Just what might the next-generation television set be able to do? With any luck, everything.

By Jon Chase
August 10, 2012 at 04:00 AM EDT

Before his death last year, Apple CEO Steve Jobs let biographer Walter Isaacson in on a secret. He’d been working on a device that would do for TV what the iPod did for music, the iPhone for smartphones, and the iPad for mobile computing. ”I finally cracked it,” Jobs said.

Since then, the hype surrounding Apple’s technological marvel has continued to build with nary a clue about its existence. All that interest suggests consumers are hungry for a change in how they get their television. Despite all the options available for watching video — DVR, Netflix, iTunes, and YouTube; using laptops, smartphones, and tablets — there’s evidently strong demand for ever-increased flexibility. Even more important, consumers seem to be searching for a single device or ecosystem that consolidates all those technologies into an understandable, functional package. You know, like back in the old days of the 20th century when everyone knew how to work a TV.

We’ve all heard the bad rap the TV industry has been getting: DVRs are killing the ad business, dramatic numbers of people have stopped watching, kids spend all their time texting and online. “There are a lot of assumptions,” says Jo Holz, senior vice president of research initiatives at Nielsen. “But once you see hard data, most just don’t hold up.” According to Nielsen’s research, and echoed by reports elsewhere, Americans are watching nearly as much TV content as ever — on average almost five hours per day — and 98 percent of that on an actual boob tube. DVR use is big, but DVRs are still found in less than 50 percent of households, and viewers even watch about half the ads on DVR’d shows. In short, the TV industry is the rare sector to have (so far) weathered the digital tidal wave — and it’s poised to capitalize if a transformative device emerges. As Alison Moore, head of HBO‘s lauded digital efforts, notes: “Now and five years from now, it’s just a really good time to be a content company.”

The next few years will bring changes that should make our current TV sets look positively Paleolithic. Ross Rubin of the consumer-electronics analysis firm Reticle Research says that networks and cable companies are eager to make more and more content available that will move seamlessly between devices (the “single-user experience,” as it’s called: Start watching on your smartphone and pick up where you left off on your TV or tablet). Living-room screens will remain our hub. They’ll continue to get bigger and thinner, and will produce insanely lifelike images thanks to Retina displays that may be many times more detailed than today’s HD resolution. For 3-D, new auto-stereoscopic screens will mean we can ditch the glasses for good. Voice and gesture control will also likely replace buttons. “Just about any input method you can think of is being experimented with,” Rubin says. Picture a combined version of Xbox Kinect and Apple’s Siri that will let you wave away commercials, give a thumbs-up to “like” a show, or ask your TV for recommendations.

“In the future, all screens are going to be smart, and all screens are going to be connected,” says Microsoft‘s Marc Whitten, VP of Xbox LIVE. Your TV will know what you like and will search the cloud for an old Small Wonder episode, say, or a Rory Calhoun bit. You’ll still have a full stack of channels, but you’ll easily connect to services like Netflix and Hulu Plus and digital stores like iTunes, Amazon, and Google Play. We’re inching ever closer to the time when every show ever created will be available from a video vault in the sky. In fact, one of the next big breakthroughs will be for whoever best figures out how to curate that daunting amount of content.

A more social “second screen experience” will be incorporated directly in the set. Your new TV, like your current laptop or smartphone, will have a built-in camera and microphone, so that you can video-chat with friends or watch NCIS: Moon Base together. And as the walls of privacy continue to crumble, you’ll get suggestions based on not only your viewing habits but also those of your contacts. (The jury’s still out on how much consumers really want to share.)

The next few years will be a tug-of-war between the TV hardware revolution and the TV content evolution. Cable and satellite companies and broadcasters are happy to have customers consume more content as long as they’re the ones dishing it out. Consider, then, what a new Apple offering might add to the mix: With past devices, the key breakthrough has always been an ingenious way of reducing complexity. For now, we think Apple’s move is to keep polishing its current Apple TV box — an interface that lets users stream select video and sold 4 million units this fiscal year — adding new features and services like the recently included Hulu Plus. If Apple does have plans for a next-gen device, its debut can’t be too far into next year, as competition from Google, Microsoft, TiVo, and many others would threaten the company’s usual first-mover advantage. (Apple declined to comment on specifics.) “Now a company with a boatload of money, like Apple or Amazon, could be in a position to say, ‘I want [this channel or show] exclusive for my network,’ ” says Evan Young, senior director of marketing for TiVo. In other words, someone could swoop in and completely change the game overnight. Sounds like some pretty great television to us.

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