Apple's future TV: Can Web-based apps replace 'channels', kill cable?

Will living room of the future be centered around a Web-connected, iTunes-powered Apple-branded TV--a 50-inch, high-def, wall-mounted iPhone?
Written by Sam Diaz, Inactive

Gene Munster's living room of the future is centered around a Web-connected, iTunes-powered Apple-branded TV--a 50-inch, high-def, wall-mounted iPhone, if you will. And the stuff you'll watch on this "TV set" won’t come in via Comcast or DirecTV. It will all stream in from--or be archived through--iTunes.

That's the way Munster, a Piper Jaffray analyst, sees it. In a note to investors today, he offers his take on a deeper dive into the living room by Apple. The company, you see, will become both hardware, software and content provider in this new world of television--just as it has already become for today’s world of digital music.

He believes it is "highly likely" that Apple will release a new Apple TV in the coming months that will include support for a monthly subscription for iTunes TV shows or TV recording features. He writes:

With the popularity of ad-based Internet TV (Hulu.com) and subscription models (Netflix’s Watch Instantly), we believe a-la-carte (iTunes) video purchases have lost share against other video models in recent months. As such, we believe Apple is exploring a subscription-based offering for its TV content in iTunes.

I don't necessarily agree with that--but more on that in a bit. He went on to talk about the longer-term outlook and expectation of an Apple-designed, Web-connected TV with DVR and home media functionality built in. That could arrive as early as 2011, he wrote. From the report:

The device would push Apple further into the digital living room with interactive TV, music, movie and gaming features (with the iPhone or iPod Touch as a game controller). Such a device would command a premium among a competitive field of budget TVs; we believe Apple could differentiate itself with software that makes home entertainment simple and solves a pain point for consumers (complicated TV and component systems).

The TV market is a tough game and it's changing fast, not only in the way programming is offered but also in the hardware (TV sets) that are being manufactured. At last year's Intel Developer's Forum, Yahoo and Intel talked about Web-based widgets for Web-connected television sets--basically "apps" that deliver on-screen sports scores, weather updates and Flickr slideshows. Intel's technology outfits the screen itself to take on that role of PC.

Munster points out that Apple's five-year US$500 million partnership with LG for LCD screens likely covers displays for Macs and portable devices, it could also include the larger LCD TV displays. On the software and content side, Munster is envisioning a scenario where iTunes--which already has TV content--becomes a subscription service that allows viewers to dump the cable guys and instead use iTunes to get episodes of certain shows--those offered up by Apple’s partners.

Here's the thing: To get me to dump cable or satellite, Apple will have to up its game in offerings, including first-run and live-streaming broadcasts. To pull that off, Apple would have to go back to the negotiating table with the networks. That could be tough, seeing how Steve Jobs apparently has a rep for being a bit of an S.O.B. when it comes to negotiating in Hollywood. Consider all of the work that it's taken just to get the music side of the business this far.

Still, I like where Munster is going with this.

But, I say forget the idea of turning iTunes into a subscription service. I disagree that the demand for a-la-carte has lost its spark. There are some 65 million users of iTunes out there and I can't imagine they'll respond happily about the service being flipped on its head. Instead, Apple should take baby steps and work with the networks on subscriptions on TV apps that would offer unlimited access - including live streaming--to certain networks. It's no different than paying US$13 extra per month for HBO or Showtime, really.

In a sense, this offers subscription pricing on a-la-carte programming by burying it within the app. Can’t you see it?

Here's my vision: Apple offers a base subscription with 10 or 20 "core" network apps, those such as CBS, CNN, ESPN, Nickelodeon, Bravo and so on. After that, others are added to your TV set--not a set-top box--on a per-app, variable-pricing subscription basis--maybe US$0.99 for Boomerang, US$1.99 for the NFL Network but US$5.99 for Showtime. There could potentially be all sorts of ways to slice it and dice it.

And the consumer couldn’t be happier. If I only add a handful of channels, then I save money over my satellite bill. If I add a lot of them, I may pay more than I currently pay DirecTV--but now I get the networks (as opposed to "channels") that I really want; not those that are given to me in a package.

Hey, maybe Apple can talk Showtime into offering a US$1.99/month “Dexter” app. I’d buy that.

For this to really work, though, the idea of wrapping it into iTunes and/or a TV set is the way to go. Apple TV hasn't become the must-have device the way the iPod and iPhone did and thinking that consumers will buy it now just so they can pay subscription fees isn't very realistic either. There are too many other options out there.

Earlier this year, I shook my head at a theory from Munster that games and apps would be one way for Apple TV to generate some growth. Sure, they’re taking off on the iPhone--but many of those apps are designed for folks on-the-go. Apps for TV would have to be related to the TV viewing experience--and they really would need to work independent of a set-top box.

They would need to come built into the TV.

For some time now, Apple has put its AppleTV product on a back burner. Executives repeatedly called it a "hobby" but gave it little respect. Then, earlier this year, COO Tim Cook told analysts that the company would continue to invest in AppleTV because "we fundamentally believe there is something there for us in the future".

I've been an Apple TV owner for some time now and I have to say our only real use for it has been renting movies in HD (no Blu-Ray player in this house), playing some YouTube videos and the occasional living room presentation of a photo slide-show. Still, I have liked how well the system integrates with iTunes on computers around the house.

I have seen what Apple TV can do. I can only imagine how the company can stir up the future of TV if it is truly working on some form of Munster's vision.

This article was first published as a blog post in ZDNet.

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