Breakout

How Tim Cook, Apple Can Revolutionize Television

Breakout

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Apple (AAPL) abhors new product leaks. The world's only half a trillion dollar market cap company makes product announcements on the largest possible stage. The agonizing wait for details reduces analysts and Apple devotees to meticulously parsing every statement from CEO Tim Cook, looking for any hint regarding the next big thing.

From what Cook said yesterday at the AllthingsD.com D10 event it seems Apple is moving ahead with an endlessly rumored TV product. It will presumably be wildly different than the existing AppleTV which is a niche product by Apple standards, selling around 3mm units per year.

Both Steve Jobs and Cook have dismissed that device as a "hobby." As Cook said of Apple yesterday "We're not a hobby kind of company."

What Apple does best is break new ground. Existing televisions don't need better displays, cooler form-factors or nicer speakers. Those can all be had for a price. Reinventing television means taking over the clunky interface between the viewer and the television set. To start a television revolution Apple needs to let users dump their cable boxes.

It's not as far-fetched as it seems. Cable companies own the last mile of wiring into a house but not the content that runs through them. The actual shows are owned by the studios or networks. Cable companies pay for content, either from one network at a time or, more often for a package of networks and sub-networks like ESPN and its derivatives.

ESPN could be the key to Apple's entry into full blown television. ESPN has a famously contentious relationship with the cable companies. Cable says the sports channel charges too much, to which ESPN effectively says "fine, tell your customers they don't get to see Monday Night Football."

Disney (DIS) owns ESPN. Apple and Disney have a long-term relationship that started even before Steve Jobs sold Pixar to Disney for $7.4b in 2006. Disney and ABC made iTunes a viable player in video by letting Apple sell shows and movies. Jobs is gone but the Apple and Disney remain intertwined.

Disney gets almost 2/3 of its profits from selling access to its content to cable companies. In turn cable companies create a labyrinth of packages for customers which boil down to selling consumers a bunch of stuff they don't want in order to get simple ESPN and ESPN2. The cable companies are constantly threatening to dump ESPN. Disney needs a way to get to the end user more directly.

Why not just let viewers pay for ESPN directly through an App on either a tablet or AppleTV? For that matter, why not do the same for HBO? Apple already has such a deal in place with AMC and Mad Men. Just moments after an episode airs on the West Coast it's available for purchase on iTunes in hi-def, commercial free.

The television industry is based on cable and advertisers setting up assorted tollbooths between the viewer and what they want to watch. Getting to your show means paying a cable bill, running through a buggy user guide, and sitting through commercials.

What if you could just pay for whatever you wanted when you wanted it? That would change the entire industry. That's most likely what Apple's working on and the revolution could be led by ESPN.

Will Apple revolutionize TV as we know it? Let us know your thoughts in the comment section below or visit us on Facebook.

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