Broadband Cable Association of Pennsylvania


August 16, 2012

Apple Inc. is in talks with some of the biggest U.S. cable operators about letting consumers use an Apple device as a set-top box for live television and other content, according to people familiar with the matter. The talks represent Apple's most ambitious crack at infiltrating the living room after years of trying.

Apple doesn't appear to have reached a deal with any cable operators. One obstacle may be the reluctance of operators to let Apple establish a foothold in the television business. Apple would also need to persuade significant numbers of consumers to buy a set-top box for what could be hundreds of dollars rather than rent one from their cable operators for $10 to $15 a month. Electronics makers such as TiVo Inc. and Samsung Electronics Co. already sell set-top boxes, so far without making a big impact on the market. The talks illustrate that Apple is seeking a less radical path to expand in television than it has contemplated in the past, namely teaming up with existing service providers rather than licensing content to compete with them directly. Apple spokesman Tom Neumayr declined to comment on what he characterized as rumors and speculation.

Technology companies have long eyed the television market as their next big territory. But its gatekeepers-the television distributors and media companies-have been reluctant to let them in, worried about ceding control the same way record labels and wireless carriers have done in the past. By building a set-top box that could be used with cable operators, Apple would be following a similar playbook that it used to transform the mobile-phone industry: convincing existing service providers to marry their service with Apple's hardware and software. The approach has allowed Apple to profit by selling iPhones while carriers carry the cost burden of delivering the service but hope to benefit by selling more data to customers.

Apple Chief Executive Tim Cook met with Glenn Britt, chief executive of Time Warner Cable Inc., in Sun Valley, Idaho, last month, during the annual media conference hosted by Allen & Co. Time Warner Cable is one of the operators talking to Apple, the people say. Apple sells a $99 Apple TV box that lets users access some Internet video on their television sets, but not live channels supplied by cable operators. Whether the device under discussion is an iteration of that hardware or a more sophisticated box is unclear. Two people briefed on the matter said the technology involved could ultimately be embedded in a television. Apple has worked on prototypes for televisions in the past, according to people briefed on the projects.

Sales of Apple TV have been picking up, but are still small. The company sold 1.3 million in its quarter ending June 30, up 170% from the previous year. In a recent earnings call, Mr. Cook said the company believes the device "will lead us somewhere." The box offers programming purchased from iTunes and some streaming apps like Netflix Inc. But it doesn't offer the conventional channel lineup available through cable and satellite operators, limiting its usefulness.

Apple contemplated building a cable set-top box more than two years ago before it launched the latest version of its Apple TV, according to a person familiar with the matter. At the time, Apple's then CEO Steve Jobs was dismissive of the idea, believing working with cable operators was problematic because they didn't have national reach-each served only defined geographic territories. Another issue: entertainment companies own most of the content, not the operators, according to two people familiar with the meetings. The two sides have danced around each other for years, say people familiar with the cable companies' thinking. Cable operators in the past were worried that Apple could erode their relationship with their customers if Apple had a role with the box.

Cable executives have also said that historically weak sales of the Apple TV meant striking a deal to put live programming through the box hasn't been a priority. Operators have put more emphasis on apps for the popular iPad tablet. Cable operators have also been put off in the past by Apple's demand for a 30% cut on certain transactions going through the box, according to a person familiar with the situation. Apple has also discussed wanting to be the exclusive provider of set-top boxes using Internet Protocol technology, the person said. And it wanted the cable operators to service the box. For cable operators, the advantage of a deal with Apple is that it could allow them to reduce the money they spend buying set-top boxes, which are leased to customers for a monthly fee. It could also help them hang on to customers who can watch video through a growing array of Internet alternatives, as both traditional TV and Web video would be available through the same device. Wall Street Journal

Dish Network Corp. is preparing to introduce a nationwide broadband-Internet service using a satellite from sister company EchoStar Corp.), according to three people familiar with the situation. The EchoStar 17 satellite, launched into orbit July 5, can support download speeds of 15 megabits per second, although introductory nationwide packages will probably offer rates of 5 megabits so the system can take on more capacity, said one of the people, who declined to be named because the plans are private. Dish and EchoStar can handle about 2 million new Internet customers with the service, the person said.

