Cable Operators

Behind Apple's TV Mystery

Why the Iconic Tech Brand Has The Television Industry Guessing 6/11/2012 12:01 AM Eastern

Pssst.

Have you heard? Apple is cooking up a sexy, wirelessly connected Internet TV with voice and gesture controls, packed with a slew of rich, TV-optimized apps — which will forever change the way people watch and interact with television.

Or maybe not.

For all the conjecture about Apple’s disruptive plans for TV, plenty of evidence suggests it won’t be a game-changer on the order of its two most recent smash hits, the iPhone and the iPad.

Still, the pay TV industry is paying close attention to a few big X factors related to the rumored device: Will an Apple television deliver exclusive content, with a cable-like subscription plan? Or will the company work with cable and satellite TV operators to stitch their services into the whole package, acting like a de facto set-top box?

Or could an Apple television be a cord-cutter’s dream, with an integrated over-the-air antenna for free broadcast TV plus a wealth of online content?

Today, few outside of Apple — famous for its Kremlinesque secrecy — can confirm what the tech giant is up to. That hasn’t stopped bloggers and analysts from scouring statements by Apple executives for clues, or from hypothesizing about what this Loch Ness monster might look like.

Among Wall Street’s most bullish Apple followers is Piper Jaff ray & Co. analyst Gene Munster, who is convinced an Apple TV will be the biggest consumer-electronics development since the smartphone. He postulated in a note last month that Apple’s new TVs will cost $1,500 to $2,000 with 42- to 55-inch screens, citing checks with industry suppliers, and that the company will announce it later this year and ship in the first half of 2013.

“We believe ‘if’ has been decided and the question is now ‘when,’ ” Munster wrote.

Fueling the rampant rumor-mongering is that Steve Jobs, before his death last year, exulted that Apple had finally “cracked the code” on creating a simple and elegant TV, according to Walter Isaccson’s biography on the Apple co-founder.

It’s not clear what Jobs specifi cally was referring to. But if Apple’s hallmark innovation here is geared around delivering a better TV “user experience,” and making the TV work better with mobile devices, it will be just one of a range of players already trying to do just that. Those include Comcast with its Web-like X1 guide and Microsoft with its voice-and gesture-controlled Xbox 360.

Apple, for its part, is content to let pundits, fans and the media speculate endlessly about what TV magic it might have up its sleeve.

Television “is an area of intense interest for us,” Apple CEO Tim Cook said at The Wall Street Journal’s All Things D event on May 29. “We’re going to keep pulling this string and see where it takes us. Many people would say that this is an area in their life that they aren’t pleased with … We’ll have to see what we do.”

Cook refused to divulge anything about an Apple television set, adding that the company will “double down” on keeping product plans secret.

The obsessive interest about what Apple might do with a TV set is understandable, given the implications for media companies and operators alike. And the company — with a market cap of about $540 billion as of last week, more than twice that of Microsoft — has been on a tremendous winning streak in recent years, proving it has the power to transform the consumer electronics business.

In 2007, Apple reinvented the smartphone with the iPhone. Two years ago, it singlehandedly established the tablet as a product category with the iPad. You can’t argue with success: It has sold 167 million iPhones and 67 million iPads over the last eight quarters.

But it’s worth noting that the company already has a product in the TV space: the Apple TV set-top box, which plays content from iTunes, Netflix, YouTube and other sources. And the numbers aren’t as impressive as they are for Apple’s smartphones and tablets.

After poor sales of the first-generation Apple set-top, introduced in 2007, the company released a slimmer, lower-cost version in late 2010 that let it access content from iPhones and iPads and rent recently aired TV shows for 99 cents apiece. But even then, consumers bought only around 4.2 million of the $99 Apple TV boxes through the end of 2011, Cook told analysts on Apple’s earnings call in January.

TOUGH CATEGORY

What’s even more curious about Apple’s supposed HDTV ambitions is that it would be entering a declining, hypercompetitive category, and one with very long product-replacement cycles — six to eight years for TVs, as opposed to 18 to 24 months with smartphones, the Consumer Electronics Association has estimated.

Flat-screen TV prices have fallen for three years in a row, putting the hurt on manufacturers, including Sony and Samsung Electronics. The average selling price of HDTVs has dropped by about $100 — from $644 in 2009 to $545 in 2011, according to the CEA — despite larger average screen sizes and enhanced features like 3D and Internet connectivity.

Even Jobs expressed doubts about the wisdom of building a TV set. At a 2010 Apple managers’ meeting, Jobs said HDTVs would be “a bad business to get into,” pointing out the slim margins in the segment and the fact that people don’t replace their TVs very often, according to a report in The Wall Street Journal last fall.

So the question is, What kind of enchanting features or content could an integrated Apple television include that would convince people to pay a premium price for a product that is likely to be hanging on their living-room wall into the next decade?

It surely would not be a “virtual MSO” type of service designed as a head-on competitor to pay TV. Recall that Apple tried and failed to piece together its own $30-per-month TV subscription service in 2009.

“Apple will not anytime soon launch a competitive subscription video product to cable,” Jeremy Allaire, founder and CEO of Internet video management vendor Brightcove, wrote in a blog post last week. “There are deep structural and contract rights issues that limit their ability to do so, and Apple does not want to buy their way into premium content from top-tier broadcasters who are collectively making hundreds of billions of dollars worldwide from subscriber fees.”

The more likely scenario: Apple would enable apps on the TV from Comcast, Time Warner Cable, Direc- TV and others, similar to the way that Microsoft has done with the Xbox 360 game console and other “smart-TV” makers like Sony, Samsung Electronics and LG Electronics have. Notably, the iPad has become a key component in the cable industry’s “TV Everywhere” and multiscreen-video equation.

To Allaire, the revolutionary potential of an Apple television or an upgrade to the existing Apple TV set-top is that the company could provide a “rich computing surface” on a TV screen for playing games, accessing info, shopping and communications. Apple provides a feature with the set-top called AirPlay (originally designed to stream music to wireless speakers) that lets users mirror an iPad or iPhone screen on the TV.

AIRPLAY ADVANTAGE

AirPlay “is incredibly powerful,” Allaire said. “It essentially turns your iPad into a powerful TV apps platform that can render any application on the TV while enabling the user to use their touch-based device to browse, select, navigate, etc.”

So perhaps the Apple HDTV project is effectively a loss leader — designed to fill out the iTunes/iPhone/iPad ecosystem to be able to serve up apps on the biggest screen in the house.

No doubt, it will probably look great, be fun to use and earn the love and hard-earned money of many Apple afi cionados. But as far as enabling an “app ecosystem” on TV, Apple ultimately may not have much more success than Google.

The search giant has toiled for two years and spent untold millions of dollars so far on the Google TV platform. Google has been trying to embed its Internet search and Android apps software into connected TVs and other devices — and so far has been met with a collective shrug from consumers.

This week, Apple might shed more light on its TV project at its Worldwide Developers Conference, set for June 11-15 in San Francisco. Or, it could leave everyone guessing for a few more months.

Whatever form an Apple television might end up taking, it will have to be a great TV. And for companies in the business of creating and delivering premium TV content, anything that ratchets up excitement for big, beautiful displays is a good thing.

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