The market, the madness, and the Apple television

The market, the madness, and the Apple Television

It seems you can’t read about Apple these days without someone saying that they’re about to make a big splash into the television market. Apple, of course, hasn't and won't pre-announced anything. But that hasn't stopped Wall Street analysts claiming that the company’s TV strategy is flawed. That's right, Apple's unannounced, unreleased, entirely presumed by someone not-Apple, strategy is flawed. But I digress.

What I don’t quite understand is why so many industry pundits seem to think that Apple just has to make a TV set, or else they’re screwed.  Really people?  Really?

I can see why Apple would go ahead and make a large display for the living room.  But I definitely don’t see it as a requirement.  The actual display has become a commodity.  It’s an HDMI endpoint.  TV makers like Samsung are putting more computing power inside the displays to enable Netflix, Plex, or other media services.  But they’re largely just big screens and that’s it.  

Apple’s strength has been organizing content.  They tackled the music industry with more success than any other company on the planet.  They have essentially global distribution capabilities.  Now they’re starting to make progress with TV shows and movies by offering it up through the iTunes in the same a-la-carte manner. Their lead in these markets has to be mapped to be believed. The $99 Apple TV even has premium sports features like NLH and Major League Baseball.  I think what Apple really needs to do is bring more content into its platform and then make it easy to display it anywhere - from the iPhone to the iPad to the Macbook or big screen.

Apple already has AirPlay to bring any video from pretty much any other Apple device to a big screen.  It seems to me the cheap and cheerful Apple TV doesn’t need to turn into a huge display.  It just needs to get even better.  Guy English wrote a wonderful blog post discussing how he sees the ideal future Apple TV setup and I have to say I agree completely.  

For a while now I’ve been of the opinion that display technology is expensive and slow changing.  But the intelligence inside the displays changes quickly.  A few years ago TVs didn’t come standard with Wi-Fi, nor did they have USB ports that would play DivX files, for example.  Why should I need to buy a whole new TV when the part that needs updating could be in the form of a $99 box (like the current Apple TV)?  Exactly.

So Apple should beef up its current Apple TV set top box.  But then if they want to go ahead and make the most beautiful, well designed 1080p or even 4K display in the universe -- a larger version of the ThunderBolt displays they already make for the Mac -- I will welcome it.  And if they want to go one step better, I’d love to see an Apple living room display that can elegantly hold an upgradeable Apple TV module.  No need for extra cables and boxes, right?  

But one thing is clear to me.  Apple doesn’t “need” to be in the living room display business.  They won’t be reinventing the display, they’d just be capitalizing on their design strengths and brand value.  I’d be all for that as a shareholder.  But don’t try to tell me that Apple has no growth unless they explode onto the TV scene.  That’s just a bunch of nonsense.  They real money is going to come from content, billing, the beauty of their ecosystem, and customer stickiness.  

Building a giant screen is a nice to have, and nothing more.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 9 comments. Add yours.

kch50428 says:

"Apple TV even has premium sports features like NLH and Major League Baseball. " -- I think you mean NHL... which isn't really much since there have been no NHL games so far this season...

AppTacticsNet says:

I've been saying this since the very first Apple television rumours began! Nice to see more and more people starting to say the same thing. Good post! I completely agree.

Jeremy Gerrits says:

Completely agree. It's all about the content. Give me HBO Go on Apple TV next to Netflix and Hulu and I'd never buy cable again.

SockRolid says:

Re: "I can see why Apple would go ahead and make a large display for the living room. But I definitely don’t see it as a requirement."

Agree. It isn't clear to me why Apple would need to enter the low-margin, price-sensitive TV set market. (But then again, I thought it was dumb for Apple to sell the original iPod in a crowded market of MP3 players.)

Re: "They real money is going to come from content, billing, the beauty of their ecosystem, and customer stickiness."

That's it. When Apple moves into a new industry, they first build out a robust software infrastructure. Quietly, behind the scenes, they do deals and write code, test, debug, and iterate the design until it's ready. Then they release the hardware. The tip of the iceberg.

To casual observers (and consumers) it looks like the new Apple product is an overnight success. It's not. For example, the original iPod sold fairly well at first, then gradually ramped up over the first year or two. But iTunes came first, in January 2001. (Remember "Rip. Mix. Burn."?) iPod followed in November 2001. And over the years, Apple has leveraged and expanded the iTunes infrastructure for iPod, iPhone, Apple TV, and iPad, with music, video, books, apps, etc.

So, I think Apple's "Television solution" is already in place. It's the current Apple TV, as an inexpensive set-top box, using customers' existing TV sets as displays. Apple may decide to ship an HD-resolution 55-inch "Cinema Display HD" at some point, but only for completeness. Not as a major profit center. Just to round out their TV product suite, so customers won't need to buy non-Apple gear if they don't want to.

The biggest problem Apple faces in the TV industry isn't hardware engineering or user interface design. It's getting all the content providers on board. They aren't anywhere near as desperate as the record labels were 5 and 10 years ago. And they each have their own oddball internet content delivery schemes. It could take a long time for Apple to convince them that iTunes + Apple TV is better.

And, as you said, Apple's profits in the TV industry will come from content and billing. Not from hardware sales. Apple will always be able to command a premium, but I don't think a living room-sized Cinema Display will be a big money maker. And the Apple TV, at $99, certainly isn't. Apple will need to make their profits by selling and renting content. And they'll need to pull customers in with a vastly better TV experience than anyone else. The same way iPod made it vastly easier to bring your music with you.

Chris Umiastowski says:

Great comment. I think Apple can do well by making very little on their set top box just to cement their position in the living room and create stickiness to their platform, making money from content sales and recurring product purchases.

A $99 box makes it a no brainer to go the Apple way. Then if you really love it, a $1500 TV made by Apple might make sense too, at some point. But it can't be forced.

You're right. Their solution is already in place.

Dev from tipb says:

The problem is, in the USA at least, the solution will not scale in the absence of Net Neutrality regulations with teeth. If Apple TV starts to cut significantly into cableco subscriptions, cablecos who are also ISPs (i.e. everywhere) will suddenly find it necessary to shape their traffic dramatically, and to enforce bandwidth caps (caps towards which their own offerings will not apply). It will degrade streaming based services like AppleTV, and customers will complain, but cablecos will cry loudly that this is legal and necessary to protect the interests of their customers. In reality, they will be seeking to squash a disruptive product, and have the pipes to do it, as long as the law continues to allow it.

kch50428 says:

TV is starting to catch up with what I've always thought it should be... Content providers put everything on servers - and people watch it on demand... you could have it at different levels of service - free, ad supported content streams, or iTunes-like commercial free season passes for shows like one can get now. The 'last mile' bandwidth issue to the end users has been the hurdle for this kind of offering is less and less an issue every day. I've been looking forward to this for 30 years.

Irelandjnr says:

> Building a giant screen is a nice to have, and nothing more.

Nonsense. And besides, when another maker makes a great all in one "smart TV" that consumers choose, then Apple is locked out in the cold. If their TV experience is good enough, then you've no need to buy and plug in an Apple TV. How does Apple stop this from happening? Buy making that product themselves.

In 10 years time this blog post will be laughable.