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In his last days, Steve Jobs told a biographer that he had cracked the code of television, a comment that ignited speculation that Apple was at work developing an iTelevision. Unfortunately, the surprising profitability and power of the cable television industry will make the initiative all but impossible.

At a time when younger viewers are deserting television for the slightly less vegetative world of the Internet, the major U.S. cable networks have uncovered an interesting strategy to generate profits – extortion. According to the New York Times:

"Starting with Mad Men in 2007, the [AMC] network landed hit shows that developed small but obsessive followings. Soon after, it began making larger financial demands of the cable and satellite providers. AMC now charges these providers about 40 cents a month for each subscriber, including the millions who will never watch Mad Men or Breaking Bad. These providers can refuse to pay up, but doing so would infuriate legions of vocal viewers. (Last summer, the Dish Network played chicken with AMC and lost.) AMC collects $30-million [U.S.] a month in fees alone on a base of 80 million subscribers."

The power of the content providers – at least, those developing the shows with the most rabid fans – is the main hurdle preventing Apple from entering the television industry. As Mr. Jobs outlined here, Apple will need to develop relationships with content developers to remake television's user interface in the same way it did for music. An Apple partnership with a major cable company such as Direct TV or Comcast would not help – none of them cover even the whole United States, never mind the entire world.

Cable channels like AMC are well aware that iTunes crushed profits in the music industry. These content providers are calling the shots and are nowhere near desperate enough to agree to financial terms similar to the ones agreed to by music creators. To become a television provider, Apple would likely have to accept a far smaller share of the profits if it wants to offer a full slate of popular programming. With Apple's profit margins already slipping, pursuing this strategy appears risky.

Mr. Jobs was a genius and it is possible he conceived of a strategy that circumvents these issues. There is nothing that would make Apple shareholders happier. The company is at a low point in its product cycle as the novelty of the iPod, iPhone and iPad erode. But at this point it appears that the entrenched infrastructure of the television industry, combined with the bargaining power of content providers, will delay an Apple television for the foreseeable future.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/12/23 11:59pm EST.

SymbolName% changeLast
AAPL-Q
Apple Inc
-1.06%171.48
DISH-Q
Dish Network Corp
+1.94%5.77

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