Friday, October 26, 2012

The focus begins to shift to the future of the Apple TV; that huge bank account might start to come into play

Corporations can be a lot like some people: despite being filthy rich, some people are never satisfied. If Apple ends up like this it could destroy them, so maybe it's time for Apple to unload some of that cash in an area of importance to them.

One place Apple might spend a portion of that $121+ billion in cash they are sitting on involves television.

Apple's hobby, the Apple TV, has always been an important product to its customers. My own daughter; for instance, when asked a hypothetical question, which would you rather have cable TV or the Apple TV, chose the Apple TV.

At $99, the Apple TV is a great impulse buy – one of the few Apple products that can be bought in that fashion. It doesn't surprise me that the product is proving to be a sustainable product line. Owners of iPhones, iPods and iPads find that sharing photos, streaming music and video to the Apple TV can be habit forming, part of modern family room life.

With the next generation of iPads released in the fall, rather than in the early spring, many think Apple is clearing the decks for a television related release in the first quarter of next year. I have my doubts, but admit it's possible.

Apple doesn't need a new product, though, it has a pretty good one now - one that can be improved and expanded.

But if Apple is to break into the TV business, I feel there is no doubt that Tim Cook will need to utilize its vast wealth to make it happen.

Any actual hardware release would have Apple entering a field where manufacturers are actually exiting. Much like PCs became, the television set makers have become basically assemblers who set features, software and the like. Then have the sets built in China with off-the-shelf parts. It is a low margin business, and Apple hates low margin businesses.

Remember, Apple likes to make money off of hardware, settling on low margins on its media products, apps, and the like. The only way Apple makes an actual television is if they can price it at a premium. (Amazon, on the other hand, is making low to no margin hardware to build its retail business.)

For the Apple TV to grow up, however, one thing is required: content.

Most analysts - and we all know how good those guys are - believe that Apple will go the traditional route and negotiate with the content providers to get the needed programming.

Apple could negotiate with the networks themselves, or a more likely partner would be the cable providers. If Tim Cook thinks this is the way to go he may end up very disappointed. The cable guys fear Apple for good reason, and they have locked in the networks. Today, to simply launch a streaming app, the networks have to get the buy-in of the cable networks. If you want to watch HBO on your device you must sign into your cable account to do so. HBO and the other networks make their profits from the licensing fees they get from the cable providers, burning that bridge won't happen without a good reason.

But Apple is in the position to buy into the market if it wants. Money still talks. But the deal has to be too good to turn down.

There are at least two other options, though. Apple could open up the Apple TV to third party developers. This would provide content, though much of it would be of lower of lower quality. (I know, lower than current television content? You have a point.)

An open television provider would revolutionize the medium. To do so, Apple would have to position the Apple TV as something other than standard television, it would be a form of broadcasting. Otherwise Apple would be risking its current content deals which give the film and TV guys a bit of exclusivity on the Apple TV. The film studios do not compete with Joe Schmoe filmmaker directly. That kind of content is exiled to the YouTube app.

The other option is simply to buy the content. Apple has so much cash that it could easily buy many media companies, be they broadcasters, film studios, or publishers.

All it takes is money, which is why I would bet against any of this coming to pass by the spring. Apple is not run today by an eccentric founder, but by an operations guy who approved a dividend for shareholders. Tim Cook would need to stand up and say to the world that profit is not his number one priority. He would have to be, in other words, Jeff Bezos. Imagine what Amazon would do with $121 billion?