apple TV

TV Done Right: Still A Dream

 

As the strong reactions to even the slightest Apple TV rumor demonstrate, there’s a vigorous appetite for a simple, modern Internet TV experience. The technology is ready but carriers aren’t.

Last week started with Big Apple TV News in an authoritative-sounding Wall Street Journal article:

“Apple Inc. is in talks with Comcast Corp. about teaming up for a streaming-television service that would use an Apple set-top box and get special treatment on Comcast’s cables to ensure it bypasses congestion on the Web, people familiar with the matter say.”

Search for “Comcast” in a news aggregator such as Feedly (there are many other good choices), and you’ll see a wide range of reactions to the Apple-Comcast rumor. Given the heat the article generated, it’s odd that there has been zero follow-up from the main players — nothing from Apple and Comcast, no additional information in the WSJ or any other journal. When a deal of such importance is in the works, “people familiar with the matter” have a strong incentive to keep talking, to add color, to spin their side of the story. Of course, no one expects Apple to do much leaking, but the radio silence from Comcast spinmeisters is another matter entirely.

Philip Elmer-DeWitt offers the most likely explanation: The Wall Street Journal got played by someone intent on throwing a wrench into Comcast’s plan to acquireTime Warner’s cable operations. (This wouldn’t be the first time: Cellphone carriers have repeatedly used the WSJ to air their perennial Poor Me complaints about excessive smartphone subsidies.)

Echoes of the WSJ non-story ricocheted around the blogosphere. Some, such as this BBC article, make painful points about the abuse that US consumers undergo at the hands of broadband carriers:

Broadband Cost

As a sharp-witted Be engineer liked to remark: “It costs more… But it does less.”

Carriers take too much money for a user-hostile experience simply because they can. In most locations, cable companies have little or no competition, so there’s no reason for them to do anything more than milk the most profit from a cheap infrastructure. As Apple Insider’s Neil Hughes reminds us, the user experience isn’t a priority for cable providers. Indeed, as I write this from Paris, I have to juggle set-top box restarts and malfunctioning secondary content subscriptions only reluctantly allowed by the main provider.

It doesn’t have to be that way. No miracle is required to make our Cable TV experience easy and gratifying.

Consider today’s cable arrangement, simplified for our discussion. A coax cable is strung from the street into your basement or crawl space. You plug the coax into a signal splitter, connect one output to your cable modem for Internet access, while the others feed the TVs in your household.

Next, you run an Ethernet cable from your modem to your WiFi access point and maybe you also run a wire from the access point to your “most trusted” computer. Upstairs, we see a set-top box, an Internet TV streaming device (Roku, Apple TV, Boxee, or other), and, if your TV is of a certain age, a digital adaptor.

That’s four or five devices that you have to connect and, when things go wrong, disconnect, power down, and restart in the “proper” order.

It’s only too easy to imagine how a next-generation Apple TV could collapse this maze of impenetrable interfaces into one box: Coax in, Wifi and HDMI out and, miracle, one and only one remote! This is something that Apple seems to have the taste and resources to do well.

There are no technical obstacles, no new technology is required, no new software platform, just a careful integration job. I realize I’m veering dangerously close to the “mere matter of implementation” deception, but regardless of the amount of work it would take to integrate the various technologies, the benefit to the user would make the engineering effort worth it.

And there are many benefits:  We can throw away our DVRs as content becomes an app that we can stream whenever we want — the 60 Minutes iPad app is an elegant, flexible exemplar of the type. Rather than paying for a “package” of channels that are selected by the cable provider, we’ll be able to buy a la carte shows, series, and channels through iTunes or similar content vendor. We’ll be able to watch the free-with-ads version of a show, or we can pay for the ad-free edition.

Some day, the status quo will break, perhaps as the result of a patient encirclement and infrastructure buildup — a better, vertically integrated Content Delivery Network, both very much compatible with Apple’s playbook. As the reactions to the (possibly planted) Apple-Comcast rumor amply demonstrate, users are becoming increasingly aware of the disconnect between the experience that the cable companies offer and TV Done Right.

