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Seven years later and Apple still hasn't quite cracked the smart TV equation

The perennial rumors that Apple, Inc. (AAPL) is preparing to launch a "smart" LCD TV or more advanced set-top box have been dealt a blow by Bloomberg, which cites multiple sources as saying the project has stalled on Apple's inability to cut a deal with content providers.

I. Building a Better Box

The news service reports that Apple engineers have been working since 2005 to make a super set-top box.  Inspired by TiVo, Inc.'s (TIVO) eponymous recording hardware and other smaller players like Roku, Apple aimed to beat perennial rivals, Inc. (AMZN) and Google Inc. (GOOG) to expand the role of the digital TV.

Today Apple is selling, according to a (calendar) Q1 2012 earnings call, 1.4 million units of its AppleTV.  That may sound okay, but compared to the distribution deals TiVo owns, and sales of other Apple products it's pretty abysmal.

The problem is that Apple's current product -- in its third generation -- lacks many features, while actually regressing in some ways on others.  Early models had hard drives (40/160 GB first gen.), but Apple ditched the mildly useful feature for streaming only -- a cut it justified by a price drop from $229 to $99 USD.

AppleTV is smaller and sleeker, but now lacks a hard-drive. [Image Source: Engadget]

The device also lacks a built-in browser or useful apps other than select service portals from a handful of partners like Netflix, Inc. (NFLX) and Google Inc.'s (GOOG) YouTube.  And those services are also offered via TiVos and Rokus.  

But Apple's vision for its better box began and remains with a much more ambitious dream than the cheap but currently model.  Apple envisioned an advanced device that could double as a game console, receive live content (over the internet), from television networks (think Hulu), record shows via a built in hard drive, play pictures/songs, surf the web, and watch internet videos.  More recently it even planned to use its iPhone smartphone and iPad tablet as controllers, taking advantage of the devices' built-in Bluetooth capabilities. 

II. Content Providers -- a Tall Hurdle to Jump Over 

To make this dream device Apple has to come together with television content producers to allow streaming shows and recording.  While TiVo can essentially do what it wants, the TV content creators have a degree of leverage over Apple. As the largest digital distributor of music and TV show episodes on a purchase basis, Apple must avoid the wrath of its business partners in those ventures.

But its never-ending thirst for profits has met its match in the similar profit motives of the big media content producers, yielding a stalemate.  Eddy Cue, iTunes SVP, has been unable to break the deadlock.

In July Tim Cook commented, "We continue to pull the string to see where it takes us, and we are not one to keep around projects that we don’t believe in and so there are a lot of people here that are believers in Apple TV."

Apple's attempts to court content providers on a live TV offering have been rebuffed.
[Image Source: Washington Times]

Comcast Corp. (CMCSA), according to Bloomberg, rejected an invitation into Apple's would-be TV "walled garden" back in 2007 when it realized the extent of control Apple wanted over its content.  Apple received similar feedback from CBS Corp. (CBS).  And Viacom, Inc. (VIA) is also lukewarm on the prospect.

Walter Price, an investor in RCM Capital, a major Apple stakeholder which owns $1.9B USD shares says that in a recent meeting Apple executives said the roadblock was content providers being set in their traditional business models.  The content providers are reportedly afraid of putting Apple in the driver's seat.  This is not surprising; many content makers long ago grew frustrated at Apple's rigid iTunes pricing rule, and today regret helping the media market rise to its current dominant position.

If Apple can't cut a deal with content providers, it's next best bet is to try to approach the middle man -- the networks that distribute them.  According to Bloomberg, its strongest hope lies with AT&T, Inc. (T).  AT&T is a fresh face on the broadband scene and is looking to rapidly expand its Uverse cable network to challenge Comcast and Time Warner Cable's offerings.  Plus AT&T already enjoyed a successful union with Apple, during the period of iPhone exclusivity.

But as much hope as there is for a deal with AT&T, Bloomberg is bearish on that deal arriving this year.

