Apple aiming for TV breakthrough

Tech companies haven't had much success in the living room. Can the iPod maker do any better with its Apple TV?
Written by Tom Krazit, Contributor
Apple may say it wants a revolution, but it might have to settle for something more modest in the digital living room.

Lost in all the hoopla over the iPhone at Macworld was Apple TV, sort of a cross between a Mac Mini, a wireless router, and a set-top box, which couch potatoes can use to connect a big-screen television with a Mac or PC. First introduced last September, Apple TV will hit stores later than CEO Steve Jobs said it would at the recent Macworld. But its imminent arrival, possibly as early as this week, has the usual cadre of analysts and Macheads debating its impact on the "vast wasteland" known as television.

Apple's intentions seem clear: It wants to be the company that finally figures out how to tie the television to the Internet and make video downloads as common as music downloads. "With Apple TV, we believe we are providing a new, better way for people to seamlessly and wirelessly enjoy their digital lifestyles," Peter Oppenheimer, Apple's chief financial officer, said during a presentation at the Morgan Stanley Technology Conference last week.

But don't expect Apple TV to be an overnight success. Loads of companies have been flailing at the same goal for several years because of technology and content problems. Many techies are excited about the exploding amount of free video content on the Internet, served up by companies like YouTube and Joost. Most people, however, are still used to watching shows like Lost and The Office or Major League Baseball on their televisions on the day the shows air. They don't think about how the shows arrived on their screens.

And so, set-top cable boxes dominate the living room, perhaps accompanied by TiVo or another digital video recorder. Quiet PCs repackaged for the living room have been slow to catch on as entertainment centers, and wireless adapters meant to connect older PCs can be hard to use and difficult to find.

Rather than trying to convince people to buy a whole new PC for the living room, Apple is pitching a $299 price tag and promoting the hundreds of TV shows and movies on the iTunes Store. But, at least in its first incarnation, it's unlikely that Apple TV will disrupt the entrenched players in the living room, according to analysts.

Cable and satellite companies, along with their set-top box partners, have invested heavily in providing their customers with on-demand shows and pay-per-view movies. You're still going to need one of those set-top boxes alongside Apple TV if you want to watch most shows or games when they air. And analysts say the combination of Apple TV and the Internet isn't the best method right now for delivering high-definition content, which the public has shown a clear interest in watching.

"One of the biggest issues as far as making the Internet your main source of entertainment is that it's something the consumer needs to hook up and network themselves."
--Michelle Abraham, analyst, In-Stat

"I don't see where people are going to be willing to give up their pay TV subscription and go to the Internet for programming" anytime soon, said Michelle Abraham, an analyst with In-Stat.

The premise behind Apple TV is that TV watchers will be able to purchase shows or movies from iTunes and either download them to the Apple TV box or stream them from their PC or Mac over the 802.11n connection to the large screen in the living room. Inside the Apple TV is an Intel processor (believed to be a Pentium M), a 40GB hard drive, an 802.11n wireless chip, and HDMI (high-definition multimedia interface) and component video ports.

Other attempts to bridge that gap between the computer and the television have not resonated with consumers. Start-ups such as Akimbo and MovieBeam have tried to get people used to the idea of acquiring content over the Internet, but have been daunted by a lack of compelling shows and complicated pricing plans. Established companies like Intel and Microsoft have sold plenty of PCs carrying the Viiv and Windows Media Center logos, but there's little evidence that people are actually using those PCs in concert with their televisions--and most of those PCs don't have TV tuners.

"To me, one of the biggest issues as far as making the Internet your main source of entertainment is that it's something the consumer needs to hook up and network themselves," Abraham said. More and more people are setting up wireless networks in their homes, but configuring those wireless networks to handle video has been a more difficult exercise, she said.

This is where analysts believe Apple might have an edge. "One of Apple's strengths is ease of use with elegant solutions," said Chris Crotty, an analyst with iSuppli. If Apple can eliminate the hassles encountered by early adopters of wireless home-media networks, consumers could be more willing to give it a try.

Few prospective Apple TV customers are expected to ditch their Comcast or DirecTV hookup just yet.

Apple TV "is a glimpse of where we're heading in the future, but it's not compatible with the existing infrastructure for the vast majority of consumers out there," said Jeff Binder, senior director of connected home solutions for set-top box maker Motorola.

Cable and satellite networks are private networks, Binder said. This allows companies to send video over different protocols, meaning the signal won't get cluttered by all the other data packets coming over an Internet connection, he said. Established players think this is key for streaming high-definition content at the full 1080p resolution; Apple TV only supports 720p resolution content, and iTunes doesn't offer any movies or television shows in high definition.

While Apple is moving quickly to sign up television shows and movies for the iTunes Store, cable and satellite companies already have tons of on-demand and pay-per-view content available to subscribers.

Those companies also recognize the importance of the Internet to the future of content delivery. "There's a lot more content that a consumer can get through their computer and their computer's broadband connection than through a set-top box," Crotty said.

So set-top box makers are developing devices that will add Internet connectivity and built-in networking--as Apple is doing with the 802.11n chip in Apple TV--alongside the traditional cable or satellite connections, said Dave Clark, director of product strategy and management for Cisco Systems' Scientific Atlanta.

The nature of video is changing so rapidly, no one really has any idea which business model or device will eventually prevail in the living room.

For instance, you could think of Apple TV as a replacement for a DVD player, said Chris Whitmore, an analyst with Deutsche Bank. This was the analogy Apple used in its press release announcing Apple TV. Instead of heading out to Blockbuster or renting movies through the mail with Netflix, just press a button in iTunes and download the movie.

Plenty of companies are eyeing ways to deliver movies over the Internet, from Amazon.com to Netflix to Wal-Mart. Other services, such as Movielink, have been in this market for years.

Those companies, however, don't control the hardware needed to play those movies. Apple has an established model in the iTunes Store for delivering content. And in Apple TV, it has a cool-looking device that could be easy to use: the same formula that made the iPod a success, Crotty said.

"This is the first in what could be a land rush to do online video through the PC and a connection into the living room," he said.

Editorial standards