JLG@mondaynote.com

The enduring Apple TV Fantasy

 

We all want TV Done Right, free of the Soviet Era set-top box, UI and opaque contracts. We imagine Apple will put all the pieces together. But what’s desirable and “obvious” might not be so simple or soon…

“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,” Apple CEO Tim Cook told . NBC’s Brian Williams “It’s an area of intense interest. I can’t say more than that.”

These words — and similar ones in a substantial Bloomberg interview — launched yet another round of frenzied speculation about the mythical Apple TV.

Piper Jaffray’s Gene Munster insists that an Apple TV in 2013 is a sure thing. “It will be the biggest thing in consumer electronics since the smartphone“. (Of course, Munster has been saying this every year for the last three years…)

Another analyst, Wells Fargo’s Maynard Um, agrees that the device is inevitable, if only because a full-fledged television is “more in tune” with Apple than a simple set-top box.

Hmmm…

First, let’s take a calmer look at Tim Cook’s words. As many have noted, there’s nothing new here. Cook said essentially the same things at the D10 Conference last May and has repeated the message on earnings conference calls. The only changes to the Apple TV script in the past twelve months are the stated number of black pucks sold in the last fiscal year (more than 5 million), and an upgrade from “hobby” to “intense interest”. The actual meaning of this “interest” is widely open to interpretation.

Speculation aside, Cook has one thing right: The set-top box experience does place one back in time by 20 to 30 years:

– We still can’t order channels à la carte or search the program grid. For the latter you have to go to your tablet. And forget about the former.

– You can’t buy your own set-top box; you have to rent it from your carrier. For STB makers, there’s no incentive to build a better product.

– Add in the contorted rights and packages games played by the content providers and you end up with today’s mess.

The solution? Channels, shows, special events should all be presented as apps. Click, pay, and play, with standard fare for free. Catch the 6 pm news when you get home at 9:30; watch two programs side-by-side with Android 7 or iOS 9, all on your screen of choice: smartphone, tablet, PC, or TV.

The technology isn’t an issue. There’s enough bandwidth on cable (or pretend-fiber) networks, plenty of storage on servers, and all the required computing power in current or future TV boxes, from Apple and its competitors.

But there’s an obstacle in the tangled, encrusted business models that the Comcasts, CBSs, and Disneys cling to out of fear that Apple will wrest control of their content, that they’ll be disintermediated a la iTunes or the iPhone/iPad App Store.

Second, I simply don’t believe Apple will make, or even wants to make, a TV set. To realize the dream, as discussed previously, you need to put a computer — something like an Apple TV module — inside the set. Eighteen months later, as Moore’s Law dictates, the computer is obsolete but the screen is just fine. No problem, you’ll say, just make the computer module removable, easily replaced by a new one; more revenue for Apple…and you’re right back to today’s separate box arrangement. And you can spread said box to all HDTVs, not just the hypothetical Apple-brand set.

If carriers and content owners can be tricked, bribed, sued, or otherwise made to see the light and wisdom of higher revenue per subscriber, the TV Done Right will descend from Heaven in the form of a next generation Apple set-top box, not a TV set.

So why is Tim Cook talking about Apple TV at all?

The simplest explanation is that he’s simply answering an interviewer’s question. Possible… but not likely in such tightly choreographed exercises.

A cheekier possibility is that the answer is a head fake. Cook, a noted College Football fan, is trying to draw Google offsides, to provoke then into yet another embarrassing Google TV moment. And maybe even goad Microsoft into another WebTV dud.

Amusing… but not likely.

In Google’s case, the failed experiment has been digested and the next iteration will be much sharper. (Note well that Google’s subsidiary Motorola is putting its set-top box business up for bids, with “vendor financing possible”…)

For Microsoft, the company is happy with its successful Xbox ecosystem and its ability to provide TV content through its game console, even if that content doesn’t flow onto its phone and tablets as nicely as they would like. In any event, Tim Cook wishes Steve Ballmer no ill — au contraire, Cook wants Ballmer to stay on the job as long as he keeps helping his friends in Cupertino.

