Apple TV Is Coming -- Straight From Microsoft and Netflix

The Wall Street Journal says that Apple (Nasdaq: AAPL  ) is bringing television sets to market. Cupertino executives have been talking up media brass to lay the groundwork for an Apple-branded TV.

The Journal's sources say that Apple is being vague about it all, and hasn't discussed licensing movies or shows for whatever's up its sleeve. But it seems like the Apple TV -- TV set, that is, not another set-top box -- would respond to gesture and voice commands, and manage your infotainment flow accordingly. If that sounds familiar, the Netflix (Nasdaq: NFLX  ) app for the Microsoft (Nasdaq: MSFT  ) Xbox Kinect now allows users to manipulate content via motion and voice controls.

You could argue that Apple's Siri assistant is a perfect fit for the living room. And building all of this into the TV set rather than relying on third-party gaming consoles (with a Xbox Live Gold account adding $5 on top of your monthly Netflix fees, natch) might be a game-changer.

But then again, you're asking us to give up our trusty Sony, Olevia, and Panasonic sets in favor of another overpriced piece of the Apple ecosystem. If you're a die-hard fan, it might not be much of a stretch -- but at what point do you look around at your iPads, iPhones, iTunes libraries, and Macbooks, and decide that one more Apple gadget would be one too many?

Short of the house it entertains or the car that drove it home from the electronics store, a big-screen TV is likely one of the most expensive things the average American owns. That's why set-top boxes are valuable -- plug and play, no need to throw out your old television to make it work.

Baking Siri and iTunes together inside an actual television is new only in the integration of the parts. Each of the pieces have been on the market for many moons already, under the wings of some of Apple's fiercest rivals no less. Google (Nasdaq: GOOG  ) has failed to make Sony-branded, Android-powered, smart TVs a consumer staple. Prior to his passing, Steve Jobs celebrated that he "finally cracked" the TV market. If he was talking about this thing, I'm afraid Steve was wrong for once.

You really don't have to pick a horse in the digital media race. Some companies ride both the Android and Apple ponies equally well. Check out 3 ideas on how to play this race in 2012, courtesy of Fool analysts.

Fool contributor Anders Bylund owns shares of Netflix and Google but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Apple, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, Microsoft, and Netflix. We have also recommended creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 19, 2011, at 2:38 PM, mike2153 wrote:

    It might help me believe in your assessment if you offered some reasons for your opinion. Just saying I think so isn't terribly convincing.

  • Report this Comment On December 19, 2011, at 2:47 PM, TMFZahrim wrote:

    Mike, attempts have failed in the past, including from Apple. Similar services already exist in the market, like NFLX on Kinect. Asking consumers to replace an expensive piece of hardware that tends to dominate living rooms is asking a lot. All of these reasons were outlined in the article. Did you read it?

    Anders.

  • Report this Comment On December 19, 2011, at 4:16 PM, CraigNotGreg wrote:

    "But then again, you're asking us to give up our trusty Sony, Olevia, and Panasonic sets in favor of another overpriced piece of the Apple ecosystem."

    Try to avoid using words like "overpriced" in sentences such as the one above, and you won't appear to be biased. Some consumers think Apple products cost too much, while others think that Apple's products provide a lot of value when one considers total cost of ownership.

  • Report this Comment On December 19, 2011, at 4:25 PM, SkippyJohnJones wrote:

    Anders, here's my guess at where the puck is going:

    AppleTV (whether an STB or standalone screen) will soon make Apple a distributor of a different sort. They will take the App Store agency model to the movie and TV studios, as well as the networks. They will pitch the content owners on the notion that they don't need to sell their souls to the cable companies. Instead, they will say, go straight for the consumers. Sell whatever you want. Price it however you want. Load it up with commercials, or sell premium versions commercial free. Bundle your own content, or sell it piecemeal. Do whatever you want, and the market will decide if it has value.

    HBO Go already exists as a content rich app for current HBO subscribers. What if Time Warner (who owns HBO) decides they want to sell HBO directly to users and cut out the middle man? What value is Comcast to HBO if the same users are willing to pay a higher net total directly to the network's bottom line through the App Store? Take the same content and put it directly in iCloud. Now Apple provides all the hosting and playback functionality; suddenly the set top DVR becomes irrelevant with everything on demand direct from the content owners, courtesy of Apple. Want to watch it on a plane? Just download it to your iPad and delete it when you're done.

    Think about the implication of this. The new NFL TV deals inked last week all include digital distribution rights. How nice will the CBS football channel be? Mine will be customized with my fantasy team. My buddies who live outside their home teams' markets will be elated to have constant access - for a price of course. Imagine custom college sports networks for maybe $5/month per team. No more searching for the right regional Fox Sports affiliate on the lengthy program guide; just open the app and it's there for you in HD. Can't start on time? No problem, just stream it when you're ready. You can fast forward to live if it's still in progress, or watch from the beginning.

