258 days

Wilson Rothman

The case against an Apple TV set

It seems like an obvious move for Apple: Build the TV equivalent of the iMac, a fully blown plug-it-in-and-you're-golden interactive TV set with all the apps and streaming media you can eat.

It's so obvious that not only do the millions of industry analysts who track Apple have nightly dreams about it, but Apple itself is probably working on it. But there's a difference between what Apple is working on and what Apple will bring to market. With or without Steve Jobs, Apple knows that there are probably more risks than rewards when it comes to a true branded TV set.

Still, if anyone can pull it off, it's Apple, right?

TV industry is in a rut
Just like the music and cellphone businesses before it, both the service providers and hardware makers of the TV industry are stuck in a weird pre-transitional state. The cable model has been rocked by DVR and video-on-demand, but still makes its money by simul-streaming a solid block of 1,000 channels — 99 percent of which we can't physically watch due to time-space continuum constraints — under the guise of "choice." That ugly gray box with the even uglier user interface is just a bonus slap in the face.

Satellite companies offer some kind of competition to cable, but it's services are even harder to differentiate,

Meanwhile, TV makers only make pennies on the TVs they sell, and hope to improve their lot by building "interactive" sets, and taking a cut of app sales and service fees.

Apple forced the music industry to adopt the download model and a la carte pricing, and it turned the carrier-dominated cellphone business on its side by putting good hardware and Internet-based services in their rightful place. So why not do it in TV land?

1. Apple TV would compete with pay TV
Apple was able to break into the mobile business because cell carriers must sell cellphones. They need hardware partners and — for function and fashion's sake — needed to offer customers choices. Apple got into the phone business with a fashionable, super-functional device, and it went exclusive on AT&T, making it win-win for phone maker and service provider.

The cable business does not have a similar model, and operates without the pressure of stiff competition. They don't peddle a variety of hardware options, and their hardware partners are just lackeys.

In order to deliver a truly seamless plug-and-play experience, Apple would need to build a CableCard-compliant system that would require a green light from the cable industry. In other words, Apple would have to convince not one but several monolithic cable providers that its worth it to hand over their customers, bypassing their own video-on-demand and several other premium services.

If Apple doesn't go the CableCard route, it will simply continue doing what it's already doing, layering similar services on top of cable, hoping that people don't mind the redundancy. Customers might eventually choose the Apple offerings over the cable bill, but the content would have to be very complete (and besides, dropping the TV from a broadband bundle can be punitively difficult).

(I should mention that msnbc.com's co-owner is NBC Universal, now a wholly owned subsidiary of cable giant Comcast, but clearly that doesn't influence the content of this column.)

2. Movie and TV content owners are skittish
The next obvious problem is that if Apple were to layer too much on top of Big Cable, content owners might get fidgety. The conventional wisdom is that no matter how much content owners can get from downloads and streaming services, they still make most of their money through traditional forms of distribution, including Apple-unfriendly cable subscriptions and disc sales.

Look what happened to Google TV. Apps were one thing, but when Google put a browser in that baby, one that could be used to watch free streams over the Internet, the content owners blocked it. The message: "Internet content is for computer watching only — TVs are for cable and satellite."

Hollywood has no problem with Apple being one of the many companies selling its videos for $19.99 per download, but it would certainly have a problem if Apple were to offer some kind of all-encompassing ... well, what exactly? Some iTunes-branded combination of Netflix, Amazon and Vudu? A collection of apps from assorted video providers, each with their own content and fees? Apple can (and sort of is) doing both, but its difficulty gaining any traction is due to the problems above.

3. Apple TV already exists — not that you care
That's right, one huge problem with the Apple TV set fantasy is that it's just the current Apple TV plus a TV set you may already own. How is that changing the world? In its current form, it makes life with iPhone and iPad a little bit nicer, and sure, it's a decent combination of streaming Netflix and video-on-demand, but why isn't it rocking your world yet? Because for the above reasons, there just isn't enough content to ditch your cable.

And why does the addition of a TV set to this existing device make it killer? How often do you buy TVs? I'm at two per decade right now. Point is, chances are likelier that I would buy two or three Apple TV boxes before I bought one Apple TV set. So why would Apple want to go there, especially with profit margins on TVs being so low?

4. Apple doesn't build hardware
Yes, Apple does what it does well because it knows how to squeeze profit by building products that are slightly different than competition. An Apple TV set would be different, but how different? Samsung, Sony, Panasonic, LG and pretty much every other TV maker already sell Wi-Fi-enabled TVs full of video-streaming apps. So how would Apple stay above the competition? And how would they do it while relying on Samsung, LG and other leading LCD manufacturers for components? Samsung already provides quite a bit of hardware for Apple's phones and computers, so they're used to this weird combination of partnership and competition, but the LCD panel business is particularly known for narrow margins and stiff competitors.

I set out today to explain the case both for and against a full-blown Apple TV television set but as you gathered, there's really only a case against. I wish the path to Apple's success was more clear, because I pay way too much for my monthly cable bill as it is, and I still have to pay for quasi-redundant service from Netflix, TiVo and others to get a semi-satisfactory experience.

I think we can all agree that an Apple TV would be a glorious statement of industrial design and modern user interface. It would push the envelope and raise the bar and tickle the fancy. But any way I can reason it, I see a TV business that's on lock-down. There's simply no gap for Apple to stick its shiny toe in.

More on Apple TV from msnbc.com:

• Apple TV's future far from clear
• Rumors of Apple-made television resurface
• Apple TV may add online gaming
• Apple TV vs. Google TV - What's the difference?

Catch up with Wilson on Twitter at @wjrothman, or on Google+. And join our conversation on Facebook.