Is Apple's iTV television plan in trouble?

The Wall Street Journal and others are reporting Apple [AAPL] to be in talks with cable television firms with a view to offering a variant of the Apple TV as a set top box, replacing the clunky kit consumers become so confounded by currently. This may sound logical, but could also suggest the company's plan to disrupt the TV industry has hit trouble.

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[ABOVE: Can Apple make its user interface better? Probably.]

Big talks

From the WSJ: "Apple Inc. is in talks with some of the biggest U.S. cable operators about letting consumers use an Apple device as a set-top box for live television and other content, according to people familiar with the matter." It's not known if the discussions pertain to a new version of the Apple TV or the television.

So what's the deal?

Television is nothing without content, and in order to set the scene for Apple's fabled iTV product, the company needs to be able to offer users a deep well of content in multiple formats: Do you want to watch it live? Standard broadcast? Time-shifted? Digitally recorded for later? Off of the Internet? Using an app? Purchased via iTunes? Season rentals?

Each of these viewing behaviors demands Apple (or the broadcaster) has sufficient license to offer shows this way.

The company has been trying to make headway in its negotiations with television studios and movie houses for months. Sure, we can purchase DVDs on iTunes and purchase TV shows, but what about (for example) subscription-based channel options?

Resistance

You see, TV studio bosses are resisting full embrace Apple's ideas. Studios get good cold cash from their deals with cable channels and conventional broadcasters. Then there's the deep money well of advertising.

Previous speculation has claimed Apple's trying to find a model that supports ad-free TV. However, the move to speak with cable channels suggest its plans have hit a hurdle, suggesting content producers won't play ball.

This leads to the compromise of using the Apple TV as a set-top box capable of picking up existing content from existing broadcasters, while also offering access to the Internet and iTunes.

That's not perhaps as disruptive to existing TV business models as Eddy Cue's team might have hoped, but is at least a foot in the door.

It's also important to read between the lines.

Sure as explained right now Apple may be discussing a set-top box, but the company's going to need the exact same level of agreement with cable firms if it plans to wrap that box inside a full--fledged iTV. No one's going to buy a television that doesn't receive television signals.

What's it really about?

From the WSJ: "Two people briefed on the matter said the technology involved could ultimately be embedded in a television. Apple has worked on prototypes for televisions in the past, according to people briefed on the projects."

So, what's Apple discussing? Bloomberg tells us consumers would be able to buy the Apple set top box (or a product including that box?) instead of paying a monthly fee to cable firms. By inking a deal with the cable firms, Apple gets access to all the channels available to cable television subscribers without requiring deals with each studio.

Clearly there's got to be some form of revenue split in here. Cable firms won't want a device hijacking their network and their content unless there's a rubber-clad business deal chained into the deal. That's speculation on my part, but it makes sense to me.

Apple has another challenge it needs to meet: cable firms have invested heavily in their user interfaces. Apple might have a fabulous user interface it wants to put out there, but cable firms must agree with its vision. Now Apple's proposing taking over the hardware and software of the box.

Will it happen, or is content the problem?

The signs are that at present the company continues to face resistance -- it hasn't reached a deal with any cable firms so far. The WSJ report also informs that previous discussions have seen Apple demand a 30 percent cut on certain transactions. The deal also sees Apple asking cable firms to maintain the box, but cable firms get to reduce the money they currently spend on those boxes.

What it all comes down to is that if Apple cannot reach a deal to put its vision for television at the center of events, then it seems less likely it will introduce an iTV device.

The industry meanwhile knows broadcast viewing patterns are transforming and customers are demanding -- and getting -- their media in other ways.

However, Apple's plan to create a hybrid business model that pleases both the digital natives and the industry (as it achieved with the iTunes Music Store) may represent a future for television: but vested interests within that industry may just need to see their existing business models collapse a little bit more before they sign up.

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