Apple and Google May Spar for a Place in Your Living Room

Hardly a day goes by that Apple (Nasdaq: AAPL  ) doesn't loom large in tech news. As if its ongoing courtroom drama with Samsung and the barely contained excitement surrounding the imminent launch of the iPhone 5 isn't enough, there is now evidence that Cupertino is actively working to improve its visibility among television viewers.

An article in The Wall Street Journal a few days ago has had tongues wagging nonstop. The article noted that Apple CEO Tim Cook has been in talks with at least one cable operator, Time Warner Cable, in an effort to persuade cable providers to integrate the Apple TV box into its business plan.

A definite hard sell
This isn't the first time Apple has approached cable companies on this issue. At the dawn of Apple TV in 2007, the company approached Comcast (Nasdaq: CMCSA  ) , but nothing ever materialized. So far, no others have signed on, either, even though partnering with Apple might save the companies money on what they pay for traditional set-top boxes, which they currently rent to subscribers for $10 to $15 per month. Since Apple TV costs less than the current boxes do, that would be cash in the operators' pockets.

But there are stumbling blocks on the road to such a partnership. Fears that Apple will dominate their terrain runs deep with cable companies, much as it did when Google (Nasdaq: GOOG  ) purchased Motorola Mobility, which produces the lion's share of set-top boxes. It's likely that Google's own foray into the television arena, Google TV, did nothing to allay their concerns. One year later, Google is apparently planning to sell its Motorola Home unit, which produces the cable products, perhaps signifying that the relationship between the parties never softened.

Cable companies have indicated that Apple TV's sales numbers don't impress them. Although the product enjoyed a sales boost of 170% from last year, it is still a tiny portion of Apple's revenue stream. Cable providers have also been annoyed by Apple's terms, including a 30% commission on some programming, and a requirement that providers maintain the unit.

It's unclear why Apple is playing hardball with the cable companies, since Apple TV is restricted as to what services it can offer consumers. Currently, the device offers content from Netflix (Nasdaq: NFLX  ) , YouTube, iTunes and Hulu Plus, but it seems unlikely to grow without access to cable channels. Absent a deal with cable providers, some observers have suggested that Apple may consider buying Netflix and its growing stable of streaming options, or TiVo (Nasdaq: TIVO  ) , whose own device resembles Apple's. Of course, there are issues with both of those ideas, not the least of which is that neither company is for sale.

Does Apple have an alternative plan?
It's possible that Apple has another plan in mind altogether, one that has more to do with television itself -- and Google -- and less with the cable companies.

Though rumors concerning an actual TV produced by Apple have been surfacing on and off for years, there is some evidence that this device could now be closer to reality. The most recent report, from Jefferies analyst Peter Misek, jibes with earlier articles postulating that an Apple television could burst on the scene before the end of this year. This could just be more gossip, brought on by the news regarding Apple's talks with Time Warner. Or it could be the introduction, via the grapevine, of the so-called iTV -- orchestrated by Apple, and just in time to gut holiday sales of Google's new TV.

Google's set-top boxes were an underwhelming success, and prone to the same limitations as Apple TV. Its latest box, made by Sony, is said to be much improved, but it costs twice as much as an Apple TV. However, it's the Web-enabled television sets introduced this past spring, via a partnership with LG, that Google is really hanging its hat on. The Internet-search giant is hoping to snag new converts to its Google Plus network by integrating it into new models of Google TV.

An Apple television would probably trounce Google's product in several ways. One would be price: Google TVs made by LG cost nearly $1,700 for a 47-inch model and $2,300 for the 55-inch version. Apple's product is estimated to have a price tag of $1,250, though the size of the screen isn't known.

Certainly, Apple TV's technology will be built into the iTV, and, as some have mentioned, the unit may use Siri as the method by which users communicate with the device, eliminating boxes and a remote control. Lastly, there's no doubt that the picture would be a treat to behold, considering the resolution that Apple builds into its mobile devices.

It's entirely possible that Apple may want to supply set-top boxes for the cable industry, but I'd be surprised if it's a priority. Knowing how tight-lipped Cupertino is about its plans, I think the talks may have been timed to produce chatter regarding Apple's long-awaited iTV. After all, the company has always relied on the rumor mill to create its buzz for its new products, so why would this one be any different?

I believe the debut of the LG/Google TV could be just the impetus to get Apple get moving on its long-standing hobby. The battle of the titans for the premier spot in American living rooms will probably start soon, and I'm betting that the smart money will be on Apple.

If you think Apple can't fly any higher, just wait until the iTV hits shelves. Here's an easy way to keep track of Cupertino's opportunities and risks -- as well as an in-depth look into the company itself. Our premium report on Apple will clue you in to details a savvy tech investor needs to know, so check it out.

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Apple, Google, and Netflix. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Netflix. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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