A more serious interpretation: Apple’s CEO is indicating that he’ll continue to invest talent and money until the TV obstacles are finally surmounted. In other words: “Join us and ride the wave that will sweep away the competition”.

Speaking of the competition, Sony is trying to break free from its profitless HDTV past by building a new 4K TV business.

If you have the opportunity, treat yourself to a 4K TV demo at a Sony Store. The spectacle is stunning: You see the delicate capillaries on a baby’s eyelids, feathers on birds, minute details on street scenes without any of the blurring you get on today’s HDTV.

With 3,840 by 2,160 pixels on an 80-inch TV screen, the 4K boasts 4 times the resolution of 1080p (1920 by 1080)… and an even greater price tag ratio: $25K vs $2K or less. The 4K TV is delivered with a server that contains full-resolution movies because cable and satellite carriers provide no such content — and have no plans to do so.

Sony has a valuable asset in its movie library and a need to push its new 4K TV technology. Could this portend an Apple-Sony alliance? The two companies have worked well together in the past, a CEO-level conversation could easily happen. But even if an Apple TV box provided a strong showcase for a Sony 4K TV set, carriers would still have to be shown how to milk the opportunity.

On still more sober musings, let’s consider Apple TV’s place in the company’s business. In the 2012 fiscal year ending last september, Apple’s total revenue was $156B. 5 million Apple TVs translates into $500M; that’s 0.3% of the company’s total.

Why bother? In 2014, Apple’s revenue could exceed $250B. Even if Apple TV sales were to grow by ten times, they would still represent no more than a 2% fragment of the total.

The answer is that Apple TV isn’t meant to generate revenue but to enhance the value of the more muscular, profit-making members of the ecosystem: iPhones, iPads and, to a lesser extent, Macs. In a similar, grander, and now well-understood way, iTunes isn’t in the business of making money by itself. iTunes made the iPod larger than the Mac in 2006, and it made the App Store possible — and the iPhone and the iPad as profit engines.

For Apple TV, is there a path from today’s supporting role to a $50B size, to 20% of Apple’s revenue in 2014? (Gene Munster thinks there is.)

My belief is that Apple TV sales numbers will continue to increase as the device is slowly, patiently improved and the ecosystem is enhanced. In a not-too-distant future we’ll see explicit Apple TV apps, similar to those on iPhones and iPads.

And someday, Apple will reach a limited agreement with a carrier such as Comcast. The enhanced experience will create a wedge — and will spur competitors. As a result, TV will at last become “modern” — sitting down in front of your TV set will no longer send you time traveling to 1992.

JLG@mondaynote.com

——————
Late update, an amusing coincidence: a just-discovered “Apple TV set” at Lyfe, a modern Palo Alto eatery.
With my apologies for the low quality pictures, this is the menu on five TV sets, side-by-side in portrait mode:

And, if you’re curious, you discover five Mac Minis bolted to the back of the TV sets:

Gene Munster should take a look.

The Apple TV Set — Not Again!

It’s the rumor that refuses to die and the myth that keeps on giving…pageviews. Serial Apple-rumorist Gene Munster is at it again: In a 15 minute Bloomberg Radio program (obligingly summarized here by Business Insider’s Henry Blodget and here by 9to5Mac) the PiperJaffray analyst issues his umpteenth version of the prediction:

Apple’s TV is real. It will be ‘The Biggest Thing In Consumer Electronics Since The Smartphone’.

As if this weren’t bold enough, Munster also predicts that Apple’s TV set will be announced this year and will ‘freeze the market for five months’. Naturally, the design will be bold: ‘… just a sheet of glass, no edges or bevels’.

