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How Apple can build the next-generation TV

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In 2010 Steve Jobs sat on stage at the D: All Things Digital Conference and took a question from an audience member. “Do you think it’s time to throw out the interface for television?”

Steve replied instantly with a confident, multipart answer. “The problem with innovation in the television industry is the go-to-market strategy,” he said. “The television industry fundamentally has a subsidized business that gives everybody a set top box for free or for $10 a month, and that pretty much squashes any opportunity for innovation, because nobody’s willing to buy a set-top box.” Ask anyone about their success selling set-top boxes, he said. Even Apple. “A lot of people have tried,” he said. “They’ve all failed.”

The only question is whether Apple has the negotiating talent to make it all happen

The ultimate solution, said Jobs, was to “go back to square one and tear up the set-top box and redesign it from scratch with a consistent UI,” but he didn’t think that was currently possible. In fact, Jobs said Apple had thought about making a TV in the past but the iPhone and iPad had won out because they were simply easier to sell. “The TV is going to lose until there’s a viable go-to-market strategy,” he said. “It’s not a problem of technology, it’s not a problem of vision. It’s a fundamental go-to market problem.”

Jobs’ questioner remained unpersuaded. But can’t you work with the cable operators the same way you worked with the cellular carriers?

Jobs was ready once again. “There isn’t a cable operator that’s national — there’s a bunch of cable operators. And then it’s not like there’s a GSM standard where you build a phone for the US and it also works in all these other countries.” He searched for a word to describe the mess and landed on “balkanized.” That’s why Apple TV is a “hobby,” said Jobs. “I'm sure smarter people than us will figure this out.”

It’s just over two years later and Apple still hasn’t produced a TV, even though some analysts continue making laughably stupid predictions about one. But we just spent a week thinking about the future of TV, and the problems Jobs identified no longer seem as intractable as before. That’s not to say they’ll be easy to solve, but the outlines of solutions are clearly falling into place. The only question is whether Apple has the negotiating talent to make it all happen. Let’s take a look.

No one wants to buy a set-top box, said Jobs — not when they’re getting a free box from their cable company.

Job’s fundamental problem with selling a TV might simply be taking care of itself — an entire generation of “cord-nevers” are growing up, leaving school, and simply not signing up for paid television services. They’re never even getting that free cable box. But they are buying Xbox 360s, PS3s, Apple TVs, and Roku boxes — creating an entirely new market for devices at a range of price points. An informal poll in our forums revealed that Verge readers almost universally have multiple boxes under their TVs now, and at least one of them is connected to the internet. These trends are starting to make waves in the traditional TV industry — Time Warner CEO Jeff Bewkes explicitly identified cord-nevers as a potential threat to his business.

There’s no GSM standard for TV, said Jobs. There are multiple independent cable operators that all use incompatible systems, and things are even worse internationally.

Internet to the rescue. While almost every cable operator has its own funky TV network, they’ve all built broadband internet access into their platforms as well. All Apple has to do is build a TV service that runs over the internet, and it instantly can put that service anywhere there’s access. How’s that for a standard?

Now, it’s not quite that super simple — there are obviously bandwidth concerns, and speeds have to be fast enough for it all to work, but the opportunity to break free of the legacy cable system and move delivery to the internet is now wide open. If Aereo can do it, Apple can do it.

You can’t tear up the set-top box and rebuild it from scratch with a consistent interface for live TV and internet services, said Jobs.

There are two different problems to solve here — a technical problem and a business problem. The technical problem in the past was daunting: building a single box that connected to both the wide variety of cable and antenna systems in the world and the internet has never been easy, and no company has even built a successful mainstream product that way. (TiVo doesn’t count: it generates a significant percentage of revenue from software and patent licensing, not selling devices.)

Again: internet to the rescue. That problem will fade away as more and more television is piped in over IP. It’s already happening: in the two years since Jobs' comments, TV providers have built and rapidly improved apps that allow subscribers to watch content on iPads and phones, and the industry is working on moving the entire encryption and security layer of television out of hardware and into software. Your cable box will eventually just be an app — the only question is where that app will run and what it’ll look like.

That’s the business problem, and it has two basic solutions: work with the cable operators, or go directly to the networks themselves.

