Exclusive: Apple courts Hollywood for upcoming TV

Apple Inc began talks earlier this year to stream films owned by EPIX, which is backed by three major movie studios, on devices including a long-anticipated TV, according to two people with knowledge of the negotiations.

Apple, which now sells a $99 set-top box that hooks up to a television set and lets users stream online content from Netflix and the MLB channel, opened discussions with three-year-old EPIX, created by Lions Gate Entertainment Corp, MGM and Viacom’s Paramount Pictures.

One of the sources told Reuters that any discussions would apply to its set-top box and also to upcoming devices that stream content. Apple is widely expected to unveil a full-fledged TV product later this year or in early 2013 to drive its next phase of growth and potentially revolutionize the industry.

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About the Alleged Apple TV Set...

Warning: This is long. Like, a few thousand words long. I’m not sure it’s tied together as well as I would like but it composes my thoughts on a whole bunch of things.

I’ve mostly stayed quiet about these allegations – in large part because as John Gruber and others have pointed out, the content problem is a battle that ultimately, Apple isn’t going to be able to get around or win.

That said, Joe Hewitt, who I quoted in a previous post, I think nailed exactly what the secret sauce of an Apple TV set could be. In short, the secret would be to build the Apple TV into the TV set and to allow playback and control from iOS devices.

That – if styled correctly and priced pseudo-reasonably (look, the AirPlay-enabled home theater shit is cool as hell but expensive as shit), could work.

A few weeks ago, I was at an event for Klipsch and saw their new AirPlay enabled shelf system in action. It was very impressive. It’s also, at $600, really expensive for a 2.1 stereo system, no matter how pretty. What was interesting was when I discussed the setup process for AirPlay with the Klipsch guys.

The pitfalls of these systems – as far as getting Wi-Fi setup – which Joe detailed in his post, was something Klipsch had to deal with. They dealt with it by building an easy-start app for iOS and also working on creating a device-to-device wireless connection. Something tells me that Apple will figure this out, but something also tells me that like AirPrint, it isn’t going to be as perfect as they want.

Speaking of AirPrint – what the fuck ever happened to that. Seriously.

Back to the TV. I think that the app approach to content is the smartest approach to take. The problem with the app approach, thus far, is that you have to program a different app for every single platform.

This is where what BMW is doing for their in-car systems is quite brilliant. I got to see an in-person demo of MOG integrated with a new high-end BMW coupe sedan. Can’t remember the model number. It was snazzy.

Anyhoo, this was what was so cool: The iPhone fits perfectly inside the seat separator in the car. You know that little place you store a manual or Kleenex or a CD. Yeah. So the iPhone fits perfectly inside this compartment, and it connects to the car and charges as well as connects to the in-dash car system.

At this point, you can use your phone just like you would if it was in hands-free mode. The difference is that if you use MOG, you can pull up the MOG app from the in-dash system on your BMW and it’ll start to stream music and whatnot from your iPhone. It’ll use your 3G connection – though it can work with in-car Wi-Fi too – but all of the interaction and controls take place on the screen in your car.

Here’s why this is so cool: To get the MOG integration, BMW didn’t have to build a MOG app for the car system and make people download a firmware update – the update comes on the iOS end. So the idea is that BMW will offer their SDK to approved partners who can then add an in-dash content option that will work with the BMW connected car system.

This is in contrast to what Ford, Toyota and others are doing – which is making services build their own dedicated app just for the car, rather than adding the extensibility into an existing app themselves.

Make no mistake, Ford has the best in-car ecosystem of the major car makers, at least as far as I’ve seen (we’ll see at CES if anything has changed), but I think BMW’s approach is a lot smarter in the long run, because they are giving developers a chance to augment an existing app rather than forcing them to develop for a brand new platform.

In this way, an AirPlay TV would be a huge win for content creators, most of which already have an iOS app. The iPad has actually increased consumption and interaction with commercial content – cable companies, networks and users LOVE the iPad. It is utterly changing the way TV is consumed.

If that experience could also be mirrored to the TV and then interacted with alongside that content – then you might have something.

A TV You Take With You

Also, consider this. My cable company in Brooklyn is Cablevision. Now, I’m not in love with Cablevision. They don’t have Current TV, I can’t get HBO Go, but their iPad app is amazing. It lets me watch live TV on my phone or iPad, provided I’m in the house.

