Apple Tv Interface View

Source: Apple.

In the prelude to Apple's (NASDAQ:AAPL) World Wide Developers Conference in June, speculation again surged that the company might finally introduce the long-awaited, oft-discussed TV product so many desire from the Mac maker.

Crickets.

The elusive over-the-top streaming-TV product has yet to materialize, although it appears still very much in the works. Unfortunately for those who hoped Apple might roll out the service as part of its customary fall product launch cycle, recent reports claim that Apple's streaming service will remain off the shelf until next year.

Ongoing negotiations
According to reports, Apple originally intended to launch its television streaming service during its upcoming September iPhone launch event to coincide with the debut of the fall TV season. However, two main issues reportedly kept Apple and its TV-content partners from reaching terms on an acceptable timetable.

One impediment that should surprise no one is cost. According to reporting from Bloomberg, Apple and its content partners remain far apart regarding the eventual cost of the over-the-top service and the number of channels it will comprise. The same Bloomberg report claims that Apple hopes to charge roughly $40 a month for its service. In contrast, the major programmers believe new entrants into the paid-TV market should pay more, not less, than the average American's monthly cable bill for the right to compete for subscribers -- a so-called "pay-to-play" logic. We could end up seeing negotiating posturing on the part of the content providers, but given the chasm-like difference between the two parties, the current impasse makes perfect sense.

The second hindrance to Apple's eventual TV service lies on the technical side of Apple's business. Apparently, Apple still needs to make significant investments in its own data-warehousing infrastructure and delivery capabilities to fully support an over-the-top streaming service at the level of uptime consumers now expect. From a technological perspective, a fully operational content service such as Apple's looming offering must store the content it serves as close to consumers as possible to diminish lags that can occur if content traverses long distances before reaching its final destination.

Currently, Apple operates four main data centers in the U.S. Three of these centers reside in the west -- California, Nevada,  and Oregon -- which could make supporting regular content consumption in major Midwestern and East Coast media markets particularly troubling. Reports indicate that Apple is already taking steps to alleviate this issue, and rare is the occasion when Apple lacks the technological mettle to execute on one of its strategic initiatives.

Will it even matter when it arrives? 
The recent reports documenting Apple's TV-related headaches force you to wonder whether Apple's TV service will really matter, assuming it ever arrives.

Consider that TV subscriptions declined for the first time ever last year. Furthermore, with the emergence of over-the-top "skinny bundles" from the likes of DISH Network and Sony and non-cable alternatives such as Netflix, the cable industry seems likely to evolve in the coming year. Apple, with its massive installed user base, could help reverse the trend in short order. However, if Apple must make significant concessions in terms of either price or number of channels included to coalesce enough industry buy-in to eventually launch the service, will the somewhat compromised service be a genuine draw to consumers?

Though alternatives such as Netflix and Amazon.com's Prime Instant Video can help draw some consumers away from cable, the cable industry and content providers still find themselves in far more defensible strategic positions than the recording industry did when Apple negotiated the deals that lead to iTunes. In fact, the resounding success of iTunes probably strengthens the resolve of the content providers to not grant Apple overly generous terms for its service. In this sense, the historical legacy of iTunes casts a shadow over Apple's current negotiations that threaten to water down its TV efforts to the point of irrelevance.

There's a fair degree of conjecture involved here. Apple's negotiating hand could in fact be stronger than current reports suggest, or its current delays could owe more to its infrastructure woes than to content problems. It also bears noting that regardless of its eventual launch date, Apple's TV product probably won't meaningfully affect the company's financial performance one way or another. Either way, it appears we'll need to wait at least another year before we find out whether Apple's long-awaited over-the-top television service can deliver on the promise so many believe it offers.

 

Andrew Tonner owns shares of Apple. The Motley Fool recommends and owns shares of AMZN, AAPL, and NFLX. 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.