of course is not in the best interest of the networks or cable/dish tv providers as well as the advertisers.

 

[Phelonious Ponk]

As I mentioned, it is a given that the consumers want this. Question is, what would a cable channel which today gets $1.50/subscriber whether any of them watch that channel make a living tomorrow when they are unbundled. Some are taking that chance and going direct online. Most are happy staying put until the next guy who has to run the company decides to risk his executive bonus to take that gamble .

Yep. Like I said, it's just awaiting a profitable business model. And I don't really expect it to come from the cable companies. The parallel with the record business is an illuminating one. They're forcing people to pay a premium for a bunch of filler they don't want, in order to gain access to the stuff they do want. It is not a customer-focused model, and sales/business models not designed to meet customer needs usually only last as long as it takes for something better to come along. If someone figures out how to make money unbundling programming, they will be able to do much of what Apple did with music. The cable networks could prevent it, or at least put it off for a long time by getting pre-emptively competitive -- offer custom packages at competitive prices -- the 5 networks you want (+ local channels) for $50 a month instead of 80 for $100 a month.

But I don't think they will. I think they'll look at that and see revenue loss, margin erosion instead of an opportunity to save the industry from near extinction. I think they'll hold on to their existing business model while someone else invents the new one. I'd love to be wrong. Give me one news channel, 4 movie channels and the locals (they have to throw these in or I'll just get them myself with a $50 digital antenna), at a fair price and I'd stop looking for ways to cut them out. But currently it's a horrible value for me, and most people, and it is very easy to see that. They are very vulnerable whether they know it or not.

Tim

 

[kach22i]

Remember a few months ago, when everyone was hyperventilating about the forthcoming Apple TV?

First posted back in August, it's now November and at breakfast yesterday some people (the waitress and cook at a small diner) brought this topic up.

Apparently there must be something new being buzzed about.

 

[audioguy]

Yep. Like I said, it's just awaiting a profitable business model. And I don't really expect it to come from the cable companies. The parallel with the record business is an illuminating one. They're forcing people to pay a premium for a bunch of filler they don't want, in order to gain access to the stuff they do want. It is not a customer-focused model, and sales/business models not designed to meet customer needs usually only last as long as it takes for something better to come along. If someone figures out how to make money unbundling programming, they will be able to do much of what Apple did with music. The cable networks could prevent it, or at least put it off for a long time by getting pre-emptively competitive -- offer custom packages at competitive prices -- the 5 networks you want (+ local channels) for $50 a month instead of 80 for $100 a month.

But I don't think they will. I think they'll look at that and see revenue loss, margin erosion instead of an opportunity to save the industry from near extinction. I think they'll hold on to their existing business model while someone else invents the new one. I'd love to be wrong. Give me one news channel, 4 movie channels and the locals (they have to throw these in or I'll just get them myself with a $50 digital antenna), at a fair price and I'd stop looking for ways to cut them out. But currently it's a horrible value for me, and most people, and it is very easy to see that. They are very vulnerable whether they know it or not.

Tim

Tim: I am with you all of the way. I believe it will occur but the cable companies will go (many out of business) screaming and dragging their feet all of the way. There are so many examples of companies (Company A) who had almost monopolies, other companies came in (Company B) , with a different model, slowly at first, and the next thing they knew, Company A is filing Chapter XX. Blockbuster comes to mind as Netflix had a better model and Blockbuster responded WAY WAY too late. Blockbuster literally owned the home video distribution business and now ..... It will happen to the cable companies for sure.

And I'm also with you on not being a TV watcher. Provide me a TV package of football, some other sport programing and a few others channels, and I'm good. To get that today, on 4 TV's (with DirecTV) costs about $110 per month.

If I were one of the larger cable/satellite providers, I would find a way to work with Apple (or whoever) and strike the deal so that Apple (or whoever) had no way to cut me out --- and then let the other cable providers fight their own way to survival.

 

[amirm]

Another analyst recently mentioned this rumor about Apple building a TV again so it is in the press once more. I am no longer hopeful they will do anything here.