Apple TV: Peer-to-Peer Networking's Trojan Horse

Feb.20.07 | About: Apple Inc. (AAPL)

By Carl Howe

I love Robert X. Cringely's musings, if for no other reason than the fact that he has made some amazingly prescient predictions. I'm particularly reminded of his story about the Google (NASDAQ:GOOG) datacenter in a box, which preceded Sun's announcement by nearly six months. Well, he's back again, this time analyzing the odd feature set contained in the Apple (NASDAQ:AAPL) TV device. His insight? Did anyone else notice that it's an always-on device with a 40 GByte disk? If it is for watching TV, why does it always have to be on?

Cringely has a simple answer:

I think sometime this summer Apple will ship a firmware upgrade for the Apple TV and it will suddenly gain an important new capability. That's when the Apple TV becomes a node on the iTunes peer-to-peer video network.
Say Disney releases Cars 1.5 -- a direct-to-DVD release expected to sell millions of copies in its first few days. There is no way iTunes could even hope to participate in a launch like that simply because there isn't enough bandwidth at a good price -- or any price. Even BitTorrent would have troubles handling a small part of such a launch until enough seeds were populated and running. But what if the movie was effectively pre-seeded -- loaded over a few days on a distribution tree of thousands of Apple TV boxes which could then deliver the movie locally at high speed if purchased. Or if not purchased the seeded copies could still work together to serve other Apple TVs on the same ISP subnet.


If you are wondering what Apple might accomplish with such a peer-to-peer distribution system, it would be nothing less than the undermining of TV. First Apple would eliminate its current dependence on Akamai, reducing its network costs for iTunes by about 100X, making the network costs effectively free. Hello HDTV!


There are only two forces I can see necessary for this P2P deployment: gaining a big enough installed base of Apple TV boxes and the removal of some or all Digital Rights Management [DRM] code from the content. Gaining a critical mass of Apple TV boxes simply comes down to keeping the real purpose secret until there are 500,000 to 1 million units in the field.

I speculated 18 months ago that the iTunes Store would evolve into an Apple TV network. And we know there's been significant effort in peer-to-peer networking and that it may be a feature of the upcoming Leopard release. But we had always assumed that Apple would just enlist the millions of Mac owners to do this. Imagine how much more effective that effort can be if it uses Apple TV as a Trojan Horse into living rooms instead.

We will add one marketing twist though: we don't think Apple is going to expect to use consumer's peer-to-peer bandwidth for free. Instead, we expect that nodes in Apple's peer-to-peer network will get iTunes store credits for seeding movies to other users. With a financial incentive in place for consumers to help Apple build out its network, it should grow quickly.

One detail we can't figure out how to resolve though: what happens when ISPs like Comcast (NASDAQ:CMCSA)cut off consumers who actually use a significant portion of the bandwidth available on their unlimited Internet access? Especially given that Apple will actually be competing with the TV parts of their business, we don't expect the cable and telcos to be particularly helpful with this effort. Perhaps Apple has built in a throttle on their Apple TV upstream bandwidth to keep users under the Comcast limit. Regardless, the battle between content and bandwidth providers is about to get a lot more complicated -- and we should expect a few casualties along the way.