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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 Amazon.com, 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
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."

Viacom
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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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
quote:
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.

kXk


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