WSJ: Apple television testing begins, though challenges remain

The rumor that will never die, aka the Apple [AAPL] secret plan for gift of the 2013 holiday season, the Apple television, is back again this day, with the Wall Street Journal claiming prototype testing of the new system has begun.

Apple television prototype testing begins

Intense interest

The report follows CEO Tim Cook's admission last week that television: "Is a market we have an intense interest in."

Cook characterized television as a sector that has been left behind. Admitting to watching The Jetsons as a child, Cook observed that iPhone 5 is like a device from the futuristic show, while television appears something that's been left behind.

Citing media executives who have apparently been briefed on Apple's plans, the WSJ has previously reported Apple to be following two potential future strategies:

  • Building its own connected television
  • Expanding the capabilities of its existing Apple TV product
  • Or both the above?

The new report claims Apple's begun testing several Apple television designs (as claimed by Jefferies analyst Peter Misek earlier in the week). Foxconn and Sharp are in the frame as manufacturer and display provider for the device, if it ever makes it to market.

The company is also in discussion with cable companies in which it is exploring the possibility of creating a set-top box that would provide Apple TV features alongside those fro cable firms.

The problem Apple continues to face is the reluctance by incumbents within the cable and broadcast industries to implement disruptive change within their business models. At present, advertising drives the industry, and there's an understandable reluctance to share ads yields, or to enable users to easily access a la carte content ad free.

Consumer shift

An October ABI Research report revealed that nearly 20 percent of online consumers consider online video as a replacement for PayTV -- fine for consumers but a viewing pattern shift which the analysts say threatens as much as $16.8 billion of traditional operator revenues in the US.

Perhaps no surprise that: "The relationship between Apple, cable companies and content owners remains tense. Apple has tried repeatedly over the past few years to persuade entertainment companies to grant it rights for various kinds of TV offerings, with limited success," writes the WSJ.

The industry is not blind to change. The evolution of television viewing on iPads and smartphones is driving new innovations in the content provision space, such as Adobe Pipeline, a solution that should enable more traditional broadcast business practices within online content.

Creatives are also watching the change. "We noticed last season, actually with every passing season, that more and more fans are watching Sons off their DVR. Such is the future of television. There will be no programming, only content." reports Sons of Anarchy writer, Kurt Sutter.

Change-a-gonna come

The transformation of viewing habits is forcing change in attitudes toward the existing broadcast business model.  AllThingsD states:

“More recently, Time Warner Cable COO Rob Marcus told attendees of the Goldman Sachs Communacopia conference that the company would consider selling TV subscriptions using third-party technology, even if “in some of those cases that may mean giving up control of the interface.”

Apple has been working toward a vision for television for years. Speaking to biographer, Walter Isaacson, Steve Jobs said (verbatim):

"'I'd like to create an integrated television set that is completely easy to use,' he told me. 'It would be seamlessly synced with all of your devices and with iCloud.' No longer would users have to fiddle with complex remotes for DVD players and cable channels. 'It will have the simplest user interface you could imagine. I finally cracked it.'"

The problem Apple faces is neither the hardware design or software interface -- I've no doubt Jony Ive will handle both tasks admirably -- Apple's problem is reaching deals with content providers and cable corp's to enable the device.

However, I do think an Apple television is inevitable. I also feel that an October 2013 release for the product (all being well) makes sense. That would ably explain plans to shift iPhone releases back to June/July, in order to create space for the inevitable enthusiasm that should greet any radically new Apple product.

Strategy Analytics has previously claimed: "Nearly half of existing iPhone users would be very or somewhat likely to buy an Apple iTV soon after its launch."

That should make Apple's television the top gift of the season for Christmas 2013 -- assuming it can reach the deals it needs with incumbents in the broadcast space.

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