Apple is reportedly in talks with cable manufacturers to make set-top boxes that would sort of reinvent TV, but there's an easier and more obvious route for Apple to take: buy TiVo.
The Wall Street Journal has chimed in on Apple's set-top box plans for two consecutive days. The first story highlighted how Apple is in talks with cable operators to be set-top box partners. Today, the set-top box market is dominated by Motorola Mobility, now owned by Google, and Cisco via its Scientific Atlanta acquisition years ago.
If these reports are true -- and frankly they could just be a diversion to take focus off of an iTV -- Apple has decided that if it can't beat the content-cable establishment, it'll join them, with a few new icons and the familiar iOS interface.
Bernstein Research analyst Carlos Kirjner said in a research note:
Ever since Walter Isaacson's biography of Steve Jobs was published, speculation has swirled over how Apple might re-invent the pay TV business. Today's reporting by the WSJ suggests that Apple is now exploring the possibility of cooperating with the incumbent ecosystem, a departure from previous speculation that Apple might produce its own television and/or license content directly from studios. While the release of a potential set-top box is consistent with our long-held belief that a modified set-top box was a more likely path for the company than an Apple television, possible cooperation with the cable operators does appear to represent a scaled back set of ambitions for Apple, from complete re-invention to something like cooperation. And that's if they can reach a deal at all. If you can't beat 'em, join 'em.
The big question here is whether Apple would really get into a low-margin set-top box business. Kirjner noted that even if Apple sold 50 million set-top boxes (a sum that's a bit nuts) in 2014, it would amount to 5 percent of revenue. If you boosted iTunes sales, there would be more return, but iTunes is only 3 percent of revenue.
In other words, Apple's set-top box route is a lot of headaches for an iOS halo effect.
What's a shorter route to TV set-top box utopia? Just buy TiVo.
Alfred Fried & Co. analyst Rich Tullo floated the TiVo idea in a research note. His reasons for arguing that Apple should buy TiVo go like this:
- Apple could acquire TiVo for $1.5 billion to $2 billion.
- Apple could reverse engineer set-top boxes for $500 million, or buy TiVo, which would probably sue Apple anyway.
- The TiVo box would become an iBox.
- TiVo has valuable intellectual property for Apple.
- Cable companies already have deals with TiVo.
- TiVo has been selling set-top boxes in the aftermarket, and Apple could provide support with its genius bars in its retail stores.
- Manufacturing costs would go down for these set-top boxes because of Apple's massive supply chain.
Tullo said one wrinkle in the Apple-TiVo argument boils down to an intellectual-property lawsuit with Verizon starting September 12. If TiVo wins a settlement, Motorola and Cisco are likely to settle. A global IP settlement would make TiVo worth even more to Apple.
Bottom line: If Apple is seriously considering the set-top box market, it has to be looking at TiVo. An acquisition is the best and quickest way toward upending Google-Motorola in the living room.