Breaking Down the Fundamental Issues for Apple & TV

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

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.

Comments

Lee Dronick

Great graphic Bryan! Great article too.

” It’s been shown that additional set-top boxes annoy customers”

Oh yeah!

iJack

Even after a number of these articles, I am still having trouble visualizing (and I’m a pretty good visualizer) what this would look like in my living room.

Lee Dronick

Jack I am thinking that it would look pretty much like any other flat screen TV. But who knows what Apple is store for us, it probably won’t be long before we find out.

palenoue

Everybody was wondering why Disney sold rights to Netflix instead of Apple, but now that I’m hearing how much the networks and cable channels are “circling the wagons” against Apple, I’m thinking Apple is letting Netflix buy up all these rights so when they do come out with an Apple Tv they can buy Netflix, have all that content _and_ pull TV networks into the 21st century all in one swoop.

Would be fun to watch wink

Bryan Chaffin

That’s certainly a possibility, palenoue, and it would be a interesting strategy. The best counter point is that Netflix gains in value with every deal it signs. There’s also the issue of control. Someone else could swoop in and buy Netflix while Apple was waiting for what it considers the right moment. It’s hard to see Apple developing a product based on something so completely outside of its control.

I’ve also been wondering if Netflix has had to sign deals with these distributors that gives right of first refusal to them, or even stipulates that the agreements are void if the company is sold. I don’t actually think that’s the case, but it’s an interesting thought that I simply haven’t had time to research.

Thanks, Lee, for the compliment on the graphic. Note that most of this article was actually penned by John Martellaro. I put together the section on Apple’s disruptive strategy, John did the rest.

hugh massengill

I agree that is a good analysis. It is, considering the time of year, kind of a present under our tree…the present of hope.
I also want Apple to integrate wireless into its new sets, so that one can buy a set, put it into another room or on another floor if one has a large place, and extend their wireless.
Hugh

iJack

Lee, when I said ‘visualize,’ I didn’t mean the physical appearance so much as a little movie in my head where I am sitting in front of it, and it’s doing amazing things for me.  I can’t see those things.  What is absent from today’s TV that will amaze me when Apple provides it?

Lee Dronick

“Lee, when I said ‘visualize,’ I didn’t mean the physical appearance so much as a little movie in my head where I am sitting in front of it, and it’s doing amazing things for me.  I can’t see those things.  What is absent from today’s TV that will amaze me when Apple provides it?”

Sorry about that. Yeah, what would they do different that will make us say “Why didn’t I think of that?”

Bryan Chaffin

I also lack any clarity about what it is that Apple can do with a TV to disrupt the market.

This is entirely because all of my prior ideas have centered around delivering the content better than the status quo, and we know that the content owners and status quo deliverers will not play ball with Apple because they know Apple will do it right and gain control of the experience.

What I am confident in, however, is that if Apple brings this product to market it will be a disruptive one. I just can’t yet visualize how.

iJack

Bryan, Lee ~ This is the first time I have ever had this problem with a future Apple product.  Waaay back when people were first talking about the possibilities of touchscreen, I could visualize it, and the reality was pretty close.  The only other time I struggled, was when some futurist posited that one day a Mac might have one Megabyte of RAM.  “Not in my lifetime,” I remember thinking.

So I’m expecting to be either blown away (disruption), or disappointed (a beautiful UI, a few geegaws, and no disruption).

Lee Dronick

So much can be done with just the interface, remotes that don’t suck, and closed captioning that is more readable.

Way back when, back when I was a youngster, I has a very active imagination and could dream up all kinds gadgets. I would like to get back to that, too many responsibilities, the muses don’t visit so often.

“Signal processing to eliminate those annoying, sometimes animated, overlay graphics that networks use to advertise another show.”

I am all for that.

iJack

I want to be able to text directly to Julianna Margulies (The Good Wife) so I can ask if she wants to fool around after the show.

Lee Dronick

You better hope that the text works properly so you don’t get hooked up with one of the Bouvier sisters.

iJack

“Bouvier sisters.”
Are we talking Jackie & Lee Bouvier, or Patty & Selma Bouvier?

wab95

John, Bryan, et al:

This is a very thoughtful piece, with several thoughtful posts en train.

As a parsimonious TV watcher, whose primary consumption consists of glimpses during pre-dawn workouts, it is difficult for me to get excited about anything TV. Nonetheless, as I read this, I return to a thought that I have had ever since SJ mentioned this as a hobby; and as I peruse some of the comments above, I think it bears mentioning.

Just my opinion, but I don’t think SJ, Cook or Apple writ large are talking about TV in the conventional, passive consumptions sense. My read of Tim Cook’s comment about the industry ‘being left behind’, practically gives this away. ‘Left behind’? Left behind of what, exactly? The early 21st Century revolution of tech convergence, that characterises the post-PC era. We are witness to the birth of a new era in technological evolution (I almost used the word ‘technotronic’ evolution, but do not want that confused with Zbigniew Brzezinski’s use of the term to mean a ‘controlled society under surveillance’, as averred in ‘The Grand Chessboard’). This period, unlike the PC era, that saw the birth of technology, including hardware, software and the internet, that would form the disparate pieces of an emerging infrastructure of global communication and digital management; the post-PC era is seeing the annealing of these pieces into an organised system, gradual at first but with almost exponentially gathering momentum, into an increasingly organised and interactive convergence of hardware, software and now search and social media and cloud services destined to put more information, access, communication and control in the hands of ordinary people than kings of a former age could ever have dreamt of.

Except TV. It has remained a thing of passive, one-way communication that is not part of this convergence in digital lifestyle management.

