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Apple TV Won’t Be a Solo Project

Many rumors suggest Apple is developing
a television. Journalists report Apple has held talks to secure
content for such a device, that suppliers are getting
ready to build it and that consumers would snap it up .

The speculation often suggests that an Apple television
set would offer subscription-based, a la carte
content delivered over the top of broadband
networks. Consumers would pay one bill — to
Apple — for all of their video content.

Undoubtedly, Apple is looking into all the
possibilities, but we think the rumor mill has
a few things wrong.

An Apple OTT television is unlikely because
the company’s reputation is built on products
that “just work.” Today’s broadband networks
can deliver HD video over the public Internet
most — but not all — of the time. Imagine someone
who spends $5,000 on three new Apple sets,
only to discover he can’t watch a movie on one
of them while his daughter watches a sitcom on
another without suffering from reduced resolution or video
buffering. This scenario is bad for Apple’s brand.

Even if Apple could manage the technical issues, it
has zero video subscribers today and a potentially disruptive
business model, so it would probably have to
pay more for content than today’s large network operators.
Comcast and DirecTV, for example, have about 20
million monthly U.S. video subscribers each and pay
content owners billions of dollars per year.

Apple may not release a God Box, but it can still do
disruptive things in the television market. First, it could
partner with video operators to offer an integrated solution,
much like it does with wireless operators for the
iPhone. We could even imagine video operators being
willing to subsidize (and heavily promote) such a TV if
it meant attracting many new subscribers and locking
them in for the life of the television set.

This might not be a threat to the multichannel video
industry as a whole, but it would be to any operator that
could not offer a comparable user experience . Oddly,
we think an Apple television would be good for TiVo,
because video operators without the Apple
product would find it newly imperative to offer
a compelling user interface. This also highlights
the importance of operators’ organic efforts
to improve their user experiences, such
as Comcast’s new X1 user interface.

Alternatively, Apple could add an over-theair
tuner to its Apple TV set-top box. Users
could receive live ABC, NBC, CBS and Fox
channels, plus access to time-shifted content,
from those and other networks via iTunes. For
a significant portion of the population, this
could be a “good enough” substitute.

Finally, Apple could offer a subscriptionbased
service, but only for traditional Apple
devices (such as iPads, iPhones and Macs). Consumers are
more forgiving of video imperfections on non-TV devices,
so they would be more tolerant of the occasional glitch.

Much of what we read about an Apple television is based
on assumptions about Apple’s technical capability and consumer
desires without consideration for the economics of
programming and the power of incumbents. We think it
is likely that any Apple television would incorporate video
service from one or more of the traditional providers. Even if
they don’t soon produce a TV, Apple has several options for
products that might be a better value for some consumers
than conventional TV subscriptions.

Josh Lutton is managing partner at Woodlawn Associates,
a management consulting firm with significant
experience in telecom, media and technology.