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A Marriage Not Made in Heaven



August 30, 2012 – Comments (2) | RELATED TICKERS: AAPL

Board: Apple

Author: Goofyhoofy

Google has hired Goldman Sachs to find a buyer for Motorola Mobility's cable set top business. Reasonable estimates for the price hover around $2 billion.

Apple has, for several years now, sold an aftermarket set-top box called Apple TV, and has, by persistent rumor, tried to find an opening into the cable set-top box business. Most recently they were said to be "in discussions" with several cable MSOs about incorporating an Apple box into the food chain.

Little more about that has been heard, and it might seem at first blush that this provides an easy opening for Apple to get into a business they've long coveted. The problem with Apple TV is that the software (TV shows) is so fragmented, it's hard to put together a "complete package" as they were able to with iTunes. There are dozens of networks, hundreds of independent producers, and other competitors all banging away trying to do the same thing, more or less (Netflix, Hulu, Roku, TiVo, etc.) and all running into the same problem: "We've got NBC but not HBO. We've got Universal but not Fox."

An easy end run is to forget about the program providers and jump in line with the cable boys, who control what box gets put where and how much to pay for it. It might seem this is the same as the cell-phone model, once upon a time, but despite similarities there's one big difference. In the cell phone market consumers had some choice. Oh, it wasn't wide ranging, but you could have a KRZR or StarTac or whatever, and you could have an AT&T or a Verizon or a Sprint or Cellular One, and while we might laugh at the "choices" customers had then compared to the plethora of options that greet us today, it still beats the "cable company says I have to use this box to decode the programming."

(I'm overstating slightly. Comcast, for instance, has 3 different sized boxes, all of which do the same thing, or you can rent a cablecard from them, which also does the same thing, only less.) The cable guys are not eager to turn over their iron fisted control of the customer without a huge fight, and they have the advantage of seeing what Apple has already done to the music industry.

Clearly Google has decided that the set top business is a stalwart, not worth pursuing as they chase Android dreams across the mobile landscape.

Still, I can fantasize: an Apple box, sold to the MSO's and rented monthly to consumers, with a slick interface and the ability to hop programming seamlessly from TV to computer to mobile device and back, a market of 100 million homes, each of which requires such a device, and which integrates other features and services like apps and shopping and games and interactive television and other things that the cable boys will never master because it's so antithetical to their DNA.

Ah, if only Apple weren't such a big, scary company (my, how times change) and if only the cable masters weren't such butt-heads, the skies would open, birds would sing, and the stock would go to $900. Apple gave 70% of iTunes revenue back to the music industry. Is that not enough to entice Comcast or Charter or some of their brethren to take a chance and say "OK, see what new revenue and products you can create."

Stay tuned, but don't hold your breath.

2 Comments – Post Your Own

#1) On August 30, 2012 at 11:55 AM, IlanBigfoot (73.10) wrote:

"The problem with Apple TV is that the software (TV shows) is so fragmented, it's hard to put together a "complete package" as they were able to with iTunes."

 How fragmented is the music industry? I recall it taking a while for iTunes to capture some big names, like the Beatles.

 My dream is, like iTunes and iPhone apps,  independent labels find a place they can prosper. Something like YouTube, but with better quality control.

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#2) On August 30, 2012 at 5:03 PM, Goofyhoofy (< 20) wrote:

You could corral 95% of the music industry with just five players. Yes, you missed the tiny folk and jazz labels, and a few big individual players (Beatles, Led Zeppelin, one or two others) at the beginning, but you had critical mass to make the store attractive. It's far more difficult to do that in the video (television) industry, especially now that other on-line services exist and have signed exclusivity deals with one purveyor or another.

You get in the circuit between the cable company and the television set with a box, you have them all without having to negotiate with a single one. Of course you can't do that without the agreement (and payment) from the cable industry, and as I postulate, that seems unlikely. 

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