Source: Bloomberg

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By GeekWithFire on 9/7/2012 9:53:44 AM , Rating: 5
"Inspired by TiVo....and Roku". So let me get this straight: When Apple copies the competition and strives to make it better, it is called "inspired". When Samsung does it, it's considered IP theft? It must be fun living in their world.

RE: Inspired?
By FITCamaro on 9/7/2012 10:20:05 AM , Rating: 5
Well I'm sure Apple will soon patent recording TV, filtering commercials, etc because if they think its a good idea, they surely invented it.

RE: Inspired?
By polishvendetta on 9/7/2012 10:34:20 AM , Rating: 2
Apple envisioned an advanced device that could double as a game console, receive live content (over the internet), from television networks (think Hulu), record shows via a built in hard drive, play pictures/songs, surf the web, and watch internet videos.

Sounds to me like they want to be the next Xbox, too bad MS is way ahead of them and with their cross licencing deal basicly untouchable.

RE: Inspired?
By kattanna on 9/7/2012 10:44:14 AM , Rating: 3
yes.. because when you think of gaming.. apple comes to mind..LOL

RE: Inspired?
By BillyBatson on 9/7/2012 1:00:38 PM , Rating: 2
Before the playstation Sony never came to mind when it came to gaming, before the Xbox same thing with MS. Just because they aren't a set top box or game console maker now doesn't mean they can't build a name for themselves in those sectors too (though I pray to god that they don't)

RE: Inspired?
By FITCamaro on 9/7/2012 1:12:53 PM , Rating: 3
What are you talking about? Microsoft was well established with gaming long before the Xbox.

RE: Inspired?
By Solandri on 9/7/2012 3:41:43 PM , Rating: 4
What distinguished the Xbox from Microsoft's other gaming ventures was that it was a hardware platform. Previously, Microsoft's only other gaming hardware were game controllers, keyboards, and mice.

I still remember a lot of people writing off the Xbox before it shipped because they figured Nintendo and Sony "owned" the console market.

RE: Inspired?
By V-Money on 9/7/2012 2:57:31 PM , Rating: 3
In all fairness the original Playstation was (originally) a joint venture between Sony and Nintendo (a gaming veteran) so it wasn't like they just entered the market out of the blue.

As for Microsoft, last time I checked they were in the PC Gaming market for quite some time. Argue all you want that the console market is different, but the Xbox is basically just a PC with a controller, and Microsoft has been making the Sidewinder for years.

RE: Inspired?
By TakinYourPoints on 9/7/2012 6:33:24 PM , Rating: 2
As for Microsoft, last time I checked they were in the PC Gaming market for quite some time. Argue all you want that the console market is different, but the Xbox is basically just a PC with a controller, and Microsoft has been making the Sidewinder for years.

Microsoft is surprisingly hostile to PC gaming. They've either shut down their own studios that develop PC games (ACES, FASA, Ensenble) or turned them to making 360 exclusives (Bungie). They've repeatedly thrown the PC under the bus at the expense of the 360.

It makes sense too, they've most likely sold a gamer a Windows license already. Why stop there when they can also sell them hardware, proprietary accessories, and collect a license fee on every single game sold?

Microsoft's bread and butter with Windows isn't the consumer, it is business, and they've hit the profit ceiling for the consumer with Windows. It makes way more sense for them to make headway with consumers using consoles, which unfortunately means screwing PC gamers over.

Fortunately we have companies like Blizzard and Valve, both of which also support the Mac and one of which will be releasing Linux clients soon. If it wasn't for them then Windows would have far less going for it as far as gaming goes.

RE: Inspired?
By KamiXkaze on 9/8/2012 6:46:53 PM , Rating: 2
Yes that is right that Sony had a deal with Nintendo long ago to develop a cdrom base console. When all that fell apart it later lead to the introduction of the Playstation platform.

Before Microsoft got into console gaming they had a alliance with Sega. The Dreamcast being Sega's last console had Windows CE and direct X.


