Nearly six months before this week’s reveal of iPhone 6 and the Apple Watch, the Wall Street Journal reported that Apple was in talks with Comcast Corp. about “teaming up for a streaming-television service that would use an Apple set-top box and get special treatment on Comcast’s cables to ensure it bypasses congestion on the Web.” For content, the product reportedly would not only offer users access to on-demand movies, TV programs and other apps, including games, but also live Comcast cable programming. This raises a serious question whether such an arrangement would represent a procompetitive development or instead further delay a languishing 20-year federal effort to create a commercially viable retail market for cable set-top boxes (“STBs”).

There are three sets of obstacles potentially standing in the way of this initiative. First are business issues associated with customer control. As commentary noted at the time:

Back in February it seemed both Comcast and DirecTV were reluctant to allow Apple to develop a system where customers logged in using their Apple credentials instead of their pay-TV accounts. The fundamental question of who gets to have the primary relationship with the customer has played prominently in Apple’s negotiations with magazine and newspaper publishers in the past, so it makes sense that the issue would pop up again in a different medium. Given that Comcast has been investing in its own advanced set-top boxes, the cable giant is probably not ready to cede too much ground too quickly.

The second set of issues relates to whether Apple, or any content provider, should be permitted to pay for routing of its IPTV traffic as a managed service, receiving priority handling for the packets involved, from ISPs. That is a subset of the network neutrality debate, commonly referred to as “paid prioritization,” that continues to rage before the FCC and Congress.

Yet a third set of issues has received scant attention in the business media. That is, how would an Apple STB deal with the 1996 legal mandate that so-called “navigation devices” be available for retail purchase by consumers, in other words unbundled from cable television and broadband service? Apple is known to have the most popular, addictive and tightly integrated ecosystem of all technology companies. The company is famous for steadfastly protecting this closed ecosystem and declining to make its hardware, or most software, interoperable with other platforms. The devices and software Apple sells are designed to work well with each other and sync easily so that preferences and media can be copied or shared with multiple devices without much effort. Applications work on many devices at the same time — even with a single purchase — and user interfaces are very similar across devices. Sure, out of necessity Apple offers iTunes software for Windows (supporting both the iTunes Store for music and video purchases and iPhone syncing on Windows PCs), but at their core most Apple products work best, if at all, only with other Apple products.

As a business strategy, the closed Apple ecosystem experienced some very bad years in the mid-1990s, yet today has propelled Apple into its current status as the world’s most valuable corporation. As a legal and policy matter, though, things could be quite different.

Continue reading Apple’s Cable Set-Top Box and Interoperability