Comcast's $45 Billion Purchase Of Time Warner Cable Is Trouble For Apple TV (AAPL, TWC, CMCSA)
A funny thing happened this week.
After years of rumors, speculation, and wishing, we got two solid reports that saidApple was really ready to launch a full-on TV product.
These reports followed Mark Gurman at 9to5Mac saying a new Apple TV was coming in the first half of the year. All three said Apple was revamping its little hockey puck TV box, not releasing a big screen TV.
The Journal and Bloomberg both said Apple was partnering with Time Warner Cable to deliver video content to users. Apple TV would add a nice layer of user interface to Time Warner's video stream.
However, just hours after the reports broke, a much bigger story involving the TV industry hit. Comcast was planning to buy Time Warner Cable for $45 billion in an all-stock deal.
We don't know what this means for Apple's TV plans, but it sure looks like whatever Apple was planning will be thrown into flux.
The Comcast-Time Warner Cable deal won't close for a while and Comcast shouldn't have influence over Time Warner's plans until the deal is officially closed. But who knows if Time Warner will want to dive into something as big as a partnership with Apple at the same time that it's getting acquired.
Our guess is that in the short term whatever Apple was working on with Time Warner Cable should be safe. Time Warner has been in play for a while, so Apple must have been aware this could happen.
In the long run, things get a little fuzzier.
On the day that news broke that Apple was working with Time Warner Cable, UBS analyst Steven Milunovich put out a note on the news titled, "Attempt to Preempt Comcast in Set-Top Box."
Milunovich says Comcast has an agreement with Cox to use its set-top platform. Presumably, when it owns Time Warner Cable, it's going to push those customers to use its platform. That would mean the three biggest cable companies, or ~35 million subscribers, will be using Comcast's set top box.
Milunovich says that Comcast has been aggressively investing in its own set-top box platform, called "X1":
"Today's X1 features include voice-based navigation and search, personalized recommendations, a collection of customizable widgets, and access to third-party apps such as Facebook, Twitter, and Pandora. Internally referred to as X2, Comcast is in the midst of migrating its X1 users to a next-gen cloud-based device. This upgrade provides cloud-based DVR, mobile device synchronization, and app airplay capabilities."
This makes it sound like Comcast would not want to hand over its video signal to Apple. It sounds like it thinks it can build a better TV experience.
It's possible Apple makes something so great Comcast decides to drop its own platform, but we doubt it. It looks like when Comcast buys Time Warner Cable, Apple will have one less partner for trying to crack the TV market.
And this is the problem for Apple. Breaking into the TV market is tough because it's a messy industry. It's fractured, but the power is still in a few hands.
As Steve Jobs said in 2010, you can give consumers a box, but then it's just another box on top of a box. "You end up with a table full of remotes, cluster full of boxes, bunch of UIs."
Here's the full quote from Jobs in 2010, which remains the best explanation of why Apple has struggled to crack TV:
"The problem with innovation in the television industry is the go to market strategy.
The television industry fundamentally has a subsidized business model that gives everybody a set top box for free, or for $10 a month. And that pretty much squashes innovation because no one is willing to buy a set top box.
Ask TiVo. Ask Replay TV. Ask Roku, ask Vudu, ask us, ask Google in a few months. Sony's tried, Panasonic's tried, we've all tried. So, all you can do is add a box onto the TV system.
You can say … I'll add another little box with another one. You end up with a table full of remotes, cluster full of boxes, bunch of UIs.
The only way that's ever gonna change is if you really go back toy square one and you tear up the set top box and design it with a consistent UI and deliver it to the customer in a way they're willing to pay for it.
Right now there's no way to do that. So that's the problem with the TV market.
We decided, do we want a better tv or a better phone? The phone won out because there was no way to get it to market. What do we want more? A better tablet or a better tv? Well, probably a better tablet. But it doesn't matter because there's no way to get a tv to market. The TV is going to lose until there is a viable go to market strategy, otherwise you're just making another TiVo.
That make sense?
It's not a problem of technology, it's not a problem of vision, it's a fundamental go-to-market problem.
There isn't a cable operator that's national, there's a bunch of operators. And it's not like there's GSM, where you build a phone and it works in all these other countries. No every single country has different standards. It's very 'tower of babble-is', not that's not the right word. Balkanized. I'm sure smarter people than us will figure this out. But when we say Apple TV is a hobby, that's why we use that phrase. "
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