The technology industry is working on viewing options that could include apps, a
move that has the potential to transform cable television’s interface and business
model.

The same consumers who delight in navigating the iPad still click frustratingly
through cable channels to find a basketball game. Their complaint: Why can’t
television be more like a tablet?

The technology industry is trying to address that question for the millions of
customers ready to embrace the next generation of viewing options. In the process it

could transform the clunky cable interface, with its thousands of channels and a
bricklike remote control, into a series of apps that pop up on the television screen.

While still in its early stages, the idea has taken off among tech-loving consumers,
and companies are trying to satisfy them. Already, apps for Hulu Plus, Netflix and
Wal-Mart’s Vudu streaming service, among others, are built into Internet-enabled
televisions. Devices like Microsoft’s Xbox 360 and the streaming video player Roku
let viewers watch apps that mimic channels. New sets by Samsung and others come
with built-in apps loaded with television shows, movies and sports.

Apple has a video player called Apple TV with apps to Netflix, Major League Baseball
and other content. Many media executives predict Apple will ultimately enter the
television market in a more aggressive way, with either a new set-top box or an
Apple-made TV set. Both would rely on apps scattered across the screen as they are
on the iPad. Apple declined to comment.

“I’ve told my bosses, ‘This is beachfront real estate. Buy in now,’ ” Lisa Hsia,
executive vice president of digital media at NBCUniversal’s Bravo channel, said of
developing TV apps.

A model built around TV apps, however, could let viewers use favorite apps on the
screen on an á la carte basis, thus bypassing cable subscriptions and all the
extraneous channels they don’t watch. And therein lies the tension that has the
television industry delicately assessing how to balance the current system with an
Internet-based future that some feel is inevitable.

“The question that hasn’t yet been answered is whether television viewing will consist
of a single app that mimics the pay TV bundle or a series of different apps that
together form a content experience,” said Jon Miller, the chief digital officer at News
Corporation, which owns Fox Broadcasting and cable channels like Fox News and
FX.

À la carte apps would upend the entrenched and lucrative economics of television,
which have long relied on a system in which cable customers pay for channels even if
they don’t watch them.

The so-called bundle setup helps little-watched channels bring in revenue from
monthly cable fees and allows the most popular channels to get high fees from every
subscriber, even the ones who don’t watch them.

The idea of undermining this model is so sensitive that media executives who think
that apps are the future of television would not discuss the subject publicly, for fear
of disturbing their cable and satellite partners.

But many analysts caution against predicting the near-term demise of cable and
satellite delivery, pointing out that the spending and viewing habits of consumers are
also firmly entrenched.

“The model we have is the model we have, and while it’s tempting to imagine an app
for TNT and an app for ESPN, that’s not the likely outcome,” said Craig Moffett, an
analyst at Sanford C. Bernstein & Company. À la carte apps might seem like a bright
idea, Mr. Moffett said, but it is unlikely consumers would pay $20 a month for
individual channels when the traditional cable bundle provides a bargain price.

Currently, most TV apps created by networks work on an authentication model that
requires cable subscribers to log in before gaining access to a channel’s app. The
handful of apps already available on television screens also largely require a cable
subscription.

For the most part, the apps being offered today are intended as complements to
traditional TV viewing and are available only on tablets and mobile devices. For
instance, NBC Sports will soon introduce its NBC Olympics Live Extra app, which
will allow subscribers to stream every Olympic event from London this summer. It is
available only on iPads, tablets and other mobile devices, not on TV screens through
Xbox or Roku.

“No one on the digital side wants to take away audience from the TV,” said Rick
Cordella, vice president and general manager for NBC Sports Digital.

Time Warner’s HBO still relies heavily on the cable bundle because it does not have
the customer service or sales force of a company like Comcast or Time Warner Cable.
But HBO Go does allow subscribers to have access to the pay channel’s library of
almost every series, movie, documentary and heavyweight fight directly on the TV
screen, via the Xbox.

“The HBO Go app is seen as a doorway into the entire world of HBO programming,”
said Eric Kessler, co-president at HBO. “That adds tremendous value to the
subscription.”

As such, HBO Go could help the channel lay the groundwork to eventually break out
on its own on an à la carte basis, even if that might not happen soon, said James
McQuivey, an analyst at Forrester Research. “HBO has the largest subscriber base of
any video service in the world, but they know none of their customers by name,” Mr.
McQuivey, said. “That will be a huge liability in the future. HBO knows that; that’s
why they need a direct relationship.”

The ability of any channel to strike out on its own, even strong ones like HBO or the
Walt Disney Company’s ESPN, remains problematic. ESPN makes about $5 a month
from each of the country’s more than 100 million cable subscribers. If ESPN ever
sold its live sports and talk shows directly to the consumer, it would need to charge
several times that rate. “We have no plans to bisect our partnerships with
distributors,” said Sean Bratches, the ESPN executive vice president for sales and
marketing.

But just as with previous transformations in television, the economics will have to
catch up as technology evolves, said Jeremy Allaire, chief executive of Brightcove, a
technology firm based in Boston that builds apps for media companies.

By 2014, an estimated 89.5 million people in the United States will use tablet
computers, up from 54.8 million users in 2012, according to the research firm
eMarketer. “You have to achieve scale before the economics will work,” Mr. Allaire
said. “But at some point, we think direct-to-consumer will be very important.”

That model may prove attractive to smaller cable channels, many of whom dislike
how they are buried within the traditional electronic guides that viewers use to
navigate their cable boxes.

Bigger cable channels may find it appealing as well. The head of digital strategy at
one major channel said he was excited about the idea of having an app that sat on the
home screen of a television. It would provide a “safer passage” to eventually sell the
channel directly to customers, rather than through a cable package, said the
executive, who declined to be identified to avoid upsetting the company’s cable
partners.

Cable and satellite companies have sped up the development of their own TV apps in
the hope that they will eventually mimic the set-top box. In an ideal cable industry
model, customers will have one or two apps that offer hundreds of channels rather
than dozens of apps for individual networks. “You download all these apps, and then
you get app fatigue,” said Matt Strauss, Comcast Cable’s senior vice president for
digital and emerging platforms.

“Apps create amazing experiences,” Mr. Strauss said. “But I believe most customers
and households are still looking for an aggregated experience that’s intuitive and
personalized.”

By AMY CHOZICK and NICK WINGFIELD – NYTimes – April 27, 2012