Are Comcast and Apple About to Bring TV to The Twenty-First Century?

Rumors surrounding Apple's (NASDAQ: AAPL  ) set-top box have ramped up recently. And based on speculation making the rounds, and a comment from Apple CEO Tim Cook that Apple no longer considers the business a hobby, the company might be about to take its Apple TV to a whole new level. But the latest report from The Wall Street Journal really puts the icing on the cake: Comcast (NASDAQ: CMCSA  )  could soon offer full access to its service, streamed to the Apple TV -- a move that would modernize television at a larger scale than ever before.

Apple TV set-top box. Image source: Apple.

The talks
Apple is currently in talks with Comcast that are intended to find a way for "users to stream live and on-demand TV programming and digital-video recordings stored in the 'cloud,' effectively taking the place of a traditional cable set-top box," said The Journal, citing "people familiar with the matter."

Even more, the talks indicate that Apple would receive special treatment, bypassing congestion on the Internet for the "portion of a cable operator's pipes that connect to customers' homes."

But the talks still have hurdles to overcome, The Journal says. Apple is merciless in its standards, pushing for the same quality on Comcast's traditional set-top boxes for its streaming service. But such a move would require "significant investments in network equipment and other back-office technology." Beyond quality, Apple has other demands. The Cupertino tech giant wants users to be able to use Apple IDs and control of customer data. And, of course, Apple also wants a cut of monthly subscription fees.

Flexing its cash
Known for using its cash hoard as an operationally strategic weapon to secure big deals, Apple could easily pay a massive advance to Comcast to help it get the ball rolling on such a service. While the investments required for Comcast to prep for an arrangement of this scale may be big for Comcast, chances are such investments are well within reason for Apple. With a reported $158.8 billion in reported cash on Apple's balance sheet, and annual free cash flow of $44 billion, Apple has the money needed to get things done.

In a recent example of Apple helping a partner get rolling, Apple basically used its cash to empower GT Advanced Technologies to expand faster than it could have done on its own. In order to get GT Advanced set up to build sapphire crystal displays for Apple, it bought an empty factory for $113 million in Arizona and essentially loaned GT Advanced $578 million to build and operate the capacity for the world's largest sapphire crystal-growing plant.

Could Apple make a similar arrangement with Comcast? It wouldn't be a surprise.

Apple's important TV business
Cook & Co. are no longer treating its Apple TV business as a hobby for good reason. Not only did it account for a nice $1 billion of the company's revenue last year, Apple analyst Horace Dediu estimates that Apple TV hardware sales were up 80%, year over year, in Apple's most recent quarter -- making it the company's fastest growing hardware business. Even more, Cook likely understated the importance of the product; Dediu believes that the $1 billion figure does not include iTunes purchases and instead only includes distribution revenue from channel placement.

While Apple shareholders should be happy Apple is attempting to ramp up its TV ecosystem, investors might not see the fruition of these talks in the upcoming Apple TV set top box. The Journal's report says that the two companies "aren't close to an agreement." With the rumor mill pointing to an Apple TV refresh in the coming months, an agreement and subsequent investments likely won't be completed in time.

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  • Report this Comment On March 24, 2014, at 10:22 AM, gskorich wrote:

    i got rid of cable tv a few months ago. i find everything i need online or through hulu and netflix. the way consumers use cable tv has changed. its time for the cable industry to change to meet the new demand.

  • Report this Comment On March 24, 2014, at 11:41 AM, username321 wrote:

    Apple should just back a brinks truck full of money up to ESPN..or buy them outright. Once you have them..everyone else will follow. The only reason most people even keep cable anymore is to watch sports. An a-la -cart subscription streaming service with ESPN would end the silliness that is cable tv.

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