How The Apple TV Will Work

There has been lots of talk in the past year about Apple possibly releasing an actual Apple Television or an updated Apple TV set-top box that will revolutionize television as we know it. It'll bypass the cable and satellite companies and make direct deals with the networks that will allow customers to choose exactly what channels or shows they want to watch all wrapped in a pretty interface. Well, this isn't going to happen, at least not anytime soon. Don't fret, an Apple TV is still coming and using what we know about the television industry and Apple I don't think it's hard to determine how it might function.

Why Can't I Buy Only The Channels I Want?


Apple simply isn't in the position to break the strangle hold cable companies currently have on the networks content. Most of the networks are in long-term existing contracts with cable/sat that won't allow them to jump ship anytime soon, even if they wanted to. There is also the fear on the networks part to not kill the goose that's laying the golden eggs. A lot of channels are simply making so much money from the current system in place, that risking it just to jump to some unproven deal with Apple would simply be foolish at this point. For example, ESPN is earning around $6 per subscriber (roughly 100 million people) from the cable/sat companies. If Apple sold channels a la carte, even at a $10/mo subscription, ESPN (Disney) would lose tens of millions of dollars per month and they definitely couldn't demand the same premium they're currently getting from traditional TV services. Other channels like HBO and Showtime, which are already payed by the user on top of their cable bill, gets millions of dollars worth of free advertisingand promotion from the cable and satellite companies. If HBO allowed users to sign up for HBOGO without a cable/sat subscription you can bet all of those advertising dollars would dry up pretty quickly.

The Compromise


So what does Apple do to get a greater foothold in the living room and turn the little black box, what Steve Jobs famously called "a hobby" into a real revenue generator or at least another magnet that spurs idevice sales? Compromise. Just as Apple did with the iPhone and AT&T, they will have to make a deal with the devil. The cable industry. This time the negotiations will have to occur with possibly four companies instead of just one. Time Warner, Comcast, AT&T, and Verizon Fios. (Satellite could be left out of this because of the logistical problems of needing a receiver)
Apple famously went back and forth with AT&T to hammer out the stipulations of what they wanted in order to bring the iPhone to AT&T. (Visual voicemail is a great example). You can imagine how intense these negotiations have/are getting trying to get the cable companies to give up control of their cable boxes. Especially if Apple went to the networks first to poach content from them. Apple has to show how getting in bed with them will be good for business in the short and long-term. Time Warner's CEO seems to be open to it, which is a good sign.

Photo by Knowledge (Check out what his perfect Apple TV would look like)

How Would It Work?


Imagine your Apple TV as an iPhone and the cable companies are the cellular carriers (some of them actually are). You buy your TV or set-top box from Apple and call your local cable provider to setup your service. (The cable companies want to keep their relationship with customers). I'm assuming, similar to the iPhone, you'll have to have a broadband connection along with your cable plan. Forcing a broadband connection actually does two things: 1. Allows the user to get full access to all of the features of the Apple TV (App Store access, messaging/FaceTime, Siri, etc), and guarantees the cable companies a higher revenue stream, a move in which Apple may have to use as an incentive for the executives at cable to play along as they did with the phone companies. This could either raise rates if they position this as a premium service or lower package rates, especially in cities with multiple providers do to competition. This part is definitely up for debate.
Assuming it is a set-top box and not a full-fledged TV, it would probably have to be a slightly modified if not a totally redesigned "AppleTV" than currently offered. Maybe existing AppleTV's could be used as some sort of extenders for other TVs, but that's just a total guess/hope. It would depend if they deliver true IPTV (TV over the internet) or if they would still use coaxial cable to deliver the signal. IPTV would offer a lot of benefits like not requiring an analog to digital conversion from the box, interactivity, custom advertising, easier app integration and possibly a higher quality picture. The down side is bandwidth. The cable companies will have to raise their bandwidth speeds, but what they'll probably do is force you to have a minimum connection speed, therefore raising the price of admission. Bastards.


What Would Be The Benefits?


The major benefit of owning an Apple TV would be to ditch the cable providers horribly slow, clunky and ugly boxes and give total user interface control to Apple. The entire experience from the time you turn on your TV will be controlled by Apple, which is a good thing when compared to any of the cable box interfaces being used currently. You can bet you will also get OS updates, which would probably be some form of iOS like the current Apple TVs. Speaking of iOS, all of your iOS devices will obviously be able to be used as remotes and smart second screen devices, à la Microsoft's Smart Glass via 1st and 3rd party apps. I'd assume you'll also be able to set recordings via an Apple TV app from your iPhone, iPod Touch and iPad as well as use Siri from the device to change channels, search, record etc.

Recording? Apple could either negotiate (or charge a premium) for an integrated On-Demand service, similar to HULU that gives access to tons of catalog content from each network. Or they could provide an iCloud/DVR type solution. Giving you a limited amount of cloud storage to store aired shows (100GB?) and possibly sale you more if needed similar to how the current iCloud storage upgrades work, only larger amounts. They would of course finally open up the TV App Store which would allow for all types of TV/Video based apps that could integrate with all available content depending on the apps function. A new Apple TV could be a huge opportunity for Apple to get serious about gaming on the biggest screen in peoples homes. Using your iOS devices or maybe even an Apple made controller, Apple could really shake things up in the gaming world by providing a platform that while not as powerful as the next Playstation or Xbox due next fall but good enough for casual gamers to have some great HD gaming experiences (hello Wii U). I believe positioning the Apple TV as a full entertainment device, including gaming, benefits Apple in two ways. It not only puts them in a better position than the upcoming generation of game consoles, that will clearly aim to be total entertainment hubs, but it gives certain customers a reason to update their Apple TV boxes annually or semi-annually for better performance and better looking games.


Conclusion


My best guess is that Apple will release an Apple TV, more than likely a set-top box, at least initially. Selling televisions isn't a very high margin business, not to mention they're expensive and I'd bet Apple wants this device in every home that has an iPhone or iPad. In the past 5 years Apple has made it their business model to entice their users to want to upgrade their Apple products every couple of years and that will only happen with the Apple TV if the product is $299 or lower. Newer, faster Ax chips with better graphical performance that are used in their mobile products will in turn be used in newer Apple TV's providing more and more power every year while maximizing their chip production and lowering cost as Apple is so good at doing. There has definitely been a lot of chatter coming from China about Apple producing actual TV sets, so maybe they could release one simultaneously or shortly after as an alternative to the set-top boxes. The biggest question is logistically how would they sale 42-55 inch TVs in Apple retail stores? Do they have the capacity to do this and provide the same retail experience Apple is known for? What about installation?


Is this the dream Apple TV we all hoped for? To be blunt, no. There are lots of compromises being made, mainly the option to actually choose which channels you want to pay for. As much as most customers want it, it's going to take a lot more than Apple to move that mountain, unfortunately at this point. Apple was able to change how music was sold because the record industry was desperate and losing hundreds of millions of dollars. This not the case for TV, in fact business is great, considering the economic conditions. The only serious threat to the TV establishment is the growing prevalence of quality internet video and a generation becoming comfortable with pirating TV. Nevertheless, an elegant, integrated OS that gives you access to all of your content, anytime, damn sure would be a step in the right direction and possibly get a cord cutter like myself back on the cable train.

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