Tuning Out Apple TV—for Now

(page 2 of 2)

I also like the idea of Joost, but don't know how much I will use it. But again, that says more about my habits than anything else. If Battlestar were on Joost, and I had to choose between getting it from iTunes for a fee, or from Joost for free, I'd probably go with Joost. But does Joost have the right idea to have lasting impact on video downloads? I'm not so sure.

Download Business Doomed?

In time the people who make a great deal of money serving video content—primarily cable companies—are going to realize their business is threatened and start making acquisitions, cutting deals to ensure they preserve their revenue streams.

Forrester Research (FORR) analyst James McQuivey raised some eyebrows this week when he published a report on the video download business. He got some flack from Apple lovers for observing that paid video downloads, including Apple TV, look to him like a dead end.

That doesn't mean he thinks Apple TV will necessarily fail. It's just that he thinks the device needs to do more than it does now—which Apple has already admitted. Its plans for accounting for Apple TV revenue over two years (see BusinessWeek.com, 5/3/07, "Gasp! A Less Than Bullish Apple Analyst?") indicates that Apple has some big plans for updating the device with more capabilities through software updates over time.

Bandwidth Will Be King

I think it's also going to have to evolve on the hardware side, and fast. Take the 30-gigabyte hard drive. That's not big enough to store much content, especially when you consider that the future of video is in high-definition TV. While most TV shows are in standard definition, newer shows are being shot in HD, including my three favorites mentioned above.

That's going to mean more bandwidth in the home. And who delivers the most home bandwidth right now? Cable operators. Last week Comcast (CMCSA) Chief Executive Brian Roberts shocked the broadband world by demonstrating a 150-megabit-per-second cable modem technology that's 20 to 25 times faster than the fastest cable modems available today. He promised that the technology is about two years from being widely available. Meanwhile, Verizon (VZ) is slowly rolling out its FIOS fiber-optic service that promises speeds of up to 100 megabits per second.

Cable operators are already accustomed to delivering video "on demand" and are now pretty familiar with how consumers use their PCs and what they like and don't like on the Internet. It doesn't take much to imagine cable operators offering services that give customers the video they want, wherever they want it, whether on the flat-screen TV in the living room, the desktop PC in the den, or on the notebook computer that's in a hotel room on a business trip.

A Fast-Moving Market

Clearly, Apple TV, as currently specified, is roughly analogous to the first iPod that hit the market in 2001. That device also had limited storage and functionality, and it worked only with Macs. But within a few years, it was a mass-market device that embraced both the Mac OS and Microsoft (MSFT) Windows, and became the only way to listen to music purchased from iTunes. To stay ahead of the market, Apple had to change the product, as they had always planned to do. The iPod of 2003 was very different from the iPod of 2001.

And Apple will change Apple TV as well. But I think the Internet video market circa 2007 is changing much faster than the digital music market circa 2001. Apple can't afford to wait one year, let alone two, as it did with the iPod. No one hoping to conquer this business can.

Hesseldahl is a senior writer for BusinessWeek.com and his Byte of the Apple column, covering all things Apple, appears biweekly at www.businessweek.com/technology.