After years of trying but largely failing to launch its own smart TV product that can satisfy a wide band of audience, Apple may be joining hands with Comcast, the largest pay-TV provider in the U.S.
The two companies are in early stage talks to offer live TV and on-demand video through Apple's set-top box -- perhaps its current Apple TV device --- in dedicated cables for Comcast customers, according to a report by The Wall Street Journal Monday.
The new device presumably would be offered as an option along with Comcast's own X1 set-top box, now required for its video customers. The new option would allow Comcast to generate revenue from "cord-cutters," who may only want Internet service and not the pay-TV video portion of their monthly subscription.
Apple and Comcast declined to comment.
If true, it's the latest piece of evidence that cable companies are acknowledging and reacting to the inevitability of live-TV streaming over the Internet. Rather than being resigned to customers ditching pay TV, traditional TV service providers are becoming more pro-active in finding hardware partners to stream video content perhaps even beyond the limited geographical markets where they operate.
For proponents of net neutrality -- the principle that Internet providers shouldn't discriminate against various types of content, so long as they're legal -- the deal also highlights the level of influence Internet providers have in deciding how video is distributed through their pipes.
In the arrangement, the content streamed through Apple's device would "get special treatment on Comcast's cables to ensure it bypasses congestion on the Web," the WSJ report said.
Comcast would gain a hardware partner known for its elegant design in seeking to expand its TV-over-the-Net initiative. Apple, after years of failing to broaden its video menu beyond a few partners, gets access to Comcast's wide array of progra! mming.
"A deal like this is what Apple has needed from the beginning," said Peter Csathy, CEO of Manatt Digital Media Ventures, a digital media consulting company. "It only makes sense if they get all the live-TV channels, especially ESPN. They've not been able to effectively negotiate on its own."
While cable operators are currently limited to its designated markets, Comcast may be eyeing this deal as a way to offer live-TV nationally, Csathy says. There are no rules that would prohibit Comcast to offer TV-over-the-Internet in a competitor's market, he says. "Apple will be in the TV game. Comcast can either take the lead or follow," Csathy said.
Comcast's ability to stream its TV programming nationally depends on the distribution rights. While content owners generally place some limit on the markets where their shows can be distributed, pay-TV providers are increasingly seeking national distribution rights. "Apple's iTV could be (a system of) programming by Comcast through the cable Internet offered by another ISP in that market. That's a beautiful thing for Comcast."
The news of the talks comes at an awkward time for Comcast. The Philadelphia-based company is trying to persuade federal regulators to approve its proposed $45 billion agreement to buy Time Warner Cable, the second largest pay-TV provider in the U.S. The prospect of the two companies' merger and enlarging their market share to 30% of the U.S. pay-TV market has prompted heavy opposition from consumer advocates who worry about the combined company's potential ability to assert influence over content makers and raise prices.
The prospect of Comcast working with Apple might send a signal to regulators that the larger Comcast "might be willing to work with people and they are not going to be a monolith that's going to go their own way on all matters," says Phil Swann, president of TVPredictions.com.
Comcast also struck a deal recently with Netflix to receive payment in exchange for a more direct path for the! popular ! streaming service to send its movies to Comcast's network. The arrangement would result in quicker, smoother streaming of Netflix's content for Comcast customers.
But net neutrality proponents say the deal could lead to more pay-to-play agreements that may leave smaller video providers out in the cold. Even Netflix CEO Reed Hastings said last week that he agreed to the deal "reluctantly" and urged regulators to establish stronger net neutrality rules.
In buying a majority stake in NBC Universal, Comcast agreed in 2011 to several FCC mandates that last seven years, including a pledge to not discriminate against third-party programs that seek access to Comcast's distribution channels.
But Comcast can get around the pledge by labeling the content streamed through Apple's device as a "managed service," which is exempt from the FCC-ordered mandates. "Those services travel on a special portion of the cable pipe that is separate from the more congested portion reserved for public Internet access," the WSJ report said.
The managed services exception was never defined clearly as the FCC granted Comcast its mandates, now allowing Apple and Comcast to test the limits, says Michael Weinberg, acting co-president of technology consumer advocacy group Public Knowledge,
"We said in 2010 that there's always the possibility it's an exception that swallows the rule," he said. "Internet service providers can declare anything managed services, but hopefully the FCC can say no. It's potentially very broad."
Weinberg also questioned the timing of the news, saying it supports the Comcast-TWC merger opponents' arguments. "This deal seems to draws more attention to Comcast's gate-keeping position, especially when a new video service wants to come in," Weinberg said. "All the incentives that cause an Internet service provider to upgrade the work is inverted if they're getting paid by (a video content provider) to get around those problems.
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