Can Apple Crack TV’s Code?

New Apple TV Modernizes Medium With Apps, Siri, But Risks Becoming an Also-Ran
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The pomp and pageantry for the latest round of Apple’s inventions drew hordes of smartphone and tablet fans, but most eyes were watching for the technology giant’s latest gambit into the TV business.

Without a hint of hyperbole, Apple said the latest iteration of Apple TV — its new, shiny TV-connected device — represents “the future of television.”

While a bona fide over-the-top pay TV service from Apple remains a no-show (there’s still not a lot of “TV” in Apple TV), the CE giant believes its latest, greatest box is poised to transform the television business in ways less obvious, but more meaningful.

The late Apple chairman and CEO Steve Jobs famously called Apple TV a “hobby” back in 2007, when the first-generation product was launched, but comments from his successor, Tim Cook, indicate that the company is ready to take its video game to the next level and create some competitive headaches for traditional pay TV players.

“It really is the golden age of television,” Cook proclaimed at the media event in San Francisco. “As important as TV is, the TV experience itself hasn’t changed that much in decades … Today we’re going to do something about that.”

While analysts and industry watchers didn’t see the new Apple TV as something particularly earth-shattering, the platform does represent a quantum leap when compared with Apple TV’s previous generation.

A major difference is Apple’s decision to open up its ecosystem for apps that can run on the new Apple TV, which will use a new operating system, tvOS, that is based on iOS but optimized for the big screen. That should open up the floodgates for apps, creating a conduit for more over-the-top video, games and other services.

Apple has more than 11 million developers. “We can’t wait to see what apps they bring to the big screen,” Eddy Cue, Apple’s senior vice president of Internet software and services, said.

“Our TV vision is simple and provocative,” Cook said. “We believe the future of television is apps.”

That future also involves Siri, the voice-recognition technology that has been integrated into the new Apple TV, and a more-capable remote that also features a touch-based navigation interface that will let users swipe at will. Early on, Apple TV search will sift across the libraries of iTunes, Netflix, Showtime, HBO and Hulu, with more to be added later.

But what the new Apple TV has also contrasts with what it still lacks — no support for 4K, and nothing in the way of an Apple-delivered pay TV service.

Apple is reportedly developing an OTT “skinny bundle” TV service that will focus on broadcast-TV channels, but the company has been bogged down with negotiating rights to offer a service that can be offered nationally. Delayed, that offering is not expected to see the light of day until sometime next year.

By comparison, Sony PlayStat ion Vue’s multichannel-TV service currently lacks national distribution (it’s currently available in seven markets) and still doesn’t carry ABC. Sling TV, Dish Network’s OTT TV service for cord-cutters, has yet to add any broadcast-TV channels to its lineup.

ALSO MISSING: THE ‘WOW’ FACTOR

Some analysts were not blown away by Apple’s new entrant, holding that it needed a “wow” factor that can help it stand out from the pack.

“It was exactly as we expected,” Colin Dixon, founder and chief analyst at nScreenMedia, said. “This was, in my mind, a me-too upgrade. This is Apple catching up with the competition. It gets them back to parity to everybody else in the market … If I’m Roku, I’m probably taking a deep sigh of relief.”

Granted, some of the luster was off the new Apple TV before its debut, as many (accurate) details about it leaked in the weeks leading to the event.

“First and foremost, every product was foreshadowed in the press,” music-industry analyst and critic Bob Lefsetz noted in a newsletter entry about Apple’s event, which also saw the intro of the iPad Pro (and a stylus called Apple Pencil), new Apple Watch gadgetry and two new smartphones — the iPhone 6s and iPhone 6s Plus.

“If Jobs were still running the company tyrannically, heads would have rolled,” Lefsetz said. “Where was the element of surprise?”

Dixon found the fusion of Siri and the Apple TV interesting, but said other OTT platforms have already taken the concept further. By way of example, Roku’s crossplatform search spans at least 17 video sources, including Amazon Instant Video, Hulu, HBO Go, Time Warner Cable’s TWC TV app, Netflix and Vudu.

Apple TV’s jump onto the gaming bandwagon, a move that represents a possible threat to console makers, also mimics what’s being offered via the Amazon Fire TV and (to a lesser degree) on Roku players. Games are also expected to play a key role on a new family of devices powered by Android TV. But adding a Wii-like gyroscope to the remote could help Apple “offer some pretty powerful games with this platform,” Dixon said.

Bringing an actual TV service to the Apple TV and tightening that experience “could make it much more interesting than it is today,” though, Dixon added.