I can use my iPad or iPhone as a secondary cable box and view content that way. They were actually in quite a big tiff with Viacom over this issue and it still might not be totally settled. Here’s the thing though – what happens if I can just use my iPad with my TV to watch my content and not have to worry about renting a cable box each month?

Now think about this: Rather than having to do firmware updates based on the various Motorola or Scientific Atlanta set-top boxes, cable companies could issue updates to an iPad app.

Look, most of this stuff, save DVR functionality (which is becoming more extinct as more content gets On-Demand friendly), doesn’t need a box in the traditional way. Fuck, put a 120GB hard drive inside the TV for DVR support and you truly do eliminate the need for the box.

Where this could really become cool would be with social TV stuff – imagine watching a live TV show (thanks to your cable company app) on your TV and then using your phone, sending a tweet, voting in a live poll or sharing a moment.

The one downside to this, of course, would be that you might be saddled with the issue of needing an iPad or iPhone in the room to control the TV content – so you need one per set. And for that reason, it might be a long time before the true cable box is dead.

But…if you think about taking what the iPad is, which is a portable entertainment system – and making it seamless to connect that experience to a bigger screen. Well, you might have something.

Not to mention what happens if you could get multi-player support for various games. What Nintendo is showing off with it next Wii could easily happen with an iPad.

It’s funny because the first person that introduced to me the notion of bringing your content, settings and personas to any room of your house wasn’t Steve Jobs – it was Bill Gates.

It’s also sort of tragic that Microsoft, who absolutely beat Apple in terms of the best computer-controlled TV experience out of the box (sorry, Windows 7 with a TV tuner is great out of the box, on a Mac I need to use EyeTV, which I love, but it’s not free), never went the extra mile in embedding the shit in the TVs themselves. They thought HP, Dell and the other idiot OEMs would do it for them.

Doesn’t Solve Content

This is all really interesting, of course, but it doesn’t answer or solve any of the fundamental issues that are at stake in terms of content distribution and consumption.

Let’s be frank – a la carte subscription programming is not going to happen any time soon. When I see people like this guy talk about how they would be willing to pay $5 or $10 a month for HBO as a pure over-the-top subscription play, I laugh my ass off because they have no idea how the industry works. Or they don’t respect that their whims and their rationale for paying a la carte doesn’t work at scale.

There is absolutely no reason that HBO, Showtime or any other network would gain anything by offering a direct over-the-top subscription to their content right now. Let’s look at the simple economics:

HBO probably gets, let’s be generous and say $12 to $13 a month per subscriber from the cable companies (cable companies that then charge the end-user a few dollars on top of that). However, in addition to that amount of money, they also get special bundle deals. Comcast offers new subscribers 3 months of free HBO. The attrition rate on those new subs yields X number of subscribers.

Plus, they also get certain bundling guarantees for additional HBOs or for Cinemax. Since their premium content is a big incentive for a user to sign up for cable or a dish, they can make bank.

They’d likely have to charge subscribers directly $20 - $25 a month for HBO. Now, some subscribers might agree with this. Most wouldn’t. Look at how Netflix users reacted with the rate increase. Granted, that was also getting rid of discs and other stuff – but you get my drift. Users would be unwilling to pay, in mass, what the cable companies pay for HBO – let alone what it would cost HBO to make the same profit.

Oh, but you say – I’ll cancel HBO and just use Netflix. Oh? Will you now? Even though Netflix is imploding and content deals are skyrocketing in price?

TV Everywhere may very well be the future – even though I was doubtful that it would work. HBO Go is a rip-roaring success. It’s proven that people will deal with finding their freaking cable login information to get access to HBO anywhere. HBO is seeing huge traffic and retaining their customers longer throughout the year.

If anything, what I foresee happening is the idea that we lose the current cable structure, only to see it repackaged and sold back to us over the top by the same people.

For instance: Cablevision is my ISP and my TV provider. If Cablevision offered me a package of content that included or even was primarily over-the-top content and let me buy them in different bundles – the Time Warner bundle (HBO, TBS, TNT, Cartoon Network, CNN), the NBCUniversal Bundle (USA, NBC, Bravo, CNBC), the Disney Bundle (ABC, ESPN, Disney Channel, SoapNet), the News Corp bundle (Fox, FX, Fox News) and the Discovery Communications Bundle (Discovery, History, Animal Planet, A&E), etc., I would likely take them up on it. Let’s say they charge us a nice, even $15 per bundle – $20 if the bundle includes a premium channel like HBO.