The move is the result of technological advances for the U.S. satellite industry, which can now use higher-frequency bands to offer faster broadband to more people. The capacity for these kinds of services has climbed "by an order of magnitude," said Deepak Dutt, vice president of investor relations at EchoStar, who declined to comment on the Dish deal. Dish expects to formally offer the service in late September or early October, mainly to subscribers in rural areas who may not have access to cable broadband, two of the people said. Bob Toevs, a spokesman for Englewood, Colorado-based Dish, declined to comment. EchoStar and Dish became separate companies in January 2008, with Charlie Ergen remaining the chairman of both.

The details of how they will split revenue and how much the service will cost consumers are still being discussed, one of the people said. Dish shares rose 1.4 percent to $31.05 yesterday. The stock has climbed 9 percent so far in 2012. EchoStar, up 36 percent this year, fell 1.1 percent to $28.40. Dish already offers satellite broadband through a partnership with Carlsbad, California-based ViaSat Inc. though that only covers certain parts of the U.S., including areas east of the Mississippi River and the West Coast. It gives some customers speeds of as much as 12 megabits per second. The new offering will augment that product and give Dish nationwide coverage, the people said.

By packaging satellite broadband with its current video service, Dish can offer customers a bundled option. That means it will compete more directly with cable companies, as well as satellite rival DirecTV AT&T Inc.'s U-verse and Verizon Communications Inc.'s FiOS. Dish may need to add more satellites to expand the service beyond 2 million people while maintaining the same speeds. The company, which has a total of about 14 million customers, hasn't disclosed how many users are served by the ViaSat agreement. Dish is waiting for Federal Communications Commission approval to use its wireless spectrum to offer mobile Internet and phone service, which the company could bundle with satellite TV and broadband. That would give users a so-called quad play.

The EchoStar service is meant for customers who can't get the faster speeds provided by cable and phone companies in more urban areas. Comcast Corp. (the largest U.S. cable provider, offers as much as 305 megabits per second. Verizon FiOS, meanwhile, goes as high as 300 megabits. Most home Internet users typically don't notice a difference in speed beyond 25 to 50 megabits, according to Jonathan Atkin, an analyst with RBC Capital Markets in New York. ish Chief Executive Officer Joseph Clayton said in January that the market potential for satellite broadband service is "substantial, given the nearly 8 million to 10 million mostly rural American households that are unserved." Wall Street Journal

NBC's ratings for the London Olympics were gold-medal worthy. But a more remarkable feat for the Comcast -owned network may have been its apparent success streaming the event to digital devices. Pay-TV customers registered 9.9 million devices on or on the NBCOlympics Live Extra app for mobile devices-believed to be the most ever for a single, "TV Everywhere" event, according to NBC Sports. This allowed pay-TV customers to watch all the games live on digital devices before select events were broadcast on primetime TV. The games' strong ratings backed up NBC's decision to pursue this strategy, despite worries it would cannibalize primetime TV viewership and therefore ad revenue. NBC's experience also demonstrated the rising importance of online streaming to paying cable subscribers as a way of retaining customers in the face of so-called cord cutting.

TV Everywhere-which allows providers to verify that users of Internet TV services are paying satellite or cable subscribers-was first proposed three years ago by Time Warner and Comcast to ward off online competition. Though successful apps have emerged, including Time Warner's HBO Go and Walt Disney's WatchESPN, the service still isn't widely available. Networks offer free streaming for some content offered on broadcast channels, though not typically for cable offerings. Obstacles to TV Everywhere have included a lack of traditional ratings data to sell ads against, concern on the part of pay-TV providers that networks will cut them out by delivering content directly to subscribers and securing digital rights to content.

When it comes to rights, sports content has something of an advantage. Negotiations for sports rights are typically done with single entities, such as the National Football League, while rights for a drama or sitcom include parties as varied as producers, writers and actors' unions. Sports content is also well suited for streaming because of the importance to fans of live viewing. ESPN has been a pioneer in putting digital rights to use. WatchESPN, which allows paying cable customers to stream content from ESPN's various channels, completed its rollout in April 2011. It boasts 10 million downloads. Other networks are experimenting as well. This spring, Turner offered a stream for NCAA March Madness college basketball that allowed cable subscribers to watch games that didn't air on broadcast TV.

Streaming content across digital devices to paying cable subscribers isn't an antidote to cord-cutting. But NBC's Olympics experience shows networks may have ways to manage the transition away from traditional TV viewing. Wall Street Journal