PLAYING CATCH-UP

While it’s debatable as to whether the Apple TV had fallen behind from a capability standpoint, it’s clear that it has lost ground to the competition. While Apple has shipped more than 25 million Apple TV units so far, Roku held 34% of the streaming device market at the end of 2014, giving it the lead on Google Chromecast (17 million units shipped at last count) and Amazon Fire TV, with Apple TV bringing up the rear, according to Parks Associates.

“Given the pricing, Apple is targeting a premium market, rather than market share, so we would not expect to see significant lifts in overall share of sales but would expect to see a strong showing among a premium market segment,” Barbara Kraus, director of research at Parks Associates, said.

She believes, however, that the new Apple TV could steal some gaming share from platforms such as Xbox and PlayStation if it can carve out a niche between the core and casual gaming markets.

Still, the Apple TV’s open app approach could put pressure on Roku, Microsoft, and even pay TV operators to do the same.

PRESSURE TO OPEN UP

Apple’s decision to go with an open ecosystem for the new Apple TV “is a bold statement,” Jason Flick, the CEO of You.i TV, a maker of a crossplatform user interface platform that counts Sony Crackle and Corus Entertainment among its clients, said. “It’s a blow for others that are using a closed, more template-based approach. People will need to open up. It will raise the bar quickly for TV apps.”

That could create concern for multichannel video programming distributors (MVPDs) pushing forward with IP-based platforms and technologies such as the Reference Design Kit, which are designed to foster innovation and help operators create systems that support their own apps as well as those from third parties.

But so far, MVPD app lineups are relatively small. For example, Comcast’s X1 platform, which uses the RDK, supports a few apps from outside developers, including Facebook, Flickr, Pandora and a new set-top gaming service offered in partnership with EA.

BTIG analyst Rich Greenfield said he believes Comcast has something to worry about, particularly when it comes to Apple TV’s revamped interface. The new Apple TV UI and remote, he tweeted, “make Comcast’s X1 look ancient.” Ouch.

CABLE CONCERNS

But if cable operators are harboring fears about Apple’s new platform and the potential OTT TV competition it represents, they are showing it in a measured way.

“Apple is another competitor for us, a serious competitor for us,” Cox Communications president Patrick Esser said soon after the debut of the new Apple TV during an interview on Fox Business Network’s Closing Bell With Liz Claman. Traditional pay TV providers and their packages still provide more bang for the buck than what consumers can create on their own using OTT options, Esser said.

“I think our product is the best value on the market, and often customers go out, and by the time they buy a number of over-the-top services, they find out that [with] our multichannel video product they actually get more for the money they pay than they do if they go and try to pull it off of the Internet,” he said.

But is Esser “dreading” the adoption of Apple TV?

“No, I’m not,” he said, though he acknowledged that the video market is more fragmented than it has ever been. He said, Cox, like Apple, has opportunities to innovate over broadband. Cox has already created over-the-top offerings delivered outside its cable footprint, including flarePlay, a subscription gaming service, and a recently released free, video streaming aggregation app for youngsters called flareKids.

But the new Apple TV could open up more doors for programmers, a group that is increasingly going over-the-top and direct to consumers, though some are still trying to make heads and tails of it.

The new Apple TV is “more exciting than terrifying … It’s a little of both,” AMC Networks CEO Josh Sapan said last week at an event in San Francisco hosted by technology website Re/code. “All of this technology means you can choose more and be dictated less by a bunch of people who work in television programming.”

Tale of The Tape: The New Apple TV

Price: $149 for a 32-GB model; $199 for a 64-GB model. Apple is still selling the older Apple TV model for $69, making it the low-end entry-level model of the lot

Availability: End of October

Size: 3.9 inches by 3.9 inches by 1.3 inches

Weight: 15 ounces

Ports and interfaces: HDMI 1.4, 802.11ac WiFi with MIMO, 10/100Base-T Ethernet, Bluetooth 4.0, IR receiver, USB-C (for service and support)

Processor: A8 chip with 64-bit architecture

Video formats: H.264 (up to 1080p and 60 frames per second)

Remote: Bluetooth 4.0 wireless (for non line-of-sight), IR transmitter, researchable battery (three months on a single charge), Siri integration, built-in accelerometer and gyroscope

Content: OTT offerings on board with the new Apple TV in the early going will include MLB.tv, HBO Now, Showtime, Netflix, Hulu, Watch ABC, YouTube, CNNGo, NBC Sports Live Extra, Fox Now, PBS Kids, PBS, USA Now, WatchESPN, Watch Disney, and NHL GameCenter

— Jeff Baumgartner

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