Option 1: work with cable

Comcast running its guide as an app on the Apple TV doesn’t really solve any of TV’s main issues — it might even make them worse, if the various Xbox 360 TV apps are any indication. The real key, as Jobs said, is to build a consistent UI across many different functions. So Apple has to convince cable operators to basically serve up the content but let Jony Ive handle the interface, and that won’t be easy. Why? There’s a lot of money in that cable guide screen — ads, pay-per-view buttons, featured shows — and Time Warner Cable isn’t just going to give up easy cash so Apple can build a nice new interface. And even if Apple were to allow the cable company’s on-demand and pay-per-view offerings to appear, it probably wants its traditional 30 percent cut of all sales.

Time Warner Cable isn’t just going to give up easy cash so Apple can build a nice new interface

Oh, and all of that is just to integrate traditional cable programming into a unified interface. If Apple wants to innovate and offer per-channel a la carte pricing, it’ll have to change the entire course of TV industry history in the United States. Google found this out in Kansas City — Google Fiber users still have to buy TV packages in tiered bundles, and not all the networks have signed up yet.

If you’ve been wondering why rumors of Apple talking to cable operators have been bubbling up for over a year now and it seems like nothing’s been accomplished, well, now you know.

Option 2: work with content

On the surface this is the more appealing option, since it avoids all the messiness of existing cable contracts and regulations — Apple can just work directly with NBC and HBO and AMC and whoever else to pipe in content, it can charge whatever it likes, and the content companies gain leverage over the cable and satellite operators. (You can bet AMC would have loved to tell frustrated Dish Network customers that Breaking Bad was airing on Apple TV while those two companies were feuding this summer.)

If Apple goes direct to content providers, it’ll have to accept the fact that it may launch a TV product without a full channel lineup

But going direct has challenges as well — Apple would essentially be turning itself into a cable company, after all. And instead of managing just a few major relationships with the cable providers, Apple would have to manage hundreds of relationships with content companies — companies that already have testy relationships with Apple services like the iTunes Store. Again, Google Fiber is an instructive example: Google was forced to launch without major channels like ESPN, CNN, and AMC, and it eventually had to accept the same terms as other cable operators. If Apple goes direct to content providers, it’ll have to accept the fact that it may launch a TV product without a full channel lineup.

It also bears mentioning that working outside the cable operator system means that customers will be on the hook for the increased bandwidth costs of Apple’s service. The numbers may even out for cable customers who’ll end up canceling traditional TV to use Apple’s service, but it’s a nasty hidden cost for all those cord-nevers the industry is trying to lure back.

Neither one of these options is great — and there are even more pitfalls and potential missteps than could ever be outlined here. The safe bet is that Apple will end up working with the cable operators, who have a vested interest in maintaining their existing relationships with customers, and who can potentially mitigate any bandwidth concerns as they roll out internet-based TV products. But getting everyone to the table and managing these negotiations will require a Jobs-like force of personality — it’s a task potentially more difficult than convincing the music industry to launch the iTunes Music Store or convincing AT&T to launch the original iPhone. Those were products that launched on a small scale to limited markets in ways that didn’t disrupt the status quo if they failed — they were medium-risk bets that paid off handsomely for everyone involved. And their success begat more success: more labels joined iTunes, and more carriers got the iPhone. Rebooting the TV business is different — it’s a high-risk bet that only pays off if it completely and immediately upends the entire industry. That’s not an easy sell, but it’s up to Tim Cook to make it happen.

REBOOTING THE TV BUSINESS IS A HIGH-RISK BET THAT ONLY PAYS OFF IF IT COMPLETELY AND IMMEDIATELY UPENDS THE ENTIRE INDUSTRY

That’s not to say the opportunity isn’t there — for Apple or whoever rises to the challenge. We’re witnessing a unique inflection point for the TV industry: it’s generating some of the best programming in television history while the relationship between cable operators and content companies heads towards a cliff. Both sides say they’re at the mercy of the other in negotiations, and neither seems willing to compromise with the other. That’s an enormous opportunity for a player like Apple to step in and provide a new and disruptive way of serving the massive consumer demand for shows like Homeland and Game of Thrones while improving the overall experience of television. And it can’t sit still: Google and Microsoft and Samsung are quickly making their own moves, and they’re seeing some success. No one’s waiting for Cupertino to beat the industry to another iPhone or iPad this time around.

Time and the power of the internet are resolving television’s go-to-market problem. Now it’s just a question of when and how Apple will finally make its move.

The Verge
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