iTV, Finally? Inside Apple's Crazy Plan to Change the Way You Watch Television

Apple couldn't beat the cable companies at their own game. So, it's thinking about joining them.
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Years of halting negotiating with cable companies haven't gotten Apple much closer to its grand vision for television. But a newer strategy of talking directly to content providers seems more promising.

Apple is negotiating with production studios and networks to provide content for a television set that would emphasize apps over cable TV, according to people familiar with those discussions. Among the companies that have talked to Apple are Disney's ESPN, Time Warner's HBO, and Viacom, which owns MTV Networks, Nickelodeon, and Comedy Central.

It's unclear how close these deals are to fruition. Some people cautioned that, with the TV industry in such flux, "everybody is talking with everybody." Any deal with an internet TV service like the one envisioned by Apple is likely to be under similar terms as the networks have negotiated with traditional cable companies.

Sources say Apple's strategy could include forming its own pay TV service, essentially becoming a cable company itself, except with content delivered entirely over the internet. Intel, Sony, and Google are known to be pursuing similar tactics, and could launch their own pay TV services before Apple.

The difference is that Apple wants to release a full-fledged television set, seeking to control the entire experience of watching TV, according to sources. Apple already sells a small set-top box called Apple TV that plugs into the back of other televisions. It's an add-on device for watching apps like Netflix and video purchased from Apple's iTunes store. An Apple television set, by contrast, would attempt to usurp the role of the cable box in people's living rooms.

Apple declined to comment. So did Viacom. ESPN spokesman Chris LaPlaca, referring to talks with all potential internet TV services, said, "This is very, very exploratory in nature. There are no formal discussions taking place." HBO spokesman Jeff Cusson said, "We see our current model as our best model for now and have no plans to go over the top or to enter these markets in a different way."

The reference to going "over the top" points to a crucial distinction in the industry. Most new television programming is only available to people with pay TV subscriptions, which bundle together lots of networks for a monthly fee. Other ways of getting such content, like paying for shows a la carte, are considered over-the-top services. Streaming internet video companies like Netflix are also included in that category. But an internet-only pay TV service could occupy a gray area--not technically over-the-top, but still a threat to cable companies that fear becoming "dumb pipes" for other people's programming.

Goodbye, Channel-Flipping

The main obstacle to an Apple television set has been content. It has mostly failed to convince cable companies to make their programming available through an Apple device. And cable companies have sought to prevent individual networks from signing distribution deals with Apple.

Sources say Apple has concluded that it doesn't need all, even most, content providers on board before it can release a TV set that people would buy. It just needs enough good programming to distinguish the new product, which will try to simplify the experience of connecting internet video to the TV.

A deal with a top-tier content provider like ESPN or HBO could represent a tipping point that would encourage Apple to bring the product to market. Most networks, though, would be reluctant to strike deals without the participation of others, not wanting to upset their relationships with cable companies, which view Apple as a disruptive competitor.

Apple's TV set could shift the paradigm of traditional television watching. Instead of organizing everything around channels, it would organize around apps from networks, studios, and others that own content. Other features, like search, might help eliminate the notion of channel-flipping altogether. Cable companies, in that scenario, could become just another app that consumers choose to pay for or not, rather than the core of the TV set.

Apple is still interested in striking deals with cable companies that would allow people to plug their cable lines into the back of the TV set, bypassing a cable box, sources say. But at least two years of negotiations haven't progressed very far. The cable companies worry chiefly about losing control of their relationship with customers, as some believe happened to AT&T with the iPhone.

Apple is reportedly close to signing a deal with Time Warner Cable that would give the cable company's subscribers an app on the existing Apple TV set-top box, which is about the size of a hockey puck and sells for $99.

​The existing Apple TV.

It's not clear what would happen to the current Apple TV if Apple also releases a TV set, which would cost much more. Apple's desire to control all aspects of the experience is typical of the company, which puts a premium on aesthetics and ease of use, but it would still be a risk. TV sets are expensive, and people generally keep them longer than Apple's other popular products, like computers and phones.

Picking the Right Moment

The existing Apple TV box is essentially a conduit for Apple's own iTunes store, which sells and rents a large catalog of movies and TV shows. Apple has repeatedly downplayed the set-top box as a "hobby," but sales have picked up recently. In May, Apple CEO Tim Cook said "about half" of the 13 million Apple TV's ever sold had been purchased in the past year, and the product was recently upgraded to a "beloved hobby."

In recent months, Apple has made various small moves to build its presence in TV land. It just acquired startup Matcha.tv, which helps people find a particular program or movie on the internet. Apple also reportedly offered $280 million for the Israeli firm PrimeSense, which makes motion sensing technology that can be used as a gesture-control system for TV.

Meanwhile, competition from other set-top boxes in the US has increased. Microsoft is preparing to release a new version of the Xbox, which is used as much for watching video as playing video games. Roku recently raised $60 million of venture capital, and has struck deals with some cable companies, including Time Warner Cable, Comcast, and DirecTV. Google launched the Chromecast, a small device that plugs into the back of TV sets to stream video and music. And Amazon, not to be left out, is also working on its own set-top box.

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Presented by

Zachary M. Seward, Gina Chon, and Kevin J. Delaney

Zachary M. Seward is a senior editor at Quartz, where Gina Chon is a reporter and Kevin J. Delaney is the editor.

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