Apple Music, Sling TV pave the way for Apple's TV strategy ... but time is running out

Mike Dano

There was one topic conspicuous in its absence during Apple's (NASDAQ: AAPL) quarterly conference call this week: The company's plans for the TV. And that's surprising given the TV industry's remarkably rapid embrace of everything a la carte and OTT, from HBO Now to Showtime's OTT service to Dish's Sling TV to Comcast's Stream.

Apple's TV plans have been a reliable topic of conversation during the company's investor calls ever since Apple founder Steve Jobs told biographer Walter Isaacson in 2011 that "I'd like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it."

Current CEO Tim Cook has done his part to stoke the interest: "I think we're on the early stages of just major, major changes in media that are going to be really great for consumers, and I think Apple could be a part of that," Cook said in April, according to a Seeking Alpha transcript.

Apple's attention to streaming video was underscored recently by the company's move to obtain exclusive rights to offer HBO Now and Showtime's OTT service to its customers before the services move on to other platforms.

Moreover, just two months ago Re/code reported that Apple is looking to add live feeds from local TV stations to its upcoming online pay-TV service. That's not a surprise since Solutions Research Group's eighth annual "Must Keep TV" survey found that ABC, CBS, NBC and Fox ranked as respondents' most important channels in their pay-TV bundle. Thus, it's reasonable to assume that any forthcoming streaming service from Apple will need to carry the Big Four in order to be successful. Indeed, Apple's desire to carry popular content was on full display during the company's recent dust-up with musician Taylor Swift; Apple reversed its position on Apple Music royalty payments on the very same day that Swift issued a complaint on the topic.

But this week, investors appeared too interested in Apple's watch antics and its churning iPhone business to probe Cook for any more color on the topic of TV. And that's surprising given that Apple Music--the streaming service Apple launched just a few weeks ago--serves as an ideal template for a possible pay-TV service launch by the company. Apple is offering all of its iOS customers three months of free access to Apple Music. The company may take a similar tactic in the launch of a streaming video offering.

To be clear, based on its past actions, Apple rarely rushes its products to market. Apple Music is the company's response to established offerings from the likes of Spotify, Slacker and Google. And the Apple Watch hit store shelves after the release of similar devices from startups like Pebble and established players like Motorola. So it's no surprise that a streaming video service from Apple will follow in the footsteps of Sling TV and Sony's PlayStation Vue.

However, Apple likely can't wait forever. Already, Comcast (NASDAQ: CMCSA) has announced its Stream service that will offer content from the NBC, CBS, Fox and ABC (and HBO to boot). Comcast's Stream will only be available to its Xfinity customers, which indicates Comcast may be positioning the service as a competitive shield against encroachment from the likes of Netflix and Sling TV rather than as a major new source of revenues and growth.

Meaning, the window for Apple in the TV industry may be closing.

But Apple faces some serious obstacles in its seemingly inevitable march on the pay-TV sector.

First, it's no secret that content licensing agreements remain tangled among standard pay-TV carriage deals, TV Everywhere scenarios and newer OTT options. After all, as Re/code pointed out, ABC's live stream for its Watch ABC app remains limited to viewers in a handful of cities, likely due to licensing issues. And while Apple is no stranger to content licensing negotiations--the company has a long and scrambled history with the music industry over such issues--the TV industry is decidedly more complex.

Further, local TV stations are furiously working to increase their weight in such negotiations, to the point where they ae willing to let their stations go dark as a way of improving their negotiating positions. For example, just this week Graham Media said five of its stations in Texas, Florida and Detroit are set to go dark on Dish Network (NASDAQ: DISH) due to the companies' retransmission negotiations.

What exactly do these local TV station owners want? The terms of their retransmission contracts are generally secret, but the CEO of Bonten Media Group recently hinted that local TV stations could increase their retransmissions fees from around $1 per subscriber today to as much as $6 per subscriber in the future.

"The good news is we have a very valuable product, and the negotiations with the MVPDs are basically very simple," Bonten CEO Randy Bongarten said at the SNL Kagan TV and Radio Finance Summit in New York in June. "How many customers are they going to lose if they don't have us? It's no more complicated than that."

As a result of such statements, SNL Kagan recently revised a projection released in October stating that total retrans fees would hit $9.4 billion by 2020. The new projection is now $9.8 billion.

Of course, Apple is well positioned to make retransmission payments. The company's cash reserves now stand at a whopping $203 billion. And the TV executives sitting across from Apple at the negotiating table know that.

But Apple has clear reasons to make those payments. Apple's business is driven almost exclusively by getting customers to buy expensive devices, and that remains a difficult task. The company's iPad sales continue to slow, and competition in the smartphone market remains robust. Thus, services like Apple Music stand as an important way for Apple to stoke interest in its devices. After all, electronic gizmos can only get so thin, and screens can only become so clear and bright, and thereafter the question becomes "but what does it do?"

A TV service from Apple could well answer that question. --Mike | @mikeddano