Exactly what role could TV play in this convergence? While Apple’s six patents in JP Morgan’s research notes gives clues, no less than does the thoughtful analysis above, I suggest that the fairest fruit of that role are likely as unsuspected as was podcasting prior to Apple’s entry into the MP3 player market with the iPod. It will be an enabling technology that will give rise to a whole new life of TV.

I can foresee professionals creating their own networks for, not just dissemination of advances in their fields (think of medical researchers being able to get their findings out to peers and public alike, once these have passed the test of peer-review), but for interaction between colleagues in realtime across continents, institutions and disciplines, the net effect of which could be explosive growth in advancements. This is one of the greatest impediments to progress - the lack of communication and even knowledge of what others in a common field are doing. Indeed, due to the storage of such media with easy access, communication will occur across time, and subsequent generations return to lines of investigation that could go no further due to technological limitations of the time.

This would be the TV equivalent of the humble MP3 player and podcasts, which while simultaneously freeing us from the constraints of time-specific consumption, and giving expression to a wider range of humanity, remains effectively non-interactive. We consume, and might send in a time-delayed reply to our favourite podcasters, who may or may not respond.

With interactive ‘broadcasting’ within networks, we have a means of communicating within communities of common interest as never before.

I for one, don’t think that Apple are talking about a hardware device per se (yes, there will be a hardware device, and it will be a pleasure to behold and use), but a technology that taps into this convergence of digital management and communication, and harnesses it into a new enabling technology that could eclipse the planet-wide cultural transformation seen with the MP3 player and the mobile devices by a large margin; taking all of these to a new level of utility for a wider swathe of humanity.

Then again, I have been accused of being dreamer, and this is only my dream while avoiding real work, which sadly, beckons, but not before one final thought.

I suggest that this advance, not unlike the iOS devices nor the iPod before them, will not be apparent with the initial release of the Apple TV (whatever that might be - it doesn’t matter), but will be as insidious in its initial impact, and apparent only as clever, creative and indeed brilliant minds but it to uses that Apple never dreamt of, but could only hope would come to pass.

Okay, back to work I go.

Lee Dronick

Why Patty and Selma of course. smile

jbruni

Extra credit, John and Bryan, for using the word, “disintermediate.”

CEBarnes

Everyone wants TV to be simple. When you push the power button there is something on to watch. The problem is that the menus suck and there are a 1000 channels and only 3 to 5 hold any interest for any given person. I believe Apple will create something akin to smart channels,. The live programming will based on viewer preferences. Some of those channels might be on-demand content that is always streaming and fits within the smart channel’s rules. You might even have a news channel that draws programming from different networks, making the idea of network branding irrelevant—this could be a core point of contention with the networks. Whatever apple does it will be an obvious solution that has not been implemented.

tuscmat

Kudos to John and Bryan. I’m wondering since Apple has nearly created a 21st Century equivalent of a Star Trek tricorder with a phone device. Could Apple be trying their own rudimentary holodeck with the HDTV and software as the basis? Wild eyed speculation I know but an interesting thought.

Lee Dronick

“The problem is that the menus suck”

Spot on!

frustrated tv watcher

Smart TVs shouldn’t require smart users to operate them, this is the problem with current implementations today.  The Samsung smart tv ui is horrible, sluggish, and just plain hard to use.  The google tv implementation leaves much to be desired.  Here is what I expect in an apple solution. I’ll spare the details that we know will be there (nice ui, easy to use, access to all content, etc)

-remove the input selection.  There is no need to fumble with multiple remotes to change the input and control the component from satellite to dvd player to media player, etc.  the apple experience should make input switching seamless with every component controllable from a single apple remote.

-no overlays please.  I want a single contextual menu (accessible by pressing right on the apple remote dpad and specific to each channel) which gives only the info I want to see.

-smart tv that knows what I want to watch and when.  I don’t want to login to my tv for it to pull up my profile, this process needs to be more seamless.  Ex;  imagine powering on your tv with an app on your phone.  The tv automatically knows who turned the tv on and curates content based on you.  It could pull from your web history, google searches, siri searches, etc to present what is most important to you.

-I don’t want a matrix of applications on my tv screen.  Tv is a passive activity, I want smart channels not apps.  Ex; a Netflix channel with ability to select any movie from their library, an espn channel with customizable scroll bar for your favorite teams, etc.  I want the channel surfing capabilities to be the same as they are today but smarter, I still want to scroll up and down on channels but with added context menus (only 2). If I press left on a channel it brings up a simple menu, if I press right on a channel it brings up additional information on the content you’re watching.  Ex; Say I’m watching the food network, the context menu can list out ingredients for whats cooking.  Or I’m watching a movie, the context menu can give dynamic info for whats on screen during that moment (if a specific actor, then maybe list our other movies he/she is in).

-smart dvr.  Ex; I’m watching a movie or a show, I press to access a content menu (left or right as noted above) on the channel and am presented with a chapter selection for that movie or show.  Or I’m watching a recorded sports event and the content menu lists an amazing dunk or touchdown scores, etc.

-social content.  This is where TV can finally harness the power of social networks.  The context menus can tell me which show is most popular based on my facebook/g+/twitter friends.  My DVR will automatically record movies based on my social circle likes. The possibilities here are endless.

-interactive content. Ex; Imagine watching wheel of fortune and being able to play along with the show with a friend (remember the context menus).  This would be awesome, again the possibilities here are endless.

The key is that all of these features are only useful if they are easy to use.  There is nothing more frustrating than a complex menu system and broken functionality due to poor ui design or implementation.  This is what I’m hoping apple will bring to this space.

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