Perhaps more has been written about Apple and its TV ambitions than any other unannounced product. That probably reflects the hunger customers have for a new way dealing with an entrenched TV industry. Even though the entire industry has circled the wagons against Apple, Tim Cook has said it's an area of "intense interest." What are the deepest challenges Apple faces?
Looking Down the Apple TV Tunnel
First, we have to consider the change in language by Tim Cook significant. He's a man who chooses his words carefully, something born from many years dealing with crafty analysts during Apple's earnings calls.
Heretofore, the Apple TV product has always been a "hobby," a term coined by Steve Jobs. It means that it isn't a major part of Apple's business, but, rather, is an area for continued monitoring and exploration. But in his recent interview with NBC's Brian Williams, Mr. Cook used new language. "...it's a market that we see that has been left behind...a market we have an intense interest in."
This raises an interesting question. If the TV industry, fearful that Apple could somehow disrupt their business, has been carefully putting technologies, agreements, and practices into place that would make it difficult for Apple to disintermediate them, then what is the root cause of Mr. Cook's new enthusiasm?
How Apple Develops New Products
To understand that, we have to look at how and why Apple enters a specific market. This company, better than every other tech company on the planet, is careful, very careful, about which markets it enters and what products it releases.
The late Steve Jobs and Mr. Cook both have said on multiple occasions that they are just as proud of the products they have said "No" to as the ones they have shipped. Mr. Cook has also spoken of the importance of owning key technologies in products that they do deliver.
Both of these concepts are part of the larger goal of disrupting the markets that they enter so that they can sell premium hardware at premium prices supported by premium services. For the iPod, iPhone, and iPad, this was the precise formula used, and those products have turned Apple into the world's most valuable company. It's a formula that Tim Cook will not abandon.
Mr. Cook's comments about the TV industry having been "left behind" are key to this. He also said, "When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years."
That's Cook Code™ for "The TV industry is ripe for disruption," and if Apple has identified key technologies that it can own and believes it can make a differentiating product, we will see a move into this market.
Apple's End Game
Apple entered the music market with iTunes to sell more iPods. In 2008, Apple sold 22+ million iPods in the Christmas quarter. Apple never bought a record label, but they did bring a new way of purchasing and listening to music to the world with the iPod.
In the same fashion, we have to ask what Apple's end game might be for satisfying its "intense interest" in the TV business. For example, in the case of the MP3 player, Apple entered a market that was technically immature and fragmented. Apple brought its signature coherency with a store, iTunes, a mobile OS and awesome hardware.
In contrast, with the TV industry, Apple is confronted by a 60+ year history of TV makers who have a boatload of experience in the consumer market. And so, one has to wonder if Apple's end game is really about being just another TV set maker.
It is, and here's why.
Perhaps the best analogy is the smartphone business. Apple didn't invent the mobile/cell phone, and it didn't build its own cell tower network, but in the space of 12 months, the company forever changed the way we use mobile phones.
There, Apple was able to integrate the Internet with the simple act of a voice call. Perhaps, if we think of the delivery of the highly controlled content, the video/audio signal from the cable and satellite carriers the same way we think about a voice call, there is room to marry certain technologies on the Internet side.
Set-top boxes can't do that. It's been tried. It's been shown that additional set-top boxes annoy customers, and they are an either/or proposition. You're either watching the Apple TV or you're watching content from your DVR. Apple has sold millions of Apple TVs, but that product can only take the company so far.
In order to truly marry the Internet to content controlled by the carriers, Apple must make its own HDTV set. That's so it can manipulate and work with the downstream video and audio, after HDMI handshaking is done, and then fold in Wi-Fi access to augment the experience.
Currently, HDTV makers are stumbling along with Internet enabled TVs, but they don't have a clue where to go or the software experience and funding to do anything with it. That's Apple's expertise and its opening.
Remember the initial goal that Steve Jobs set for the iPhone? It was one percent of the global cell phone market. Perhaps it's not at all about a quick upsetting of the HDTV market, but rather, again, the creation of a TV viewing experience, that so rattles the industry that, like the iPhone, the rest of the industry is forced to change. With Apple as the acknowledged leader. That legitimizes what Apple does and leverages its own sales.
What could some of those enhancements of the downstream signal be? Six were mentioned here. Others might include:
- Elegant integration of IMDB using facial recognition, something Apple knows something about. For example, with the click of a button, callouts show you the names of any character on the screen.
- Signal processing to eliminate those annoying, sometimes animated, overlay graphics that networks use to advertise another show. Apple is probably watching the legal proceedings with Dish's Ad Hopper technology closely in order to evaluate the legitimacy of manipulating the final signal.
- The integration of certain iOS apps with TV content. For example, an app with the customer's own DVR controls that bypass those of the main DVR. Those DVR controls often come with their own technical limitations or built-in agenda.
- Every Apple HDTV will have a FaceTime camera built in. The consequences are staggering.
The sky is really the limit here, but what's fundamentally important is that those technologies chosen and integrated create a system whose whole is more than the sum of its parts. TV viewers must feel that the Apple HDTV experience is so profoundly beautiful, simple and better that it reduces a regular TV set to the status of a 1990s feature flip phone. Then when other TV makers try to imitate Apple, the TV culture changes to Apple's advantage.
And so Apple's end game ultimately must be what it always has been: the awesome integration of custom hardware and software to completely change the customer experience and create demand for their hardware, hardware that other companies, dragged into commodity sales, can't quite duplicate.
Image made with help from Shutterstock.