Apple is possibly buying big LCD panels, Steve Jobs said some words to his biographer and that means Apple are going into the TV business in a big way. And so begins another round of speculation where people project their fantasies about the product they would like to see Apple make. There’s a long and ignoble history to Apple speculation, particularly in the TV space, so if we must do speculation then it’s better to anchor it with an understanding of the TV industry and its technologies.
Let’s start with the basics. Digital TV requires a digital TV receiver (typically a set-top box) which contains some kind of Content Access (CA) technology (usually based on smartcards with decryption keys). TV operators broadcast TV data to the receivers, either terrestrially (radio masts), from satellites or over cable. Most of these systems are proprietary and under the complete control of the TV operator. There is a European standard DVB (DVB-T for terrestrial and DVB-S for satellite) that lets the consumer bring their own equipment to view free-to-air content and to plug in an operator’s CA smartcard for access for pay-TV content. As a result there is a market for TVs with integrated receivers and some manufacturers (e.g. Humax) sell some that include a DVR. However, this standards-based approach to TV is not universal and most of the TV industry is proprietary.
IPTV is seen as a new alternative to cable, terrestrial and satellite TV and allows DSL networks to carry live TV. But it is important to understand that although the “IP” in “IPTV” stands for “Internet Protocol” this is not the Internet: it is a private IP-based network where quality-of-service (QoS) can be guaranteed and TV channels are contained within broadcast IP packets (typically UDP). IPTV follows the same form as cable TV: proprietary operator-controlled receiver equipment with CA. The difference is that any ISP with a DSL network and the willingness to invest in infrastructure, supply customer equipment and negotiate content rights could become a TV operator. In Europe there are several who have done this (including British Telecom, who have been running the BT Vision service since 2006).
The TV industry has also been investing in on-demand content over the public Internet. To avoid confusion with IPTV, this is called Over-the-Top (OTT). But it is important to understand that this is not TV as we understand it: it isn’t live TV broadcasts but rather streamed video from a back-catalogue of movies and TV that can be delivered as an add-on to core TV services. In fact, the current Apple TV product is an OTT product. And, as Apple and consumers already know, it is not a replacement for TV. In any case, if it ever were used to replace TV it would hit scaling problems: the sheer amount of data required for streaming three hours of TV per day would require tight integration between the ISP and the content servers – entailing all the current issues of Content Delivery Networks and network neutrality.
So what challenges would an Apple TV product face in attempting to disrupt the TV industry? Firstly, TV is technically fragmented. How would an Apple TV support satellite, terrestrial, cable and IPTV? Different countries have adopted different solutions and a global product would need to support them all. For example, if there’s no DVB-T receiver, the European market is ruled out; no DVB-T2 variant, then no HD in the UK. Secondly, if Apple did produce a global product then how would that TV reach consumers without the willing participation of each TV operator? For some systems (e.g. DVB-T in Europe) it is possible for a consumer electronics company to sell to the consumer who then provisions the equipment themself. But this is the exception. In fact, TiVo in the US started life selling to consumers but as the TV industry moved to digital TV, TiVo had to shift to selling to operators (TiVo now have a major deployment in the UK with cable operator Virgin Media).
Apple could target individual TV operators. But their product would then be tied to the operator (can you imagine how happy a consumer would be to spend $2000 on an Apple TV and then find that after moving home to a new area with a different operator they had to junk it?) or else the operator would have to repurpose their infrastructure to fit with Apple. It’s theoretically possible that Apple could make a TV so awesome to use, so utterly compelling to the consumer, so technically capable it could handle all digital TV systems, that a TV operator offered some kind of exclusivity deal would willingly make the infrastructure investment and choose an Apple future. But unlike publishers, who have a bleak future and have to do something, the TV industry isn’t facing a shattered business model and withered revenues. And in any case I am very sceptical that an awesome user experience is enough to significantly shift subscription patterns: there are some shockingly bad TV systems where the operator has sparkling growth numbers.
Apple could adopt IPTV and provide both the receiver (the TV) and the infrastructure and target ISPs who want to get into TV (i.e. enter the same market as Microsoft with its Mediaroom product). This might succeed in the EU on a small scale where the barriers to entry are low thanks to the regulatory regime (e.g. Local Loop Unbundling). But this does not provide the scale that Apple needs and in any case the environment is not replicated in the US where the major ISPs are also the major TV operators and largely operate as regional monopolies. Apple could decide to break the monopolies by acquiring and creating their own IP network with wide reach and becoming a TV operator. But that’s a huge strategic project and I don’t see that happening to sell TVs.
Apple could make a TV that integrated the existing OTT software and had a ‘pass-through’ mode where the output of an operator’s set-top box is input to the TV and appears underneath the Apple UI. This is the approach taken by Google TV, but consumers have been disappointed by the proposition and I doubt that an Apple version of the same would be a game changing product on the scale of the iPhone.
The global TV industry took 50 years to evolve into its present complex commercial and technology dependencies. That’s not going to be overturned by a TV screen, no matter how nice to use it might be.
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