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Apple Inc. (AAPL)’s Next Big Thing

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This month Sony Corporation (ADR) (NYSE:SNE) will begin shipping its first 4K televisions that have screens with a massive 3840 x 2160 pixels, exactly 4 times the pixels of 1080p HD.  What can you watch in the 4K or Ultra HD (UHD) format?  Not much.  The race is now on to develop and deliver 4K content, and this will challenge traditional content distribution approaches as well as provide Apple Inc. (NASDAQ:AAPL)‘s much rumored iTV with the killer app it needs to be successful.

4K Television is here – now where’s the content?

4K televisions offer a viewing experience like Apple Inc. (NASDAQ:AAPL)’s “retina displays,” since at a normal viewing distance, the human eye can’t resolve individual pixels.  As UHD TVs begin selling in significant numbers, the problem becomes how to supply content.  The immediate solution is upscaling of 1080p HD content, and all UHD TVs have this feature.  It works quite well, but it’s not quite the same thing as a natively mastered 4K video. Upscaling mainly allows the UHD image to retain its pixel-free appearance.

The lack of content is mostly due to the sheer size of the image.  Four times as many pixels means roughly 4 times the bit rate for any delivery medium, and 4 times the storage requirement for a storage medium like Blu-ray disc.

The impact of this 4x multiplication is that a 4K movie won’t fit on a Blu-ray disc, or be able to be televised in the U.S. on the current digital HD broadcasting system. Real-time transmission would also be out of the question for cable and satellite operators, as well as for most sub-gigabit Internet connections.  You could probably download a 4K movie via Google fiber without having to wait all night for it.

h.265 to the rescue

Image: Apple Inc. (NASDAQ:AAPL)

Apple Inc. (AAPL)Naturally, the digital video industry has been working on a solution to the problem of 4K content delivery, and it takes the form of the successor to the h.264 spec, called h.265.   Also called High Efficiency Video Coding (HEVC), h.265 greatly improves the data compression capability of h.264.  Where h.264 might compress a 1080p video at 30 frames/sec into a 20 Mbit/sec (maximum bit rate) digital data stream, h.265 can compress a 2160p video at 30 frames/sec into a 25 Mbit/sec (maximum bit rate) stream.  H.265 basically makes the factor of 4 in storage size and bit rate go away.

With h.265, 4K movies will fit onto Blu-ray disks, and 4K video content of all types, including live events and movies, will be able to be delivered via digital cable and digital satellite broadcast.  Live streaming over the Internet will even be feasible for those with high-speed internet connections, say over 20 Mbits/sec.

Jumping the gun

Even with h.265 in place, TV makers may have jumped the gun by many months.  The Blu-ray Disc Association announced on April 27 that 4K content for Blu-ray discs was under consideration and that a final recommendation would come later this year.  This is what happens when you have engineering by committee, and the BDA is a very large committee comprised of Sony Corporation (ADR) (NYSE:SNE), Philips, Sharp, Samsung and many others.  The upshot is that it’s doubtful that 4K Blu-ray discs will be available before next year.

The cable and satellite providers are in somewhat of a better position.  Digital cable and satellite providers can broadcast h.265 encoded 4K content over their existing systems with little modification to their infrastructure.  The problem for the cable and satellite operators is that every 4K programming customer will need a new set-top box (STB) capable of h.265 decoding and outputting of 4K digital video via HDMI. Broadcom Corporation (NASDAQ:BRCM) showed an ARM SOC (BCM7445) at CES this year that is intended for 4K STB duty that includes a programmable multi-format decoder capable of h.265.  With volume production set for mid-2014, this probably gives a good idea of when 4K capable set-top boxes will be available.

The wait for terrestrial 4K broadcast TV in the U.S. could be quite a bit longer.  There’s little data bandwidth to spare in the current ATSC system, even if h.265 is used to encode and decode programming.   The Advanced Television Standards Committee has solicited proposals for an ATSC 3.0 implementation that would increase the maximum bit rate per television channel to 25 Mbit/sec from the current 19.39 (matching the h.265 maximum), but there’s no telling when the standard will be adopted by the FCC.  The process could take years.

With conventional content delivery systems as no shows for now, Sony Corporation (ADR) (NYSE:SNE)’s approach of an Internet connected 4K media server was clearly the right path forward for them.  The 4K Media player offers hard drive storage and comes with 10 4K movies as well as the ability to download more from the Sony 4K network video service.  The Media Player will be a separately purchased accessory.

Better positioned

Apple Inc. (NASDAQ:AAPL)’s rumored iTV has the potential to solve the 4K content delivery problem in an attractive all-in-one package.  No HDMI cables or STB.  The 4K iTV would continue the Apple Inc. (NASDAQ:AAPL) “retina display” trend, but more importantly, it would incorporate content delivery, content management and DRM with a convenience and familiarity that iTunes is known for.

The Apple Inc. (NASDAQ:AAPL) television would be a 4K TV with a hard drive, a very big hard drive (2TB+).  That may not seem very innovative, but from a hardware standpoint, the iPod was just an MP3 player with a hard drive.  And just as it was the combination of hardware, software and services that made the iPod work, it would be a similar combination that would make iTV work.

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