Let’s start with a bow to the power of desire and the company’s reputation: Wouldn’t it be grand to have a magical TV-done-right? A Jony Ive hardware design, a UI purified of the ugliness and complexity foisted upon us by operators (cable or satellite) and set-top designers (Motorola, General Instruments), iOS-based, controlled via Siri, fed by a completely remodeled iTunes and App Store…

Apple keeps barging into existing markets it didn’t invent — MP3 players, smartphones, tablets — and manages to go home with a big share of the game. It does this by skillfully rethinking the device, inside and out. With the iPod, the iPhone, and the iPad, Apple offered sleek, elegant, cohesive form factors…and it did more: It provided a new ecosystem. The process started with iTunes (selling separate songs and micro-payments), which provided a debugged foundation that made the iPhone the first ‘‘app-phone’’ and paved the way for the iPad.

Why can’t Apple do something similar for its hypothetical TV set? Is it just a lovely, comforting fantasy?

Today’s TV experience is far from magical. A few weeks ago, I bought a 47” LG Smart 3D HDTV on post-Xmas sale at Fry’s. At $990, the thin, easy-to-install, internet-connected TV sounded good.

WiFi set-up isn’t too hard:

Using the Web browser is another story (although, to be fair, in a world of smartphones and tablets, why would you browse the Web on your TV?):

Still, there are plenty of embedded applications…

…and the “management’’ UI is cheerful, if a little disorganized:

For the Skype application circled above, you can buy a dedicated webcam. I did, it’s expensive — it adds 15% to the TV’s price — but its really Plug-and-Play, no software added.

All the parts are there…but a $49 or $79 Roku, a $179 Boxee Box, a $179 Xbox, or the $99 Apple TV offers more content, flexibility, and modularity, to say nothing of a more accessible UI.

Does this make a case for yet another category reinvention by Apple?

Not so fast.

As discussed in previous Monday Notes (here and here), there’s one strong, clear reason to bet against an integrated or smart Apple TV set: To perform the expected magic, a computer must inhabit the otherwise “dumb” TV. Very quickly, in a year or two, Moore’s Law will obsolete that computer. To get a new computer — more powerful, more fun –  you’ll need a whole new TV set. We might be willing to buy a new phone, tablet, or laptop every other year, but not a new 47” HDTV.

I believe Apple TV’s magic will be performed by a separate box, a descendant of today’s $99 Apple TV black puck, perhaps in combination with a new version of Time Capsule. This will enable the no-longer-a-hobby Apple TV to bring its magic to the millions of HDTVs already in homes all over the world — and to be replaced with better/faster hardware without drama.

(While we wait for the grand new Apple TV, we’re likely to get an updated version of today’s black puck Real Soon Now: The vintage 2010 model is no longer available online at Amazon, Best Buy, or Radio Shack — I just checked. If, as I hope, the upgrade outputs real 1080p HD — 1920 by 1080, versus today’s 720p — 1280 by 720, it’ll be an easy sell. Especially as an AirPlay companion to something like an iPad HD with twice the linear resolution of today’s tablet, 2048 by 1536 versus the original 1024 by 768.)

So, no grand integrated device…but the next-gen Apple TV, the next black puck, will certainly have that iOS/Apple Store magic, right? With three success stories in the books, the process of writing and distributing iOS apps is well understood, billions of dollars have changed hands through the App Store, developers and customers are standing by!

Again, not so fast.

Most of what we do with our PCs, smartphones, and tablets is related, it’s one form or another of personal computing. Yes, we also play games on our phones, but our posture is primarily ‘‘lean-forward’’: productivity, communication, organization, learning.

A TV, even when running iOS, isn’t a personal computer. We won’t be typing The Great American Novel or answering email, but we will play games, tune into channels-as-apps, video-chat with our friends and families running Skype or FaceTime. The TV is entertainment, it’s a ‘‘lean-back’’ experience. As one wag put it, the PC helps us think; the TV relieves us from our thoughts.

To gain acceptance, the Apple TV ecosystem will have to offer a library of entertainment apps tailored for TV. The company has made inroads in the genre – see the 60 Minutes iPad app, or MLB.tv for Apple TV (a great boon for naturalized fans who occasionally spend time in repatriation). But most entertainment content providers – TV networks, event producers, movie studios – are proceeding with caution. They know the history: Steve Jobs managed to convince music ‘‘majors’’ to let Apple distribute the content. Over time, the content distributor became more important than the content owner, giving sharper meaning to the old Hollywood saying, “If content is king, distribution is King Kong.”

