Apple, Microsoft, Google and the sad state of TV

The latest news on Apple’s (s AAPL) plans for the future of television is that the company is in talks with big pay TV operators to carry their live programming. This would turn a future Apple TV product into a kind of set-top box, reported the Wall Street Journal Wednesday. Negotiations with cable companies are ongoing, with no deal in sight, and operators are wary of Apple’s quest for control, according to the paper.

But the sad truth is that even winning a contract like this would be a defeat for Apple. The company originally set out to disrupt the TV space and sell programming directly to consumers. It wanted to unbundle cable much in the same way it unbundled the CD when it started selling single songs on iTunes for $0.99. A move like that would have been truly innovative. But as it looks now, Apple is just going to repackage the good old cable bundle and make it available through yet another device.

If it’s any consolation for Apple, it is not alone with this path. Numerous companies have tried to reinvent TV, only to end up with products that look just like more of the same:

Microsoft’s (s MSFT) Xbox 360 is arguably the most innovative living room entertainment device out there. It has gesture control, gaming, access to live TV and over the top video content. And yet, the TV part of the box is as boring as it could be. Redmond initially set out to have its own live programming, and reportedly even negotiated with Conan O’Brien to get him on the Xbox exclusively. Instead, it had to settle for TV Everywhere apps from HBO (s TWX) and EPIX and live feeds from Verizon (s VZ) FIOS, all of which only work if you already have an existing pay TV subscription.

Google (s GOOG) TV’s struggles with the broadcasters are well-documented. The search giant tried to appease Hollywood by making a platform that was decidedly pro-cable, and even struck an agreement with DirecTV. (s DTV) Dish (s Dish). But its vision to unify web video and pay TV didn’t sit well with broadcasters who across the board decided to block Google TV devices from accessing their online content. That’s why it’s no surprise that Google’s latest TV venture – the pay TV component of Google fiber – pretty much looks like your plain old cable bundle.

TiVo (s TIVO) also tried its luck at becoming a kind of set-top-box provider, much like Apple is reportedly doing now. And guess what: It may be much less ambitious (and disruptive) than taking on TV with your own content distribution, but it’s not that easy either. Case in point: When TiVo started leasing its boxes through cable operators like Suddenlink, Cox and RCN, customers of those companies suddenly found that they didn’t have access to apps from Netflix or Hulu Plus. Cable operators like Suddenlink actually wanted to have Netflix on these boxes, but Netflix’s and Hulu’s contracts with studios simply don’t allow them to deliver their services to leased pay TV equipment.

So who is killing TV innovation?

The latest retrans fight: Viacom vs. DirecTV

Unbundled programming, access to web content on the TV and apps on a pay TV set-top box: All these issues have something in common. They’re a threat to big broadcast’s newfound love for retransmission fees. Facing the threat of a disruption to their ad revenue, broadcasters and cable TV networks have in recent years massively grown their B2B relationship with cable and satellite operators.

Broadcast channels and their local affiliates increasingly ask pay TV operators to pay up for content that was previously available for next to nothing. Operators unwilling to pay up face blackouts, and routinely cave in after their customers rebel.

Retrans fees are expected to net broadcasters $2 billion this year, up from $1.46 billion in 2011, according to SNL Kagan estimates. And that doesn’t even include what pay TV operators have to shell out for ESPN (s DIS) and other popular cable channels. The flipside of these billion dollar deals is exclusivity. Broadcasters can ask for more money if their content isn’t available to TV viewers through anything but a TV subscription. That’s why TV Everywhere is growing, and why broadcasters like Fox (s NWS) have policies not to allow web video on any connected device.

There is a silver lining

The good news is that there is still room for innovation in the TV space – but it likely won’t happen with the consent of big broadcast. Instead, it’s time to innovate on content delivery outside the world of cable television. Companies like Netflix (s NFLX) and Hulu are starting to produce their own content that doesn’t come with the same strings attached as the shows airing on major broadcast networks. YouTube is also massively investing in content that looks more like TV fare without being TV-only.

But the biggest push towards innovation may just come from one of the oldest technologies of the TV business: over-the-air television. Startups like Skitter are redefining what pay TV looks like, delivering live broadcast streams within the existing legal retransmission framework. Aereo is pushing the envelope when it comes to personal over-the-air transmissions. is reinventing the DVR with cord cutting in mind. And Boxee is rumored to have a cloud-based DVR in the works.

All of these efforts bypass negotiations with broadcasters and instead rely existing legal exemptions. It’s a risky strategy, but also one that has worked in the past. Just look at Netflix and how it used the first-sale doctrine, which allows the rental of DVDs without any explicit contracts with Hollywood studios, to build out a giant, postal service-based content delivery network. Of course, Netflix’s DVD business is now fading, and Hollywood is making good money with its streaming business.

Let’s hope that innovative companies are going to pull of the same thing in the TV space. Otherwise, the future of TV may just be a pig with some shiny new lipstick.

Check out my e-book Cut the Cord: All You Need to Know to Drop Cable to learn more about Apple TV, its competitors and the future of television.

Image courtesy of (CC-BY-SA) Flickr user videocrab