Updated from 11:04 a.m. to include thoughts from Barclays analyst in the tenth paragraph.
NEW YORK (TheStreet) -- Any time someone writes the words Apple (AAPL), television, content and service, the media, tech zealots, and investors go nuts. With the latest offering about a potential deal with Comcast (CMCSA) coming down the pipe (pun intended), a bit of caution is warranted here.
Last night, The Wall Street Journal reported Apple is talking to Comcast about a streaming service that would use Apple TV as the set-top box, with the streaming service getting preferential treatment on Comcast's pipes, so as to avoid disruption. This all sounds well and good, except the deal isn't anywhere close to being done, according to the Journal, and there's likely to be major hurdles getting to the finish line.
Apple, which has started to tout its Apple TV set-top box more publicly in recent months, has made no bones about wanting to change the television experience. CEO Timothy D. Cook has said in the past TV is "an area of intense interest," noting that the experience is like watching television 20 or 30 years ago. At Apple's recent shareholder meeting, Cook noted Apple sold more than $1 billion worth of Apple TV boxes last year, telling investors it was getting more difficult to call it a hobby, which it has been referred to as in the past.
Shares of Apple were higher in Monday trading, up 1.1% to $538.78, while Comcast shares were up 0.03% to $50.01.
The deal between Cupertino, Calif.-based Apple and Philadelphia-based Comcast would have Apple's users live stream TV programming, making use of the cloud for storing programs. Apple wants to own the last mile, where Internet traffic really gets congested, but Comcast has traditionally been a company that wants to own the entire experience.
The point about using the cloud or kind of digital video recording (DVR) service is important. NPD President Mark Kirstein notes DVR viewing has risen 22% year-over-year, thus placing importance on not only ease of user for the system, but on aesthetics as well, something Apple prides itself on.
Comcast, which has been losing video subscribers (it gained 43,000 video subscribers in the fourth quarter, its first gain in more than 6 years) as more people move to Internet-only packages, would benefit from Apple's user interface and simplicity. However, it would likely require Comcast to make significant investments in its network at a time when the company is focusing its efforts on closing the merger with Time Warner Cable (TWC), which may see significant regulatory hurdles due to the number of U.S. homes (approximately 30 million) that would be under the Comcast/Time Warner umbrella.
Apple had previously been in talks with Time Warner Cable about something similar, prior to the pending $45 billion merger with Comcast.
Comcast has been busy touting the benefits of its own set-top box, Xfinity 1, which has a much-improved user interface, and can be controlled by mobile devices, similar to how Apple TV can be controlled via the iPhone or the iPad. Apple wants to own the interface, as well as have users use their Apple logins, in addition to asking for a cut of customers' subscription fees.
Barclays Capital's analyst Kannan Venkateshwar notes that by Apple not owning the rights to linear television, the prospects for a deal are slim. However, a potential deal could be more about improving Comcast's app services, given it already has deals for the various content rights. "Consequently, in our opinion, any deal between Apple and an MVPD like Comcast is likely to be in a form where the MVPD's app appears on Apple TV along with other non linear offerings like Netflix," the analyst wrote in the note. "Such an arrangement would imply that any subscriber to such a service will have to be a Comcast subscriber who happens to have Apple hardware rather than an Apple customer who becomes a Comcast subscriber."
Not only are those hurdles high enough to overcome, but Apple would have to acquire the rights from media companies for the service. Apple has been busy working on adding content to its Apple TV set-top box, including HBO Go, WatchESPN, WWE Network and others.
--Written by Chris Ciaccia in New York