    Again, the networks will still own the content, still set the price, still sell ads. They can even disable DVR functions during commercials to make ad impressions more valuable. But they don't have to fight Cox/Comcast/TWC/DirecTV over whether to charge for broadcast networks. Instead, they will sit across the negotiating table from millions of individual consumers. They can tailor ads based on what individual consumers actually buy, just like online, but they can do it with a TV-sized mass audience. They can bundle "channels" or sell them individually. Or maybe they offer tiered pricing based on the number of channels bought (think Discovery Communications here). I imagine most users would save significantly from their current cable bills, but without killing the content generators. The $15/month for each STB would be replaced by one time expense of a TV with the tech built in or $99 for an aTV box.

    Independent material would get the same platform, and would share the same distribution costs (as a percentage). If it finds an audience, a show could last as long as the revenue justifies the budget. A show like Community would have the opportunity to plead directly with its viewers before closing up shop.

    I want a TV "channel" dedicated to the news I care about. Maybe CNN stories filtered only according to my specifications. Maybe I only want the CNN business network, but not the CNN political network. No problem, just tweak the app settings.

    None of this looks ANYTHING like what Netflix and Microsoft are doing. Google could also pull it off if they try hard enough. I could be completely wrong of course, but Siri and gestures don't have to look anything like what we see today. Something tells me Jobs was thinking differently than Hastings and Ballmer when he told Jacobsen "I finally cracked it."

  • Report this Comment On December 19, 2011, at 6:21 PM, Emperor2 wrote:

    Been done before? So had an MP3 player. So had a smartphone. So had a tablet. Apple doesn't normally invent a new category, they just make their product so wonderful to use that people suddenly realize they can't live without the product. I have no idea what Apple TV will look like or what it will do, but if Apple finally converts Apple TV from a "hobby" to an actual product, I'm willing to bet they will sell millions.

  • Report this Comment On December 20, 2011, at 6:44 AM, bonkie35 wrote:

    the biggest problem with pay per channel is that most of the channels are owned by the cable providers. so Comcast own NBC, TW owns all the TW stuff, direct TV owns anything fox

    so then also the big cable people own the internet. at least in the US

    so you think the cable companies are going to give up content and subscribers and then pump massive content across the internet. This is the problem is the establishment Netflix ran into the issue. where Comcast was throttling Netflix traffic and then everyone went to starz and said WTF so starz limited their content.

    MS with Xbox live basically said we will replace your digital box. I pay $6-7 per month per box Xbox live is 35-45 per year do 3.75 a month with Xbox live I cut my box rental down 50% but i still have to pay Comcast $55 per month for 3 -5 TV channels

    Now what apple is famous for is taking the ipod touch and selling it in the different form with a few more features and then saying they invented the industry.

    iPhone – iPod touch with calling options

    iPad – iPod touch with a 9.7” screen

    iTV – ?

    It is hard to make a touch screen on tv in America we have not touched our tv’s in years. Only to move them in place. So when he finally cracked it maybe it is an iPod touch with motion control.

    The only problem I see to having an all in one on TV is this. With xbox kinect when the thing breaks – think I get a new TV every 5-8 years really I want a TV to last longer. Kinect when it breaks I throw it out and buy a new one. It breaks in 3 years at $99-140 I would consider that a good run. If my iTV motion sensor breaks in 3 years I would have to buy a new TV. With apple that is what they like. Every 2-3 years you buy a new iThing. But that one thing when your talking $200 – 300 but when your talking 3000-5000 its quite costly

    Really it is a wait and see also if it was $5 a channel you would not need many channels to hit $50 which is what I am paying with cable. Think 2 sports, kids channels, some entertainment channels. I watch 3 on a regular basis. Wife – 3, Kids – 3, Me 3

    Suddenly the cord cutting savings are being eroded then if it realty takes off Comcast will throttle data stream to itunes so the pic will look like crap. Swap out to ATT well they have uverse and a low data cap if your not on uverse. 150GB per month. The average movie is 1 gig. It wont take long to blow 150 gb

    Cord cutting can be done but it is not as easy as let me pic my 3 channels and roll.

  • Report this Comment On December 20, 2011, at 9:27 AM, rtekosky wrote:

    The move to TV is a completely logical move if you remember that "all things digital" is what its always been about.

    Microsoft's "jumping the shark" happened with its media center pcs. Terrible execution. Apple took the ball and has never lost the lead. I'll grab an Apple TV as will so many other Apple users. Why? Everything works together. Easy, pain free, no thinking whatsoever. Stable, worth every extra penny.

