2 Barriers to an Apple Inc. and Comcast Streaming Service

Apple and Comcast may be working on a television streaming deal, but launching a new service won't be easy.

Mar 25, 2014 at 11:30AM

Apple Tv

Apple TV. Source: Apple.

Apple (NASDAQ:AAPL) has long been rumored to expand its television prospects, but to date, nothing has materialized beyond the company's popular Apple TV device. The little black box has proved it's more than just a side project, though. The company announced just last month that it sold more than $1 billion worth of Apple TVs in 2013. Despite the device's success, Apple is still looking for new television horizons. Recent reports from The Wall Street Journal have the company talking with Comcast (NASDAQ:CMCSA) to launch a live and on-demand television programming service, with an Apple set-top box at its core.

The companies face two oppositions to such a deal though, and neither is an easy adversary. The first is how Apple can access rights to television programming that other media companies have already sold exclusivity to. The second is how Apple can convince Comcast that it alone should manage the customer experience.

That's my customer, thank you very much
Any device or service Apple launches, by default, becomes an extension of the company. Apple has, for the most part, provided its customers with a positive experience over the years, and its customers have responded with sustained loyalty. Of course, it's not just the customer service, but also the products themselves that keep Apple users coming back. All of this brings up the question of who a customer would belong to if a Comcast and Apple deal were reached.

Let's play out a Comcast and Apple deal for a moment. If Apple launches a new, or improved, Apple TV box, it's safe to assume the company would sell the device directly to consumers. Because of this, the company will want control of customer service calls about the device and its streaming service, just as Apple does with its iPads and iPhones that run on wireless carrier's network.

If that that weren't enough, customers will be using an Apple device to stream media, which means tapping into the current 575 million iTunes accounts makes absolute sense. iTunes users already have them set up, and millions of people use iTunes everyday to do things like download apps. Setting up a separate Comcast account or, even worse, merging one with an Apple account would go against Apple's historical control over customer experience. 

But Comcast isn't likely to willingly hand over the reigns to Apple, either. After all, Comcast would have to invest a lot of time and money into the new set-top programming service, and the content will be zipping through Comcast pipes.

Where'd all the content go?
A more practical, but no less important problem is how Apple would get certain rights to content if a deal with Comcast was reached. As R.W. Baird analyst William Power pointed out, and Barron's Tech Trader Daily blog mentioned, this is easier said than done.

Power wrote in an investor note that "Netflix and Amazon have been locking down exclusive streaming rights for popular shows for years, making a compelling offering more difficult for Apple to assemble. Additionally, original content is rapidly becoming table stakes." In sum, lots of content is already bought up, and Netflix is already big into original programming.

While snatching up content is certainly a barrier for Apple, it would be naive to underestimate the company's ability to garner deals with media companies. After all, Apple did successfully get record labels to sell music on the iTunes platform -- a massive undertaking in own right. But despite Apple's media clout, if exclusive content deals have already been made, it could leave Apple and Comcast's service with subpar programming.

Foolish final thoughts
While the deal is just rumors right now, and certainly faces at least these two major difficulties, I think Apple will ultimately become a bigger player in the television space. And teaming up with Comcast makes a lot of sense.

Apple can't bully its way into the television market, which is all but owned by a handful of cable companies. With Comcast looking to expand its dominance with the announced Time Warner Cable deal, the cable juggernaut may be Apple's best bet for realizing its television ambitions. As for Comcast's prospects, the company is likely looking to turn around 2013's decline in pay-TV subscribers, a first in the industry. Comcast needs to look five years down the road, when there aren't as many as cable customers to hold on to, and make concessions now that would ultimately be good for both companies.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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