Here's Why Apple Hasn't Launched a Pay-TV Service

For months, rumors have been flying that Apple plans to introduce a cable-like pay-television service.

The concept would be to stream a package of channels in a similar fashion to DISH Network's Sling TV. But, unlike that service, Apple's offering would not be a slimmed down 20 or so channels for $20. Instead it would be a bigger package complete with the broadcast networks DISH does not offer.

All of this speculation is pure guessing, as Apple has not made its plans in pay television known, but a service has been heavily rumored, with a $40 price point being talked about by media sources. It was highly expected that the company would announce the new service in conjunction with new Apple TV hardware.

That introduction happened on Sept. 9 at Apple's media event/product unveiling. Still, while the hardware was shown off, no mention was made of a streaming TV service, and it's possible that even though Apple still plans to offer one, its launch may still be a ways off.

Apple is a threat to cableThe major hurdle Apple faces is getting rights to the programming it needs in order to launch its service. That's more challenging than the hurdles Sling faced, because Sling is not a full-on cable competitor. It's a skinny bundle built around the channels likely to appeal to cord cutters.

That's a much easier sell to cable channels, because it's a chance to bring people into the fold who might otherwise have skipped traditional pay TV altogether.

What Apple is trying to do seems much more complicated. Its rumored plans are to take on cable much more directly, but pick and choose which channels it offers. That would make its proposed offering a legitimate alternative for existing customers that would leave some channels out in the cold.

What Apple plans could undermine the current pay-TV model, where people are forced to pay a high price for a package of channels whether they want them all or not. The iPhone maker's effort could end the carriage fee gravy train for lesser channels, which is a hard sell to an industry used to being able to leverage its ownership of popular stations to force cable customers to pay for unpopular ones.

For example, Apple might want ESPN, and even ESPN2, but it may not want any of the lesser channels in the ESPN family. That would help keep consumer prices lower, but it would mean less money being paid out to the content owner.

It's complicated anywayEven before you consider the fact that channel owners may not want Apple to launch a pay-TV service, securing rights is not an easy thing.

"Television broadcast and digital rights are incredibly complicated, especially when you get into international rights," Dan Cryan, senior director, media and content at IHS, told The New York Times. "This is tougher than film. It's an absolute snarl of contracts and agreements."

Apple is also dealing with an industry that's wary about the impact it had on the music industry when iTunes launched. At that time, the company was able to make favorable deals because the industry was already being greatly damaged by illegal streaming. Cable is not yet in that position, which makes Apple's challenge harder.

Apple will get this doneWhat once seemed imminent appears to still be inevitable, but Apple has made a conscious attempt to quell speculation. At the Sept. 9 event, the company seemed to send a shot out at traditional broadcast and cable channels by saying (and putting on a giant screen) the phrase, "The future of TV is apps."

Source: Apple.

That was sort of an attempt to make lemons into lemonade, because you can be sure the company would not have said that if it had been able to negotiate rights for a streaming cable-like service.

Still, while Apple is attempting to do the best it can to sell the services it actually offers, ultimately, it will find a way to offer a pay-television package. That may take time, and it may require another provider to launch its own service and create a blueprint for an inevitable Apple deal.

Eventually, channel owners will need Apple and its tens of millions of loyal fans. Until that happens, though, the company faces an uphill battle with a skeptical industry to secure the rights it needs.

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Daniel Kline owns shares of Apple. He has a Sling TV subscription provided to media for evaluation purposes. The Motley Fool owns and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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