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Evidence is slowly emerging that Apple (s AAPL) could be working with operator partners for the introduction of its upcoming iTV product. Last week, Bloomberg reported that Apple may get access to programs through partnerships with carriers such as AT&T (s T) and Verizon. And on Tuesday the Globe and Mail reported that Apple is pursuing partnerships with Canadian operators Rogers and BCE. But why would Apple feel the need to partner? Because doing so would give it a more complete lineup of content, enable it to offer a better user interface, and give it wider distribution than if it went it alone.
Interestingly enough, I was discussing the possibility of Apple’s partnering with operators the other day at lunch, before the Bloomberg piece came out. That first piece might seem like a fluke, as it was written based on an analyst note. But with Tuesday’s Globe and Mail story, it seems more likely that the hardware giant is indeed considering some sort of partnership approach to tackling the TV market.
The move isn’t totally unprecedented: After all, Dish Network (s DISH) was one of Google TV’s launch partners, and Verizon (s VZ) has partnered with Microsoft (s MSFT) to make its FiOS TV service accessible through the new Xbox Live user interface.
All the content, none of the fuss
By partnering with pay TV operators, Apple would immediately gain access to all the TV content that viewers have come to expect, without having to strike up carriage deals of its own. It is not alone in pursuing this strategy: Microsoft’s Xbox 360, for instance, can be used as a set-top box by AT&T U-Verse and Verizon FiOS subscribers.
In the FiOS case, the program data and channel lineup will be deeply integrated with the Xbox Live service and Bing search engine, which will let viewers discover live TV and video-on-demand content alongside streaming content from services like the Zune Marketplace, Netflix, (s NFLX) Hulu Plus, Vudu (s WMT) and YouTube. (s GOOG)
I could see Apple’s doing something similar by allowing operator partners to build integrated apps into the new device, which could be used to control channel lineups and program discovery. For Apple, such a move would give it the content it needs to be relevant but allow it to control the overall user experience of search, discovery and navigation.
But what would the operators get out of it? Well, for one thing, integration with the Apple iTV could potentially give them a competitive advantage over their peers. In the U.S., Apple already has relationships with AT&T and Verizon, both of whom could stand to benefit from having the best new iDevice available for customers as they pitch their IPTV services against the more traditional cable offerings. Those operators could be incentivized to push the iTV to their customers and could act as an additional distribution outlet, on top of Apple Stores and the company’s existing big box retail partnerships.
Could AT&T help you buy an iTV?
There is even the possibility that Apple could bring the same subsidy model that exists in the mobile space to TV operators. To a certain extent, carriers already subsidize TV hardware by making set-top boxes available to customers. Assuming an Apple TV product would enable those carriers to deliver cloud- and IP-based programming guides, it could act as a set-top box replacement. Whatever money was being put toward that hardware could be committed to reducing the cost of an Apple iTV purchased by subscribers.
A carrier subsidy could potentially boost adoption for an Apple device’s being launched in a market with traditionally long replacement cycles. Some believe that any introductory Apple TV product would be sold at a premium over existing smart TVs, and a recent Best Buy (s BBY) survey lends some credence to this belief, polling users if they would spend $1,499 for a 42-inch Apple TV device. I personally doubt that Apple would introduce a new product priced so far above existing products, but if there is any premium a subsidy could bring products within parity. And if there isn’t a premium, a subsidy could make the product all that more attractive.
ITV is not just for partners
I don’t believe that any operator partnerships Apple strikes would be exclusive. In the U.S., Apple would likely partner with multiple providers, since their services are only available in certain geographies. As noted above, AT&T and Verizon are the most likely partners in the U.S., but I don’t think Apple would shy away from the same type of deal with a company like Comcast. (s CMCSA)
Nor would the Apple TV be “broken” if purchased direct from a retailer or if a consumer doesn’t subscribe to an Apple partner. She will get all the same third-party apps and TV coming from her set-top box. There is even the possibility that non-partners could build their own apps for device search and navigation, in the same way that Comcast, Time Warner Cable (s TWC) and others have built iPad apps that can be used as remote controls. But it won’t have the same tight program guide integration. And if there are subsidies involved, it wouldn’t be as cheap as it would be from Apple’s partners.