The proposed $45.2 billion acquisition of Time Warner Cable Inc. (NYSE:TWC) by Comcast Corp. (CMCSA) is a mixed bag for Apple, Inc. (NASDAQ:AAPL) as the implications are not yet clear for new Apple TV.
The deal will merge the largest and the second-largest cable operators in the U.S. Comcast's subscribers will have access to the cloud-based X1 Entertainment Operating System, plus 50,000 video-on-demand choices on television, 300,000 plus streaming choices on XfinityTV.com, Xfinity TV mobile apps that offer 35 live streaming channels plus the ability to download to watch offline later, and the newly launched X1 cloud DVR.
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Time Warner Cable will combine its products and services with those of Comcast's, including StartOver and LookBack. StartOver allows customers to restart a live program in progress to the beginning while LookBack allows customers to watch programs up to three days after they air live, all without a DVR.
The merger news comes at a time when Apple was reportedly close to strike a content deal with TWC for its revamped Apple TV. Apple TV is nothing but a set-top box that lets users stream movies, TV shows and other content from iTunes and a select set of Internet content providers onto their HD televisions.
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A Bloomberg article suggests that Apple is planning to introduce a new Apple TV for holiday shipment and revives speculation that Apple is working to secure a content deal with TWC after failing to convince programmers and cable operators.
Apple is attempting to develop a device that is capable of delivering both Internet-based and linear multi-channel media as well as its own app store for other useful content.
UBS analyst Steven Milunovich thinks it behoves Apple to unveil a TV product sooner rather than later. TWC's involvement with Apple makes sense to since TWC appears behind in capabilities to develop a cloud-integrated user interface. The Street believed TWC was Cupertino's best chance at an Apple TV partnership.
The latest Comcast-TWC deal puts Apple in a fix as it may have to start over as Comcast is not warm to the idea of Apple TV and the cable TV giant has its own set top box. Obviously, Comcast may not be interested in ceding any part of the Internet TV market to a competitor (and one as big as Apple).
Comcast sets the set-top box bar. Today's X1 features include voice-based navigation and search, personalized recommendations, a collection of customizable widgets, and access to third-party apps such as Facebook, Twitter, and Pandora. Internally referred to as X2, Comcast is in the midst of migrating its X1 users to a next-gen cloud-based device. This upgrade provides cloud-based DVR, mobile device synchronization and app airplay capabilities.
Apple usually does not announce new products for future release (though it did for the original iPhone and iPad). However, Milunovich notes that it is essential that cable operators looking for an outsourced, user-interface solution gain familiarity before committing to potentially exclusive agreements with competing platforms.
For its TV service, Apple's strategy is to partner with cable firms rather than signing deals with media companies. The potential deal with TWC may have given the users of Apple TV option of selecting various live TV. Currently, Apple TV offers channel apps from a few content providers including HBO, Disney, ABC and ESPN. For accessing those services, users should pay for respective cable and satellite providers.
Apple should need to diversify its revenue base as smartphone market is maturing, tablets are losing their initial charm, and iPod growth is falling. Apple does care about share but in "real" smartphones where it is #1 or #2 around the world, not feature phones or smartphones functioning as feature phones.
In addition, the tablet market may be cannibalized by phablets and tablet being a tweener product creates longer upgrade cycles.
Speculation is rampant regarding Apple's new categories. Wearables, most notably the iWatch, appear likely given the hiring of former Nike designers and health experts. Those things face constraints too, due to their battery limitations.
As of now, Apple TV is the best bet for Apple, but without content, it may not get the desired traction. So, the company needs to strike a deal with Comcast if it wants to taste success with Apple TV. Meanwhile, a deal with TWC cannot not be ruled out as the Comcast-TWC deal has to clear massive regulatory hurdles.
The $99 Apple TV, which went on sale in 2007, faces competition from Roku and others. Amazon is also reportedly readying a set-top box.
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