RE: Inspired?
By tayb on 9/7/2012 1:31:11 PM , Rating: 2
What do you think the thousands and thousands of apps on the App Store are? Not "real" games? The handheld market is taking a beating because people are playing games on their phones and tablets. When I think of gaming I don't think of one particular company but if you were to list companies involved in gaming Apple would be one of those companies.

Microsoft is a platform provider and game developer. Apple is just a platform provider.

RE: Inspired?
By TakinYourPoints on 9/7/2012 6:26:08 PM , Rating: 2
Its crazy that people will flat out deny reality. Apple, whether intentionally or not, is responsible for the decline of Sony and Nintendo in handheld gaming and is also responsible (along with Steam) for the independent gaming renaissance that we're having right now.

They provided the best, most profitable, and most accessible mobile platform for developers, which intentionally or not made them a force in gaming.

RE: Inspired?
By Motoman on 9/7/2012 10:42:21 AM , Rating: 2
Apple probably just copied the method and concept of being inspired by other items/methods/designs that already exist, either in nature or as a function of human society.

All ur idea are belong to us nao.

RE: Inspired?
By Motoman on 9/7/2012 10:42:49 AM , Rating: 2
er, meant to say "copyrighted" instead of "copied."

RE: Inspired?
By kingmotley on 9/7/12, Rating: -1
RE: Inspired?
By jimbojimbo on 9/7/2012 12:19:12 PM , Rating: 2
Indistinguishable? Well, if you're blind and have no hands yeah.

RE: Inspired?
By TakinYourPoints on 9/7/2012 6:16:45 PM , Rating: 1
The AppleTV also came out almost two years before the Roku, so I don't understand that reasoning.

This also doesn't make sense:
More recently it even planned to use its iPhone smartphone and iPad tablet as controllers, taking advantage of the devices' built-in Bluetooth capabilities.

AppleTV has had that functionality for quite a while now:

The Roku was a better device for a while, my #1 recommendation. The addition of Hulu and expanded support of AirPlay finally made the AppleTV the better device. Let's see what Roku adds next.

By xti on 9/7/2012 9:33:20 AM , Rating: 2
dont people just stream from a service or just stream movies from their network?

i mean, isnt that why the roku is so popular? im thinking either im a weird minority or DT is out of touch...

By FITCamaro on 9/7/2012 9:48:54 AM , Rating: 2
Not everyone has fast enough internet to stream HDTV and would prefer to download it first, then watch it.

By theapparition on 9/7/2012 11:56:04 AM , Rating: 2
I have plenty fast internet and would still prefer to download it rather than stream.

Even the slightest hiccup in the pipeline can stall your download. Try explaining that to the family on movie night why things are stuttering.
Not against streaming, just think its QoS is relatively unreliable.

By Ammohunt on 9/7/2012 2:07:51 PM , Rating: 2
I have 7mb dsl and routinely run upto 3 streams without issue. AppleTV movie rentals download first into its 8GB cache. We recently dropped DirectTV to go to a streaming only household.

By tng on 9/8/2012 9:42:53 AM , Rating: 2
I think that you are correct, hard drives are typically used for time shifting current content from networks to make their schedule more convenient. There is no need for a hard drive on a streaming device like this.

By Ammohunt on 9/7/2012 2:04:53 PM , Rating: 1
....YouTube. And those services are also offered via TiVos and Rokus.

Thats incorrect! YouTube is not available on Roku its one of the reasons i took my Roku XS back to the store for a refund. I have had the smaller AppleTV for over a year now at it meets my needs splendidly. My opinion AppleTV > Roku

RE: Correction
By Solandri on 9/7/2012 3:48:41 PM , Rating: 2
Actually, that's the reason I don't see this market surviving long-term. All of these devices are basically crippled HTPCs. Either locked into select services, or missing features. As PC prices continue to drop, the market for these types of devices is going to be squeezed smaller and smaller. If you could buy a generic HTPC for $100 which could connect to any service you wanted, why would you want to buy one of these specialized boxes?

