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Apple's toughest nut yet: Cable operators

This may be Apple's trickiest move in its history. We've all been wondering for a while whether Apple really is working on a next-gen Apple TV that adds "television" (cable, really) to the box. In Walter Issacson's biography of Steve Jobs, the Apple co-founder suggested that the company had "finally cracked" the code of finding what you want to watch -- a clear call out to the horrible interfaces seen on 99% of all DVR's on the planet. But according to the WSJ (article behind paywall), Apple's talks with cable operators haven't yielded any deals yet.

I am not very optimistic. As the story goes, Apple was able to launch the iTunes Store with a vast array of music in part because, at the time, the company was still struggling for relevance and market share. The iMac was cute, but the iPod was expensive. iTunes selling songs seemed like a safe bet for the music labels. As Apple's market in the portable music player space grew, however, the percent cut of music sales dug deeper and deeper. Rival music players from titans like Microsoft rose and fell, as did rival online stores. The labels wound up selling a lot of tunes, and giving Apple extraordinary leverage in the distribution biz.

Fast forward to today and look at the online video space. If Netflix, HBO and Hulu have shown us anything, it's that the mavens of video learned a lesson from the music labels. Content companies don't just want to spew out content like Big Brother and True Blood, they want to distribute and monetize it every step of the way, all by themselves. Of course, the cable industry is still the predominant distributor of many shows -- and don't think for a second that any cable exec is willing to give up the control they now enjoy to Apple. Not now, possibly not ever.

Sure, Apple probably has a DVR or tuner with an interface that makes it 80% easier to find those reruns of Mama's Family. Guess what: Your cable company doesn't care about how easy your life can be. In fact, I'm starting to think they want your DVR to suck.

I happen to think cable companies enjoy the terrible experience we all suffer through on their set-top boxes. I have AT&T's U-Verse service. The set-top box I have has been rebooted more times than I remember, and I've had it less than a year. How many times have you rebooted your iPod to get it to work in the last year? Your Mac? How about the Apple TV (not counting updates)? That's what I thought.

In terms of interface/design, Apple's strongest suit perhaps, do they really have any competition? I can't imagine Scientific Atlanta being thrilled with all this news. My AT&T box is made by Cisco, and has about the best interface of any cable box I've used in the past 20 years. Guess what? It still sucks. Competing technologies with better solutions have failed in the past.

An example: If I'm watching an on-demand version of a show and it ends, instead of dropping me back into the list of shows (say, American Dad), it dumps me right back to the first on-demand screen. So to go back to the list of American Dad episodes I have to navigate by network or by show, using disparate alphabetical lists, drilling down past pages of listings to the actual list. Something like Main Screen > By Network > (2nd page) Fox HD > American Dad. This is the 21st century, right? For a moment I thought moisture farmers had purchased AT&T and Cisco, sorry.

Like I said, anyone who has used a cable box ever who has the common sense to know that an object 6 inches from your hand is more convenient than one 6 feet away. So why in the world would they want to change? It's pretty obvious cable companies and content creators are more concerned with making sure you can't take your content with you on your iPad (just imagine if a Time Warner Cable customer saw content downloaded from a Comcast subscriber -- the gall!).

All of this is to say Apple really does have a massive wall to climb. The content companies are bad enough, eager to fragment online distribution so they can own the metrics, the views, the audience, etc. Hulu is a great example here, as it has actively sought to block any alternative means of viewing the content it distributes (remember its constant dances with Boxee?).

Worse, the cable companies don't want to be pushed back into yet another "dumb pipe" corner, having seen how faster speeds means people will use more bandwidth, sometimes to route around their own dumb, archaic restrictions. Sporting event blackouts, anyone?

Apple has a business case to make to the distributors and creators to prove an Apple TV set top box will make them money, not just Apple. If Apple continues to demand something on the order of a 30% cut, that may never happen. In that case, I would love for Apple to show us all what could have been... and see if the companies who said 'no' respond.

For a little more color on this game, check out this warning to media executives from Peter Csathy.

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