Of course you say, well I’ll only do one or two bundles – but then you really want to get Discovery’s package cos without Discovery ID, life isn’t complete. Oh, and I better get that Viacom bundle because if I don’t get Jersey Shore, I’ll be cranky. Damn, and I’ll need the Sony and CBS (not to be confused with the Viacom bundle) bundles too. Oh – but if I agree to get all the bundles together, I can save!

By the time you pile stuff on and then pay your extra surcharge for your increased data usage, you’re paying the same as you were when it was called a digital cable bill and Internet was an add-on.

See, that’s why a la carte programming doesn’t work.

Now, at one time, it did look like Netflix could be the spoiler in all of this – especially if they created exclusive content and got over-the-top deals from people like Starz. But Starz was either really smart or really dumb (thought his hurt Netflix more than Starz) and didn’t resign their agreement. And Netflix is paying out the ass for year-old content that is killing the home video market for TV shows (but not the profits cos the money that say CBS and Warner Bros. are getting for licensing The CW programming to Netflix is likely not much less than they would recoup from home video sales…it’s just a different distribution of accounting, not an actual change in how money is made), but isn’t going to touch first-run content.

In the meantime, content producers are taking advantage of the new social TV trends and focusing on delivering compelling content with a real-time twist. Social TV has made time shifting for lots of users obsolete. That might pass – I think it will – but the trend now is towards live viewing and live interactions. What does that do? That limits the value of older content. People want access now, not in 12 months.

Apple Should Avoid Content

You can disagree with the decisions that the entertainment executive are making about content creation and distribution and you can say that newer forms of content that utilize web distribution from the ground-up are poised to overtake the majors – you might be right. However, right now, that isn’t the case.

What is the case is that people most want more freedom from their existing content. Apple, a company so criticized for being closed and restrictive, has given consumers more freedom with commercial content than anyone else.

I have two Rokus, a Boxee Box, three Blu-ray players, an EyeTV and video game consoles. That means I have access to every single US-based subscription streaming or a la carte service on the market. With the exception of Amazon’s content – which only works on the Roku and one Sony Blu-ray player that I have anyway – the only device that will support content from any of those services is the iPad. I can watch Vudu, Hulu Plus, Netflix, ABC, NBC, HBO Go, shows and live TV via Cablevision.

Fuck, I can also use it to watch Major League Baseball and if I had a DirecTV box and NFL Sunday Ticket seasons pass, I could watch football too.

Consumers are willing to pay for content – we just want access to it more places. Apple delivered on that with the iPad. If Joe Hewitt’s hunch is right, the Apple TV set could just be more of an iPad docking station. And that would be awesome.

Apple to make their own TV set

Get ready, America, because by Christmas 2012 you will have an Apple TV in your living room. I don’t mean the cute little box now called “Apple TV” that plugs into your set to stream Netflix (Nasdaq: NFLX - News), but the real deal—a flat-panel Apple (Nasdaq: AAPL - News) television set tied to the company’s online ecosystem and designed as only Apple can do it.

“The television industry … pretty much undermines innovation in the sector,” Jobs said at the All Things Digital Conference in July 2010. “The only way this is going to change is if you start from scratch, tear up the box, redesign, and get it to the consumer in a way that they want to buy it.”

Jobs’s quote is good advice for his successor as chief executive officer, Tim Cook, who needs a hit. The TV industry is changing more than at any time in the past 50 years, and billions of dollars are going into play for the winners. As Apple crests in the phone and tablet markets, its investors will want a new frontier.

TV is the future because it remains king of all media. While handsets get hyped, the typical U.S. consumer watches 5 hours and 9 minutes of TV a day, according to Nielsen (NYSE: NLSN - News), and even younger adults 18 to 24 years old—the supposed digital generation—view 3 hours and 30 minutes on televisions daily, vs. only 49 minutes on the Web and 20 minutes on mobile. We all love to lean back. With so much of the consumer’s time, TV has become bloated with waste. The average U.S. home receives 130 cable channels but “tunes to"—or punches in the exact channel number on the remote—just 18 channels a year. Channel surfing has died. A whopping 86% of available channels are never used by an individual viewer.

Tim Cook, I like the way you think. VIA Yahoo News