Don't Rule Out Apple Ruling Your Living Room

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Even that proved to be a difficult victory. Studio chiefs are getting hit with new TV schemes from every direction. Netflix (NFLX), Yahoo! (YHOO), and Amazon.com (AMZN) have deals with mobile handset makers, TV set manufacturers, and other hardware companies. Google (GOOG) is coming out with its own offering, which will initially run on Sony (SNE) TVs and Logitech (LOGI) set-top boxes. In the end, only News Corp.'s (NWS) 20th Century Fox unit and Walt Disney's (DIS) ABC have agreed to provide shows for Apple to rent. In News Corp.'s case, the agreement is for a trial period. (Jobs is Disney's largest shareholder and sits on the company's board.)

A La Carte in the Future?

If Hollywood isn't ready to distribute TV as Jobs would like it, Apple is still well positioned to pull off an a la carte model in the future. All of its devices function easily together, tied by software that no other consumer technology company has been able to match for utility and style. "Today's announcements were just a stepping stone," says Michael Gartenberg, a partner at consulting firm Altimeter Group. "TV is too important for Apple to ignore." If Apple keeps growing the way it has, it may be too big for the media giants to ignore: Apple has 160 million credit-card numbers on file thanks to iTunes, while Comcast (CMCSA) has 23 million.

A big question will be whether Apple opens an App Store for Apple TV. If it does that, and history repeats itself, thousands of developers might then race to create programs suited to the TV. Tim Westergren, chief executive officer of the streaming music service Pandora, is already dreaming of the possibilities for his business. "When I was a kid, I used to stare at album covers for hours," he says. "This could be a big, interactive album cover."

None of this will come cheap for Apple. The company is putting the finishing touches on a $1 billion, 500,000-square-foot data center set off a two-lane road in rural Maiden, N.C., population 3,200. If you stand by the cemetery behind Cedar Grove Baptist Church, you can get a pretty good look at the site through the trees. Code-named Project Dolphin by local officials, Apple's facility could be used for storing your iTunes music and video, or to take on Facebook in a bigger way. Apple isn't saying. Whatever the company is cooking up, it'll be big, says David J. Cappuccio, an analyst with Gartner (IT): "Any company that is investing a billion dollars must have some serious plans."

The bottom line: The Apple TV update won't wow consumers, but it's a long-term bet on Apple's place in the living room.

Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco. With Adam Satariano in San Francisco, Sarah Rabil in New York, and Andy Fixmer in Los Angeles.

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