Apple TV + YouTube = What's Next

Google and Apple's deal to show video clips is a major step in the race to bring Net entertainment to TV

by Arik Hesseldahl

In the high-stakes race to bring Internet entertainment from the PC to the TV, Apple and Google were already at the head of the pack. By joining forces, the electronics maker and search giant just extended their lead.

On May 30, Apple (AAPL) Chief Executive Steve Jobs said Apple TV, the company's newly introduced device that transmits digital entertainment to television sets, will begin carrying clips from Google's (GOOG) YouTube. For Apple, the addition of content from an already popular video-sharing site could help sell more Apple TV units, says Tim Bajarin, president of technology consultant Creative Strategies. "With YouTube, [Jobs] might have struck a new nerve and in the process gotten more interest," he says.

Big Plans

And it's likely to be a harbinger of future cooperation between the two companies, especially considering their existing ties. "You can't rule out more collaboration," Bajarin says. Google CEO Eric Schmidt and Google adviser Al Gore sit on Apple's board of directors. The companies have a history of collaboration. A Google Maps application, complete with satellite photos, was one of the headline features Jobs demonstrated when he first unveiled the iPhone in January (see BusinessWeek.com, 1/10/07, "The Future of Apple").

How might Google and Apple build on their bonds? Apple TV could incorporate additional Google features, like the ability to search for clips instead of navigating Apple TV's existing control panel, which is more like that of a digital video recorder, Bajarin says.

Whatever role Google (see BusinessWeek.com, 5/30/07, "Google Is Making You Dumber") and its tools play in the future of Apple TV, it's apparent Apple has big plans with regard to downloadable video in the living room, and it's natural to expect that the relatively low-quality video available on sites like YouTube will only improve.

Mixed Success

No doubt scores of online video services that either mimic YouTube or approach online video distribution in different ways will start jockeying for Apple's attention and a partnership deal similar to Google's. "This deal underscores the nature of this type of connected device to delivery of more than just your traditional commercial content," says analyst Michael Gartenberg of Jupiter Research in New York. "We're in a phase where there's a great deal of overlapping functionality with respect to video content."

And as Apple TV becomes the conduit of a wider range of content, Apple's circle of rivals widens. Apple TV competes in various ways with TiVo (TIVO), which lets users port video records of their favorite TV shows to their PCs. Game systems like Microsoft's (MSFT) Xbox 360 and Sony's (SNE) PlayStation 3 are increasingly able to support video entertainment.

But these are still early days for Apple TV, which went on sale in March. Tech companies have had mixed success in efforts to make online content more accessible. One startup, Akimbo, has struggled to make headway with its set top box that downloads video content directly from the Internet to play on a TV set.