Apple’s Latest Set Top Plans: It’s Not What You Think

I have been writing about Apple's fabled "iTV" for over two years now. Initially, it was just a major upgrade to Apple TV. Eventually, it morphed into a full-blown TV set.

Now we've settled on the middle ground of a cable-box-replacing set-top box. Let me promise you. This will not happen, and here's why:

Unscramble It

Cable companies hold a trump card and it's called decoding. You cable box is programmed to decode or unscramble the channels you subscribe to. In order for any other third-company box like, say, a TiVo DVR, to do the same, it needs what's called a cable card. Cable companies and consumers have shown little interest in these cards (ask your cable company about one and see what kind of runaround you get). Instead, most still use the cable box to decode and then send the output to their DVR.

Any box Apple might produce to "replace" cable boxes would need that decoding capability. Cable companies will never build this into someone else's box. Period.

It's Not New

Apple latest, reported, discussions with cable operators do not represent a new Apple TV strategy or even a particularly innovative front in the war for your living room. Like virtually every other competitor in the space, Apple simply wants to move its current set-top offerings (likely Apple TV) closer to the center of your television-viewing universe.

Boxes like Apple TV and the very similar-looking Roku box currently sit left of center. They offer movies and TV rentals, interaction with your favorite mobile device, access to wide-variety of IP-based streaming content, and your own local media files. If you want live television programming, you switch back to your cable box.

For the last two years, content providers have been pushing cable and satellite companies to offer a service known as TV Everywhere. The idea is that you can login with your cable provider ID (the same way users accessed the Olympics online) and access live or pre-recorded content from a computer or other device.

The challenge that TV Everywhere has faced is one of both awareness and in access to content. The same content that TV Everywhere services want to provide users are also up for grabs for pure over-the-top (OTT) players such as Hulu Plus and Netflix. That battle for content continues to wage on.

You've Got Options

There are many consumers who, by cobbling together the various streaming and on-demand services available on these boxes, cut their cable. If they subscribe to Hulu Plus (a pay service) they can watch many of their favorite network shows on demand. With Netflix, they can catch up on some of last year's network shows. Connect Xbox 360 or even your favorite laptop and you can stream all sorts of customized cable network-sponsored (but usually not network-direct) content. Overall, I'd say it's possible to watch television 24/7 without ever turning on your cable box.

Yet, for all who have adopting these asynchronous television viewing habits, most consumers are still married to cable and traditional networks. They see devices like Apple TV as augmenting their viewing options, not replacing them.

It's no secret that Apple, like Google and Microsoft would prefer a position of honor in the living room: dead center, right below the TV. Yet not a single one has successfully supplanted the cable box. It remains a fixture in the America living room, growing more versatile every day.

Cable's VOD offerings now include HD network shows, apps, widgets, and second screen interfaces (for your smartphones and tablets). There's even home network software so you can access and play back local files on your TV.

You Can Get Channels Outside Cable Now

Apple's apparent desire to work with cable companies is not surprising because it's well-worn path for other competitors. Microsoft, for instance, partnered up with Comcast and Verizon FiOS to deliver a subset of each provider's cable channels to Xbox Live members.

There are caveats: You have to be a Comcast or Verizon FiOS customer (which typically means you live in those areas where these services are available) and you get just 26 or so channels — typical cable services offer hundreds of channels.

Other cable providers offer similar access to TV Everywhere content — including live channels such as ESPN and CNN — through their own web or iPad apps. DirecTV is also preparing to launch its broader DirecTV Everywhere content play later this year.

The idea is that with your cable subscription, you can watch live — or access an expanded set of content — on devices that are not physically tied to your home location or television set.

This is the deal I think Apple is after. It's not trying to supplant your cable box. First of all, channels delivered on these set-top boxes, like the Xbox 360, are IP, not cable based. So they come through your router. This offers a number of benefits, including, potentially, the ability to watch not only on your TV, but on mobile devices as well.

It's Not What You Think

I know people believe that Apple is different. The company has a history of reinventing and reinvigorating broken and tired markets (tablets, smartphones, mp3 players), but the cable industry is not broken.

Is it at a crossroads? Definitely, just look at the almost monthly battles between cable service providers and their network partners.

What Apple is apparently doing is simply trying to negotiate some kind of channel access deal either for its Apple Television (iTV!) or the still-a-hobby AppleTV. It's likely it will succeed, but only as much as others like Microsoft have done before it.

Of course, as they say, Rome wasn't built in a day. It's possible — even likely — that these over-the-top IP services will eventually supplant the traditional way that cable television is delivered into houses. What Apple and Microsoft are doing could help prepare for greater disruption.