The Potential

The reason the AppleTV holds such a special place in my heart is because of its potential. In the land of the cloud, Apple is a media giant. It’s the de facto standard in electronic music distribution and a major supplier of movie, TV show and podcast content. They’ve also got a foot in Audiobooks and a major educational presence in iTunes University. So why hasn’t the AppleTV caught fire the way all of their other devices have?

The Problems

In a nutshell, the AppleTV is primarily a way to enjoy content you buy or to view content once (or however many times within a 24-hour window) that you rent from iTunes. Secondarily, it’s a device that allows you to view video content you got somewhere else. The difference? Apple only allows you to play video encoded in MPEG-4 or H.264 – so re-rip it (the content), hack it (the device -with the excellent ATV Flash or similar tool) or suck it. Ownership is the major distinction between Apple’s offering and subscription services like Netflix, which allows streaming from any browser, iPod Touch, iPhone or iPad (WiFi or 3G). Although content available for streaming is much thinner that Apple’s library, the entry-level streaming accounts priced at $9/month are very attractive option for consumers wanting to supplement – or eliminate – cable. You’d think that paying once and owning content would be superior to streaming content and paying in perpetuity, and you’d be right if the studios and networks weren’t still dicking around with the definition of “own”.

With the exception of music, Apple’s media presence is unleveraged because studios and networks are still making money with their current models.  In what probably cost Steve his liver, Jobs dragged the album-peddling studio dum-dums kicking and screaming to a distribution model that saved their businesses from piracy. With the successful access to content and its subsequent freeing from DRM, the success of Apple’s iPod was assured. Now we have another army of dum-dums: the studios and networks, which have different problems with a common theme. People want their movies and TV shows regardless of what device they reside on. They don’t want the movies they bought for $16.99 to come with a coupon to download the digital version of what they already own for $1.99, and have that copy cement-shoed by DRM. They don’t want to be locked into a timeslot to view their TV Shows, slogging through horrible program options and hours of commercials on the good stuff. The problem is that content providers are still making money with a model that doesn’t give a shit about what people want. So studios continue to layer copyright protection and people continue to flock to torrent sites to get their media.  Apple has been aggressively lobbying media outlets – particularly networks – to loosen their restriction on their content, but the it has been very slow going. Apple has made some progress with the “Authorized Devices” provision on content purchased from iTunes (you can share movies and TV shows with iTunes on up to 5 computers and unlimited the iPhones, iPod Touches and iPads they sync with), but the restrictions on video content need to be shaken loose if any set-top device is going to work – even one from Apple. And dealing with the networks and cable providers is even more facepalm-inducing than dealing with studios.

As the guys at Three Guys and a Podcast point out, networks have a deal with the cable companies: when you carry our content, you carry our stable. We’ll give you a couple of studs, like ESPN and a couple gluebags, like Lifetime (note that the examples given reflect a slight bias on the part of the author). Sounds a lot like the record studios, doesn’t it? Except this model is much more insidious. When you’re dealing with a cable company, you’re dealing with multiple networks, each with their own demands. Compound this with different geographical markets demanding different price points (imagine what they get for CMT in Nashville?) and the market power of the particular cable provider. As complex as this is, I’m sure I’m simplifying these relationships by orders of magnitude. You may think “Good luck unraveling a la carte network pricing in our lifetime”, but one should never underestimate the influence of a man who brought an end to DRM for music.

So because the AppleTV is primarily a device that plays content you buy from Apple, its fortunes track the restrictions placed on that content. While they are not particularly onerous now, when compared to the current state of music ownership, it’s enough to render the device a failure relative to the monster successes that douchebag analysts and tech bloggers are used to seeing from Apple.

The Predictions

A lot of people predict a refreshed AppleTV tomorrow. There’s a lot of speculation in the blogosphere about what this will look like, but most of them focus on 2 things that I have a problem with from a common sense perspective: that the AppleTV’s form factor will become somehow smaller or “sleeker” (a pundit term for what makes Apple products too expensive and port-barren) and that the device will become less expensive – in the $99 range.

1. Form factor. I can’t see a reason to change it, but a good one to keep it: it now shares the same footprint as the Mac Mini. I’m sure there’s some manufacturing advantage to having 2 different devices sharing similar dimensions.

2. Price. Apple doesn’t price marquis products at $99. If it does, it’s after a few generations at a premium point.

Of course, if Apple’s design assumptions for the device were predicated exclusively on streaming content (made possible by a revolutionary set of agreements with studios and networks), that would eliminate the need for the local storage currently contained in shipping ATVs. This in turn would probably change the form factor and lower the price. It’s possible that this thing was redesigned in advance of any game-changing content agreements.

The one thing I do agree with is that the device will receive an iOS (read app-centric) UI overhaul. Right now, Apple has 3 major UIs and only 2 of them are developer friendly. The ATV now essentially has a click-wheel iPod UI and no developer inroads. Bringing the ATV into the iOS fold allows Apple to better focus its UI effort for two UI genres instead of three and to open more virgin soil to developers via the iOS SDK.

I like to hedge as much as the next Apple blogger. If I had to commit to a prediction for the AppleTV (or, *sigh* iTV), I’d say yes to #1, although I don’t think the agreements with content providers are yet to a point where a storage-free device is optimal. I don’t agree with #2: that price is an analyst’s market-jerking wet dream and little else. I think the device’s move to iOS is a no-brainer.  Of course, TMA always has hope for that “one more thing” that will blow the roof off of yet another media paradigm.

An AppleTV that replaces Tivo, hosts content that can be played anywhere via MobileMe and has a la carte subscriptions by channel or network isn’t too much to ask, you know.

Update

So the event has come and gone and the iPod line has gotten its fall color. As far as the AppleTV, it looks like I got Apple’s pricing dead wrong. Like analysts, I could use the backdoor “if they made it smaller, they could drop the price”, but honestly I didn’t see it falling to $99. Market-jerking, indeed. Also wrong: iOS. I do think this is the future, though, especially if Apple wants to make it more than just a media terminal.

I also think Steve has to be pissed that rentals are the only option for (the device still called the) AppleTV. I think he had more ambitions for his network deals. Although $.99 is a throwaway as a rental, it’s for a TV show and you get squadoosh once your rental expires. If the offerings don’t include Showtime and HBO offerings, that’s a loser for me. I’ll snap me up some Weeds for $.99 in a second though.