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The Apple TV Report: The Media Catches Up with the Night Owl

It has been easy to speculate as to just what Apple plans to do with Apple TV. Today, it’s a simple set top box that delivers iTunes contact, AirPlay mirrored content, and a handful of third-party providers, such as Netflix and, very recently, Hulu Plus. But, with sales at roughly 1.3 million units in the last quarter, it remains a product that Apple regards as a hobby. That’s true, even though other companies aren’t really doing even that well with such gear.

Renewed speculation about the future of Apple TV arose as a result of a statement that Steve Jobs reportedly made to the author of his authorized biography, as quoted in the book, that he had cracked the secret of delivering the best TV interface ever. Did Apple have a TV set in the hopper, ready to introduce at the “right” time?

Certainly the TV space isn’t as open as other markets Apple has penetrated. Digital music players had gone nowhere when the iPod arrived. Smartphones were very much business tools, often the playthings of executives until Apple’s iPhone made them user-friendly for almost anybody. The industry took notice, and certain patent lawsuits may determine if other companies took too much notice.

With the iPad, Apple had the advantage of entering a market that had been underutilized. For a decade, PC makers had tried to build a tablet, but such gear only succeeded in some vertical markets. The public didn’t pay attention. The iPad changed the game, which is why Apple retains iPod level market shares.

So how would an Apple smart TV set become a significant player? Would a nifty interface be sufficient? No, because Apple can deliver that in the Apple TV set top box. What about a tricked out sound system? Well, that can get costly. Consider one example, the Bose VideoWave II, which starts at just under $5,000, and costs $1,000 more if you want Bose to deliver the unit to your home and set it up for you. Clearly Apple wouldn’t get very far with a set that expensive, when you can get a perfectly good 50-inch plasma for under $1,000 with a terrific picture and the usual range of online features.

Even if Apple can improve picture quality, smooth the setup process, and offer an Apple TV experience without a separate appliance, would that be sufficient to gain significant market share? Profits are slim for TV makers, so unless Apple can make a miracle in reducing component costs for their first TV, it doesn’t seem to make sense.

Another Apple TV theory has it that Apple is busy negotiating with the entertainment industry to license content for a subscription service, so they can compete head on with your cable and satellite provider. But that’s not a simple process by any means. Even if they get the contracts, there is still the problem of streaming. Most ISPs have bandwidth caps. They aren’t going to be enamored of lifting those caps for a company who is taking away their TV business. Yes, there is an H.265 protocol that, when it arrives next year, is expected to deliver video streaming of the same quality with half the file size, meaning it will reduce bandwidth consumption.

But even at half current streaming rates, it wouldn’t be sufficient to watch HD content for hours every single day and not quickly exceeding the limits imposed by most ISPs.

In talking about the potential of Apple TV here and on my weekly radio show, The Tech Night Owl LIVE, I have suggested that Apple might just want to strike a deal with the cable and satellite providers. The end result would be that the Apple TV, or a revised version, would become the front end for their services. You’d be able to watch all your favorite channels from your favorite service, including DVR time-shifting, using Apple’s super smooth interface. Perhaps this would be similar to what TiVO offers. But for Apple to be able to let you record loads of shows, they’d have to provide an Apple TV with a regular hard drive. Flash memory is still too expensive. That is, unless the cable and satellite providers fully implement plans to store even time-shifted content on their servers.

Whether Apple would market the souped up Apple TV for bundling by cable and satellite providers, or separately, is something that would have to be worked out. But the very idea suddenly became credible this week when the Wall Street Journal published a story that such a deal may be in the works. The report begins, “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.”

In an updated story, the WSJ suggests Apple would attempt to blur the difference between live TV and on-demand content with a cloud-based DVR feature. Once again, the issue of streaming comes to the fore, but if they are streaming the content direct to customers of a cable or satellite service, the bandwidth caps aren’t likely to come into play.

I didn’t get many comments from the media when I suggested Apple might have to move in that direction, because a subscription service just didn’t make sense. Now that the mainstream media has evidently found sources to confirm such a story, it may be in vogue.

Maybe making deals with existing TV providers isn’t the best approach, but it may be the only practical solution right now. You heard it here first.