The only way they're going to survive is if they lock in their users into an ecosphere, with reciprocal exclusive agreements (like Halo is an XBox exclusive). In that respect AppleTV might actually succeed because Apple is really, really good at locking people in. But assuming a level and competitive playing field, these devices are going to be crushed by HTPCs.

RE: Correction
By TakinYourPoints on 9/7/2012 6:21:03 PM , Rating: 2
HTPCs won't fly until simplified interfaces that don't require a mouse and keyboard are a part of them, and they still can't compete on the price of a Roku, AppleTV, XBox 360, or PS3.

People want purpose-built devices, and so far nobody major makes a turnkey HTPC that does that same functionality out of the box.

If I'm just using Netflix or Hulu, I'll use any of the above devices. If I'm playing PC games in my living room (I have an HDMI and USB run from my office to my home theater), then I'll use my PC, but even then it is only for games that I play with a gamepad.

RE: Correction
By Ammohunt on 9/7/2012 6:27:07 PM , Rating: 2
I still feel there is a market for these devices. Roku is dead because you can get better functionality from the steamers built into TV's. AppleTV works best for me because it integrates with my preferred media vendor..iTunes. I might be an exceptional user though while i have the mad skillz to build an HTPC and make *backups of all my DVD's to disk i find as i get older i just want things to work out of the box; i am getting bored of the fiddly stuff. Also my family and i don't have huge entertainment needs we are more than happy with just netflix and iTunes movie rentals coupled with blu-ray purchases others in my family are the same.

This is a scenario where I'm rooting for Apple
By tayb on 9/7/2012 9:46:10 AM , Rating: 1
This is one scenario where I am definitely rooting for Apple. Whether you hate Apple or not you have to recognize that they have helped alter the way we buy and consume music. It's better than it used to be and still improving. Video is still stuck in the 80s.

By StevoLincolnite on 9/7/2012 10:20:57 AM , Rating: 2
I wouldn't say that they altered the way be buy music.

Fundamentally it's just like the early Napster but with a price. I.E. All the music you may want in one easy to find location via a program.

As for consuming Music... We had MP3 players before the iPod like the iRiver for example.

Only difference is, Apple made it popular for better or for worst.

By kingmotley on 9/7/2012 11:24:09 AM , Rating: 3
The early Napster was about pirating music. It also had all the same regular pitfalls. No standard album art. Misnamed artists and tracks. Varying quality ranging from barely intelligible to near studio/gold master quality.

Apple managed to wrestle some control away from the music industry and actually started to deliver it in a way that most people wanted it, at a decent price. Standardized pricing. Standardized album art. Standardized quality.

I'm surprised...
By Pneumothorax on 9/7/2012 9:29:59 AM , Rating: 2
I wonder why apple hasn't used it's huge war chest of money to do a hostile takeover of Viacom or some other media conglomerate?

RE: I'm surprised...
By inperfectdarkness on 9/7/2012 9:39:37 AM , Rating: 2
this explains a lot, actually. if netflix couldn't get content providers on board--even though it has the ideal positioning to do so out of any company in the world--then there is no way that apple is going to be able to pull it off.

apple's saturation in any of its markets is far less mainstream than what netflix has. the problem--amazingly enough--lies in the content providers, not in apple. that's fine. i've pretty much stopped going-to / caring-about new movies. there's enough media being released these days that i can easily afford to overlook all sorts of "new" stuff.

maybe 20+ years ago, there were only so many new movies/games worth playing...but today there are more being released annually than one can spend a proper amount of time indulging in. for example, price is what makes FPS's compelling to me these days--there is little to differentiate much of the market from each other. much the same holds true for streaming media--you offer it to me at a reasonable price, or else. "or else" being i will remain indifferent to your offerings, or i will seek illegal means to acquire it.

"The whole principle [of censorship] is wrong. It's like demanding that grown men live on skim milk because the baby can't have steak." -- Robert Heinlein

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