No one knows if, when, and how Apple will succeed in building an Apple TV App Store that will have enough content to displace the old set-top box, its bundles, and its “lovely” navigation.

But can we, at least, hope for a separate, “dumb” TV set from Apple, elegance we can hang on the wall?

Here we run into the business model question. For Apple, only hardware margins matter. Everything else — software, content, stores — is there to serve the topmost goal. It’s doubtful that Apple can “maintain the hardware lifestyle to which it is accustomed” with such a product.

Today, the TV hardware business shows signs of desperation with its gimmickry and price wars. Even at the high end where Bang & Olufsen makes “exclusive” sets that sell for 3 to 4 times as much as technically comparable Samsung devices, life isn’t too comfortable. Take a look at B&O’s latest investor presentation and you’ll see that TV sales make up less than half of their $500M revenue, and show a slight decrease year-to-year. Operating profit is a modest 4% or so.

With this in mind, could Apple achieve its ‘‘customary’’ 37% Operating Profit selling a “dumb” TV? For help in answering the question, let’s compare the price of Apple’s 27” Thunderbolt Display to its competition. The Thunderbolt is “more than HD” (2560 by 1440) and has some features that aren’t found on other monitors — power to another device; extra USB, Ethernet, Firewire, and Thunderbolt ports; an integrated 720p camera — but at $999 it’s selling in middling quantities even though it demands a significant premium. At Amazon, a Samsung 27” (1920 by 1080) monitor sells for $329. Some competitors go as low as $250.

Now imagine a 47” or 55” 1080p TV set version of the Thunderbolt Display with fewer ports and better sound, perhaps. Today, Samsung’s top-of-the line 46” sets sell for $1,800; the 55” model is $2,000. Would Apple get a 50% premium over those prices?

But even more than price and margins, there’s volume. Going back to Gene Munster’s ‘Biggest Thing In Consumer Electronics Since The Smartphone’ claim, would Apple’s elegant, slightly better connected, webcam equipped, but nonetheless dumb set sell in iPhone or iPad quantities? I seriously doubt it.

If Apple succeeds in building the right content-and-apps ecosystem around a next-gen Apple TV box, the new device will be in a position to eclipse today’s ungainly set-top boxes, it will have a chance to sell in large quantities at good margins — and thus stop being a ‘‘hobby.” Then, yes, Apple might also sell a few (almost) dumb but definitely elegant sets on the side — as a recreation.

JLG@mondaynote.com

An Apple TV Set In Our Future?

Not another Apple TV black box but a real 50” flat-screen TV, “Designed by Apple in California” — and Made in China, like most Apple products. Or Made In Korea, if the company concludes a new pact with its best frenemy, Samsung, the new king of TV sets, the new Sony.

Rumors of an Apple TV set have been circulating for at least two years. In a May 2010 blog post, Peter Yared wrote:

“Stylish, high-end TVs is the last consumer electronics frontier for Apple to dominate, and it will make apps as much of a differentiator on TVs as they were on smartphones.”

and:

“The TV is the last frontier in Silicon Valley’s relentless drive to computerize every screen. With the price of fully Internet-enabling a screen at below $300, everything that people see and touch is being turned into a computer: mobile phones, billboards, price displays, and with the iPad even magazines, books, and newspapers.”

More recently, Gene Munster, an oft-quoted analyst at the PiperJaffray investment bank, repeated his prediction of an Apple TV set launch in 2012, with Stewart Alsop adding:

“Apple will do to television manufacturers what it did to phone makers with the iPhone…”

The idea is exciting and so obvious it’s got to happen. Imagine a true plug-and-play experience. One set with only two wires: power and the cable TV coax. Turn it on, assert your Apple ID credentials and you’re in business. The program guide looks good and is easy to navigate; pay channels are just a click and a password away. The TV runs apps, from games to FaceTime and Skype, it “just works’’ with your other iDevices and also acts as a Wi-Fi base station using the cable provider’s Internet service.

