- Route around the cable and satellite providers and offer something that works with your existing set-top box while layering in online services (like Nintendo's TVii or Google TV);
- Partner with the cable and satellite providers and offer a set-top box of its own;
- Tune in over-the-air HD broadcasts;
- Or create an online-only offering that was compelling enough to lure subscribers away from cable and satellite.
I still don't know for sure what Apple's plans are here, but the consensus -- at least as reported by the likes of the Wall Street Journal -- seems to be that they are trying hard to do something along the lines of option 2, and this squares with the rumors I've been hearing from my own sources. Whether or not they've been able to close any of those deals yet, I don't know, but apparently they have been trying hard to convince several cable and satellite operators to offer a new Apple-designed set-top box that would offer online content alongside the provider's paid lineup of channels and on-demand programming.
Like I said, I don't know if Apple is dead set on this strategy -- they could be pursuing multiple approaches at once -- but if we assume that this is the form that Apple's TV initiative takes, there are probably a few safe conclusions we can draw (this is besides the obvious ones about how it'll do stuff that the current Apple TV set-top box does like offer iTunes content and work with AirPlay).
And because any time anyone writes about Apple it tends to shut off the reading comprehension part of people's brains, I'd like to reiterate that these are conclusions I'm making only if we assume that Apple is making a set-top box that works with the cable and/or satellite companies and that can directly access subscription TV programming. OK?
1. Demand for this integrated set-top box will be strong
Few people are satisfied with the set-top box offered by their provider, and with good reason. While by and large they have improved (Dish's Hopper gets high marks for its whole-home DVR solution), because the competitive pressures in the set-top market are relatively low there has been nothing like the furious improvement we've seen in smartphones over the just the past couple of years. That means the odds are good that whatever is sitting in the average household's living room is slow, buggy, and has an antiquated UI. It's not hard to imagine Apple offering something that'll seem years ahead of what you can get from Scientific Atlanta, nor is it difficult to predict that interest from consumers will be very strong.
2. But all that demand won't matter if cable and satellite providers won't offer it
We've seen repeatedly how practical Apple is about adopting a go-it-alone strategy when it suits them, and working with service providers when they have to, but if they want to sell a box that'll work with existing cable or satellite service at the level of integration they appear to be going for (see next item), they're going to have to play ball. I suspect that'll mean giving the Comcasts of the world a lot of money upfront, as well as accommodating and protecting their interests in various ways in order to get them to offer Apple's box. It's entirely plausible that Apple will only be able to get one or two providers on board, but unlike in the wireless market where they could work with an exclusive partner and still hit over 90% of the country, if this happens you could see the addressable market for this product limited to a relatively small number of households. That would mean lots of consumers who'd see lots of advertising for a product that won't work with the service providers available to them. It's hard to imagine Apple getting into the TV market with something that right off the bat couldn't be used by a large number of people, so if they are going to take this approach to the market they're either going to use their hoard of cash to line up most or all of the major providers, sign one or two up and hope that it creates enough leverage for them to sign up the rest, or they are going to make the online-only component of the experience good enough so that people who can't get the fully-integrated set-top box experience will be at least somewhat satisfied.
3. CableCARD has been a total failure (and AllVid isn't going anywhere)
Remember CableCARD? It was supposed to make it possible for anyone to build a set-top box that could access encrypted digital cable streams. If it hadn't been kneecapped by the cable industry -- which never wanted it in the first place -- it's conceivable that Apple wouldn't have to do this silly dance with the Comcasts and Time Warner Cables of the world. They could just sell the box they want and cable subscribers could request an authentication card from their operator and watch all their channels. 3rd-party set-top box makers like TiVo have struggled to sell CableCARD-enabled boxes for years, but the fact that CableCARDs are a pain to install (the cable companies make it as difficult as they legally can since they'd rather you rent from them) has led to low adoption. Making matters worse, the limitations of the standard have made it difficult to build anything innovative. That Apple is attempting to partner with the cable and satellite companies, rather than routing around them and simply introducing its own CableCARD-enabled set-top box -- or pushing to get a next-gen standard called AllVid adopted -- almost certainly means that they do not think they could introduce a viable product to the market otherwise. I could be wrong here, but my guess is that if Apple thought it could get away with not working with the cable companies it would.
3. They'll still do a TV
Even if most people would opt for a set-top box -- it'd be a lot cheaper -- introducing a beautiful television set would create a nice halo effect for that product and help boost awareness and sales. Besides, selling a compatible television set that obviated the need for a separate set-top box would align nicely with Apple's vision of a seamless, integrated living room experience.
4. The cable industry is clearly not like the wireless industry -- and that needs to change
While it's relatively easy for someone to switch from one wireless carrier to another, too many households have only one choice when it comes to paid TV providers. (Where I live my only option is Time Warner Cable, and I can't go with a satellite provider because I live in an apartment where I can't mount anything outside my window.) These quasi-monopolies mean cable operators often have little incentive to innovate, and it also gives them no reason to invite Apple (or anyone else) into the relationship they have with subscribers. This is why Apple is trying to play ball with them and offer a set-top box which preserves their current business model of charging subscribers large monthly fees for bundles of channels. Right now the cable companies don't have a lot to lose by not working with them. It's not like they risk losing subscribers that switch providers to get Apple's box, as many people simply won't have that option. If Apple is able to make something happen, it'll largely be because of how much cash and power they have, not because there's a level playing field for innovation.
5. Apple doesn't think the market for cordcutters is very big yet, nor do they think it's going to get there soon (or at least not soon enough!)
Look, I canceled my cable about a year ago, and nothing would make me happier than improved options for getting all of the shows I want online. Apple introducing a set-top box is not going to help with that if the networks and studios believe that they can keep the existing model -- which can be highly profitable -- in place. The cold truth is that if Apple felt like they could be successful in offering an online-only service -- and completely avoid dealing with networks and cable operators -- they would do it. I doubt they want to deal with the cable companies any more than they have to, and it's likely they made the calculation that offering a set-top box that worked with the current cable TV delivery infrastructure was their best bet at making a real dent in the living room. Their long-term goal will surely be to eventually shift everyone's TV viewing online, but to me it sounds like they feel that transition is more than a few years away. In the meantime they are trying to offer something that works with what most people already have and build from there.