Want to know why there is no Apple TV yet? Then check out Fan TV

San Bruno-based second screen startup Fanhattan gave a first demo of its upcoming TV device, dubbed Fan TV, at the D11 conference today, showing off an intriguing UI, a completely remote control and a bold vision for the future of TV. But the demo also pointed to some of the major challenges for innovation in the TV space. Challenges that will be hard for anyone, including Fanhattan, to overcome, and that are ultimately the reason why we haven’t seen a full-fledged Apple (s AAPL) TV yet.

Fan TV Trending MoviesFirst things first: Fan TV is based in large parts on the work Fanhattan has been doing in aggregating video content sources on the iPad and on the web. It combines this curation approach with live TV from a pay TV provider, video subscription services and a cloud DVR. Fanhattan CEO Gilles Bianrosa didn’t say when the offering will be available or how much it will cost, but instead spent a lot of time talking about the remote control, which replaces traditional buttons with a touchpad powered by 200 sensors.

It’s a cool remote, and the UI looked pretty nifty as well. Kind of like an Apple product, if you will. So why hasn’t Apple built anything like this? Here are some of the reasons:

This can’t be sold retail. Bianrosa said that he wants to roll out Fan TV in cooperation with pay TV providers, who need to support live TV on the device. This means that Fan TV will work for some customers, but not others – something that can’t be easily explained on a box sitting on a shelf in Target. That’s why Fanhattan instead wants to partner with pay TV providers who could sell Fan TV directly to their customers. But that leads to another challenge:

This isn’t the iPhone. Bianrosa likened this kind of partnership to the deal Apple struck with AT&T (s ATT) when it introduced the iPhone, but there are some major differences. One of them: AT&T was able to sell the iPhone subsidized, but licensing restrictions will prevent cable operators from doing the same with Fan TV, at least as long as Fan TV also wants to offer streaming services like Netflix on the same box. That’s the same reason you won’t find a Netflix (s NFLX) app on a TiVo (s TIVO) leased from a cable company.

The pay TV landscape is fragmented. Bianrosa told Mossberg and Swisher at D11 today that he can “on paper” work with every TV provider, because he isn’t competing with them on anything. Unfortunately, making a product like this work will require more than just paperwork. Streaming live TV straight to a device like Fan TV will likely require a number of different approaches for each provider. Comcast may require consumers to use an extra DLNA server adapter. Streaming might be easier for an IP-based provider like At&T (s ATT) or Verizon, (s VZ) but other workarounds may be needed to get it to work on Dish (s DISH) or DirecTV (s DTV) – if those should decide to join the party at all.

Pay TV innovation takes time. Fan TV promises to provide DVR functionality through a cloud DVR, but the company wants pay TV operators to run these DVR offerings. The problem with that plan: Currently, Cablevision (s CVC) is the only company to offer a network DVR, offering to let consumers record their shows on the company’s servers as opposed to a local set-top box. That doesn’t mean that others won’t offer that functionality in the future, but deploying it will take time. It took Cablevision years to roll its cloud DVR out to all of its consumers.

That UI won’t work. Pay TV operators don’t like the idea of losing control, and that includes control over the UI used to access their service. Sure, some have started to stream some of their programming to devices like the Xbox, (s MSFT) and there has been talk about embracing other over-the-top devices as well. But big players like Comcast (s CMCSK) ultimately want to stay in control – and haven’t spent millions on the development of next-generation set-top box experiences to just give up and sell a third-party product to its own customers.

Of course, a product like Fan TV could still succeed. It just will be very hard, and a flashy UI or a sexy remote control won’t help to solve those fundamental problems.That’s why Apple hasn’t introduced its own Apple TV solution to combine streaming and live TV yet – and once it does, things won’t exactly get easier for Fanhattan.