Apple TV has Cable Companies Running Scared

This is the dawning era of Internet TV: Apple TV, Google TV, and now MS TV. All the while Apple TV was deceptively labelled a hobby, the cable (and satellite companies) appeared to be asleep at the wheel. No longer. Now they’re running scared, and that’s dangerous.

It has always been easy to make fun of the cable companies. They have so many subscribers, they can’t give each customer very much individual attention. The business model is based on boiling the customer’s frog with ever increasing rates in order to satisfy the stock holders. The attitude has been that the customer should be so happy to receive some high-definition TV, they’ll put up with crappy user interfaces on the DVRs.

Then along came Apple, Roku, and Google who fundamentally changed the customer experience. (Well, at least Apple and Roku.) These companies didn’t compete for that coveted #1 HDMI slot on the TV. Instead, they weaseled their way into our hearts by providing an easy alternative: HDMI port #2, which just sat there waiting for a blind date. And it was a success: Apple has sold a millon Apple TVs in the last 90 days.

Digital TV

The Awakening

This week at the Consumer Electronics Show (CES), Cisco is expected to announce a next generation cable TV box, according to the Wall Street Journal [Subscription required.] It’s a hybrid box that can receive and manage input both via the normal coax cable and also the Internet. Not only does this allow a more targeted, IP address oriented Video on Demand (VOD) experience, but also allows the cable companies to tap the capabilities and sources of the Internet — with the attendant benefits to advertisers.

Their goal is to make that HDMI #2 port irrelevant.

In addition, Comcast announced this week that it will be offering streaming live and on demand TV shows and movies to its Xfinity TV iPad app. Clearly, Comcast has awoken from its long slumber.

What caused this was an accumulation of several factors. The economy certainly played a role in promoting cord-cutting. There’s nothing like being faced with a layoff combined with a hike in cable TV rates to propel the home owner to action. The Internet is a necessity for job hunting; cable TV is not.

Also, for the first time, the cable companies have seen a decrease in subscribers. Some, perhaps, in the cable industry may fool themselves that when the economy fully recovers, they’ll recover all those lost subscribers. Apple, Roku, Google and Microsoft aim to make sure that won’t happen.

Apple TV

Could this become obsolete soon?

And The Winner is…

TV content is now a commodity. Controlled, managed, protected, but still a commodity thanks to the many channels content creators have chosen to pursue: Hulu, Netflix, etc.  The winners in this race will be the companies that can provide the best user experience and the best value. Certainly Apple is a company well positioned to do that, but success still isn’t guaranteed because of several other factors.

  • ISPs who own media, like Time Warner and, soon, Comcast will, despite government regulation, find new and innovative ways to make life difficult for competitors who aren’t vertically integrated. Apple, if anyone, should worry about its future ability to deliver content.
  • Customers still like to keep things simple. If they can have one box, designed by Cisco, that integrates the Internet and cable experience, the majority will stop experimenting with that HDMI #2 port.
  • Content providers have a vested interest in preserving and enhancing their revenue streams. Cable and satellite have a proven business model. Apple and Google have already discovered how difficult it is to make their cases to the content providers.
  • Netflix, once a hallmark of the alternative Internet TV systems, will soon be appearing as a red button on the remote control of Internet-enabled TVs from Panasonic, Samsung, Sharp and Toshiba. That’s another blow to the HDMI #2 back door by Apple and others.

The upshot is that the race is now on for real. Comcast is now awake and moving aggressively. Dish may end up buying TiVo, rather than pay the enormous award granted them by federal appeals courts for patent violation. That’ll give them better Internet inroads. Cable, which was at a technical disadvantage in delivering HDTV via coax compared to satellite, has figured out how to use the Internet to offset that advantage. The war is back on, full steam, and while Apple may hang in there, I’m betting the less experienced players will struggle against the mighty cable giants.

This week at CES, Will Richmond, an online video analyst, said: “The pay TV industry is asserting itself — belatedly, but asserting itself. What they’ve clearly seen is that consumers love online-delivered video. The industry needs to persuade consumers that online [Internet] video is not an either/or proposition with pay TV, but rather supplemental.”

Comcast may still frak the whole thing up, but they’ll do a good enough job to stem the tide and avoid early termination. I can just hear it now in the Comcast strategy sessions: “Our goal is to make sure Steve Jobs’s hobby stays a hobby.”

[Images courtesy iStockphoto, Apple]