But when we turn to the Small Matter Of Implementation, we see a few obstacles.

First, the TV incorporates a set-top box, with storage for the DVR function. It’s feasible: the CableCARD was invented for that very use. The electronics of a set-top box:

Now squeezed onto a card that’s inserted in the back of the TV set:

It’s an attractive idea, but the implementation failed to meet expectations. Although critics accuse cable carriers of being technically incompetent and lazy, I think there’s a more acceptable explanation: Carriers looked at the CableCARD and saw complicated field service calls in their future.  A separate, outboard set-top box is easy to diagnose and fix; a card inside the TV set, not so much. It generates a host of hard-to-understand bugs: Is the card working? Is it kind of working but causing the TV to malfunction? Is the TV working but killing the card?… and so on. More calls, more finger pointing, more expensive field techs…

Apple’s product culture, its talent for giving birth to nicely integrated devices could overcome some of these problems, but not the field tech issue. Would this new product force Apple to deploy its own Geek Squad, or do we see ourselves carrying a 50” Apple TV set back to the store when something goes wrong?

Then there’s the complexity of supporting multiple cable systems. Large carriers, such as Comcast, are known as Multiple System Operators, MSOs, with an emphasis on the “M”. They’re a patchwork of acquired systems that have never needed to be compatible. This would either restrict the TV set to a small number of carriers, or make the product more complicated and prone to more bugs — and more field tech visits.

And there’s Moore’s Law. In addition to the CableCard, the wonder set contains a little computer running iOS, and enough storage for apps and content that’s not hosted by iCloud. Great…but how long will it last? Not in terms of reliability, that’s not a problem — especially with an SSD replacing the DVR’s conventional hard disk — but in terms of being competitive with newer hardware.

Conventional TVs aren’t really affected by Moore’s Law. As long as the electronics work and the display doesn’t fail — and today’s sets are exceptionally reliable — there’s little pressure to upgrade. Once a family shells out for a nice 1080p set, it’s difficult to sell them the new improved model next year.

We’re willing to upgrade our laptops, smartphones, and tablets every year or two because Moore’s Law keeps improving the CPU and other electronics at the rapid rate that made the computer industry’s fortunes. An integrated Apple TV set wouldn’t benefit from better electronics as naturally as an iPhone does…unless, of course, the tiny iOS computer is implemented as an easily accessible plug-in module. This could also solve — or at least mitigate — the field service problem: Bring the module to the store, we’ll diagnose and replace it if needed…or sell you this year’s model.

In one device we might have something like: a CableCard inside an Apple TV 3.0, itself inside a TV set.

With regard to carriers, there’s no need to disintermediate them, no need for Apple to seduce them into giving up content sales the way Jobs did with AT&T. Carriers ought to welcome an Apple TV set as a way to increase their ARPU, but for this to happen much work remains. Try getting a human on the phone when you want to add a channel to your current Comcast bundle. At home, you’re connected through a secure device with a known MAC address, so why can’t you simply point to a channel and click-to-add? This and other bone-headed commercial practices — such as refusing to suspend your billing when you’re between houses — reveals a depth of customer-hostile culture that an Apple or a Google would find intolerable, but might have trouble changing.

I mention Google because they’re in the TV/Internet/Apps integration game as well. The first Google TV wasn’t a success, to say the least. My friends at Logitech lost tens of millions of dollars — and a CEO — with the first iteration. And Sony’s Google TV implementation didn’t fly either.

But the concept remains valid. And now that Google owns Motorola, a company with known expertise in set-top boxes and CableCards, we can expect a next-generation Google TV and, quite likely, a Samsung TV set with an integrated Google TV running Android apps and competing with the putative Apple TV.

I used to think product size, carriers and the rapid obsolescence of the integrated computer made an Apple TV set an impossible dream. I’m not so sure anymore.

JLG@mondaynote.com

PS: To help think about this some more, a great counter example: the Bose Videowave TV set. I use and like other Bose products but, with this one, what are thinking? $5,000, no cable box integration, a separate console box for the “integrated” set. See the Setup and Owner’s guides for more details.