Apple and Comcast in talks

Streaming television is getting a new competitor. The Wall Street Journal had the internet abuzz Sunday night with a report that Apple is talking to Comcast about a TV service that would bypass the web, giving it priority over other services.

The Wall Street Journal story by Shalini Ramachandran, Daisuke Wakabayashi and Amol Sharma outlined these details:

Apple Inc. is in talks with Comcast Corp. about teaming up for a streaming-television service that would use an Apple set-top box and get special treatment on Comcast’s cables to ensure it bypasses congestion on the Web, people familiar with the matter say.

The discussions between the world’s most valuable company and the nation’s largest cable provider are still in early stages and many hurdles remain. But the deal, if sealed, would mark a new level of cooperation and integration between a technology company and a cable provider to modernize TV viewing.

Apple’s intention is to allow users to stream live and on-demand TV programming and digital-video recordings stored in the “cloud,” effectively taking the place of a traditional cable set-top box.

Apple would benefit from a cable-company partner because it wants the new TV service’s traffic to be separated from public Internet traffic over the “last mile”—the portion of a cable operator’s pipes that connect to customers’ homes, the people familiar with the matter say. That stretch of the Internet tends to get clogged when too many users in a region try to access too much bandwidth at the same time.

Apple’s goal would be to ensure users don’t see hiccups in the service or buffering that can take place while streaming Web video, making its video the same quality as Comcast’s TV transmissions to normal set-top boxes.

While devices such as Microsoft Corp.’s Xbox gaming console and Roku Inc.’s set-top box have made some inroads in the TV industry, none offer the kind of fully formed TV service, with the guarantee of network quality, that Apple desires.

Apple has spent several years exploring various avenues to enter TV, but it has been unable thus far to find business models that media companies and cable providers find appealing.

Writing for Business Insider, Jay Yarrow outlined how the service might work:

Apple appears to have a vision for how to deliver an Internet-based TV service. It would store content in the cloud. It would be live, and on-demand. Presumably, it would have a simple, gorgeous interface that’s easy to use.

But Apple, even with $146 billion in cash, can’t just go out and do this on its own. It has to work with Comcast because Comcast delivers Internet and TV to millions of people in the U.S.

Say Apple wanted to pay TV networks for rights to shows, just like Comcast pays TV networks. Apple would still have to run its Internet-based TV service through Comcast’s Internet service. That could lead to choppy service if Apple didn’t pay Comcast extra, just like Netflix recently paid Comcast.

That means Apple has to pay a ton of money to get TV rights, then more money to Comcast, then it has to charge users, and it ends up as a low-margin, pain-in-the-rear business for Apple.

TechCrunch reported in a story by Ryan Lawler that Comcast has already invested in its own delivery network:

Already, Comcast has introduced a managed service for streaming videos that it delivers through its streaming Xbox Live app. That means that those streams don’t travel over the broader Internet, but to work they require a subscriber to be a Comcast broadband subscriber as well as a TV subscriber.

All of which is to say, the type of deal that Apple and Comcast are talking about isn’t without precedent. And a whole lot of how it is delivered will be dependent on who exactly owns the customer relationship and what the service entails.

This is where the WSJ report gets a little iffy, but most of whether or not a deal gets done will depend on the details. The devil is in the details. And the report acknowledges that Comcast and Apple aren’t exactly “close to an agreement.”

On the one hand, Apple wants to create a service in which users would log on with their Apple IDs and control customer data. It would also ask for a cut of the subscription cost, according to the report. Meanwhile, Comcast would want to “retain significant control over the relationship with customers and the data.”

It’s difficult to imagine a world in which Comcast would give up its network and control of customers that are streaming data through such a service.

Then there’s the part about content rights. The report claims that Apple would need to acquire content rights, but that Comcast “would want to ensure that the price Apple has to pay to acquire rights wouldn’t cause the service to be priced higher than traditional pay-TV service,” according to one person.

While it’s a good scoop that will have many talking for the next few days, it’s hard to believe that Apple and Comcast will actually come to an agreement. Between the need to innovate and Comcast’s control over distribution there are many, many details that need to be worked out before papers are signed.