    Brand name TV's cannot possibly compete. Look at the software on all of them, its infantile. Even Tivo.

  • Report this Comment On December 20, 2011, at 11:39 AM, SkippyJohnJones wrote:

    @bonkie35, I'll respond in two parts.

    "Comcast own NBC, TW owns all the TW stuff, direct TV owns anything fox"

    1 out of 3 there. Comcast does own NBC. TWC is a completely separate public company from Time Warner. DirecTV was once controlled by News Corporation, but that is ancient history; so much so that all Fox programming was almost removed in a negotiating ploy a couple months ago.

    Let's back up and think about who owns what:

    -Walt Disney Company (Disney branded channels, ESPN, ABC, Lifetime, A&E, History Channel, SoapNet, Disney Pictures, Touchstone, Pixar, Buena Vista)

    -News Corporation (Fox branded broadcast and cable channels, 20th Century Fox studios, Big Ten Network)

    -Time Warner (HBO, Cinemax, Cartoon Network, TNT, TBS, TCM, Boomerang, CNN Networks, CW, Warner Bros., New Line Cinema, Castle Rock)

    -Viacom/CBS (CBS, MTV, Nickelodeon, VH1, CMT, BET, Comedy Central, Spike, Showtime, The Movie Channel, Paramount Group)

    -Comcast/NBC Universal (NBC branded networks, E!, Golf Channel, Style Network, Bravo, USA, Versus, The Weather Channel, Oxygen, SyFy, Sprout, Telemundo, Universal Pictures, Focus Features)

    -Discovery Communications (Discovery branded channels, Animal Planet, TLC, Oprah Winfrey Network, The Hub)

    -Sony (Columbia/TriStar, Sony Pictures)

    -Scripps (HGTV, DIY, Food Network, Travel Channel, Cooking Channel)

    -Liberty Media (Starz, minority ownership in several other listed above)

    These nine companies own almost all of the relevant content, as well as the broadcast rights to the content. Some are fully integrated, producing and distributing mostly proprietary content. Others produce more television than they distribute, and the balance are primarily distributors.

    Among these nine businesses, only Comcast would have a major conflict of interest with a new model. The company is under constant scrutiny because of its integrated model, and legally has to sell its content to the other cable/satellite providers. With enough scale, I suspect they'd get on board.

  • Report this Comment On December 20, 2011, at 11:59 AM, SkippyJohnJones wrote:

    @bonkie35, part2.

    Back up from this discussion further and think about WHY Apple wants to get into the business. They are interested in disrupting the current value chain. It's what they do, and it's the reason the company is worth so much today. Apple is not interested in competing with Netflix and Amazon in the all-you-can-eat package. Netflix has shown the limitations of this model; the content owners don't want to share the new stuff, and live programming is still needed. Users don't replace anything with Netflix; it's merely an add on.

    Apple sells hardware, and uses everything else as a means to greater high-margin hardware sales. They want to simultaneously differentiate themselves from Samsung, Sony, Motorola, HP, etc. on the device side and Google, Microsoft, RIM, etc. on the service side. Hardware will more and more commoditized going forward, so the services and software are key. This is what drives Apple to release Siri, iCloud, and many other recent releases. Google is viewed as the only real competitor in today's mobile space, and the two companies have very different objectives.

    Google is more enemy than friend to the media companies. Google wants everything to be free and democratized. They are scanning and translating all the world's books with the intention of releasing every written word to every human being for free. It's a noble objective, but one that contrasts with everything that media companies stand for. Just look at how long it took Android to get Netflix working - the DRM wasn't strong enough to earn trust. Also, Google is primarily an advertising company. Many media executives see advertising as a zero sum game, with every dollar moving to the web coming at an expense to old media formats. YouTube is finally beginning to work, with better content attracting real money and generating profits for the artists and Google.

    So Apple sees the Netflix like services as irrelevant and probably sees itself as being years ahead of Google in this distribution opportunity. Microsoft has preemptively waived the white flag, making the XBOX 360 a cable box. Apple has clear incentive. They have the financial resources. They have the proper physical infrastructure. They have a cheap hardware way of tying into TVs (Apple TV).

    This is a model that will reward good content with big bucks, and it would put the advertisers in much more personal content with the viewers. At the same time, viewers can potentially save money by buying only what they want. More importantly viewers can gain constant access everywhere. The only losers are the cable companies, but they will get their money back by increasing internet access costs. Keep in mind that the margin on ISP business is EXTREMELY high on mature networks, especially compared to the TV distribution business. Perhaps even Comcast can find a way to like this type of deal.

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