Archive for ‘Questions’

July 3, 2012

Does Apple want to dominate media streaming? Or just take a cut?

Two news stories recently may add up to an answer to this question.

  1. Netflix took half of Apple’s share of the streaming media market since it began streaming movies in 2010.
  2. Netflix and Apple signed a deal toallow Apple TV users to sign up forNetflix within the ATV interface. 

Apple continues to dominate music downloads, and its video download business continues to grow though not as rapidly as Netflix movie/TV show download service. If Apple wanted to protect its media download business from inroads, why make it easier for Netflix to do business?

Tim Cook recently said that Apple doesn’t need to own content. These actions seem to confirm that. That’s not to say Apple doesn’t care about streaming revenues, rather they would be just as happy to get revenues without having to stream.

Watch for Apple to sign more deals like this, perhaps charging “rent” to have an entry point to streaming prominently featured, or perhaps even present anywhere within the Apple TV interface.

Advertisements
June 9, 2012

What if Apple TV makes TV sets cheaper, not more expensive?

Many financial analysts are projecting that Apple will produce a TV set in Q4 of 2012, or 2013 at the latest. Gene Munster at Piper Jaffray has effectively bet his career on it, for which we offer our condolences. The Apple TV set they envision will compete in the high end of Internet-connected TV sets, selling in the $1500 – $2000 range with poor profit margins but insanely high volumes, or with subsidies from some un-named partner to jack the profits up.

What if Apple’s approach is exactly the opposite? Think about it:

  • Sales and usage stats for Internet-connected TVs show that customers won’t pay extra for them or invest much time in using the additional features. Sales volumes are anemic and usage is negligible.
  • The profits lie in the user experience, which needs to be frequently improved and the hardware needs to be replaceable.

TVs have become commoditized, and that can work to Apple’s advantage. Rather than try to de-commoditize the TV by building an Apple technology into a TV set, add the Apple experience to any HDMI-equipped TV set. Move the user interaction outside of the TV, where it can be replaced and upgraded easily. And extend it to seamlessly encompass the iPhone, iPad, and iPod Touch.

The trick is to make the Apple TV experience extend to watching live TV and cable channels, which is happening already as content providers build iOS apps to receive their content. Likely announcements of new integration options with TV peripherals will make it possible to completely define the TV experience outside the TV, then stream it into the TV via AirPlay.

The consumer gets to keep their current set, or buy the least-expensive, dumbest TV that they like, by just adding a $99 little box. Apple will have no constraints on how fast their TV experience business can grow due to display technologies, screen sizes, or price ranges. And they get to focus their inventive and manufacturing prowess in highly-profitable iDevices, most of which are subsidized by phone companies.

Sorry, Mr. Munster, it is unlikely Apple will build a TV set. On the plus side, they will sell many millions of “Apple TV” devices and millions more iPhones and iPads than they would have otherwise, so your $1000-per-share prediction for AAPL stock price may become real because of TVs after all. And in that case you’ve done your job.

And the name of this little blog comes true, too, as Apple’s maket capitalization will reach a trillion dollars.

June 9, 2012

Does “control out” API mean apps are coming to Apple TV? Believe it.

If we can believe the story that Apple will announce a new “control out” API for other devices to be controlled by the Apple TV as reported in BGR.com (we believe here at TDTV), then we have to believe that those who provide the APIs will want to be able to create apps that at least demonstrate the capabilities of their compatible products. And, oh by the way, they’ll need to be able to test that the APIs work as expected. So there will have to be a developer toolkit for the Apple TV.And that means the whole ecosystem of branded compatible products and services comes to the ATV.

Minimally, Apple will need to add the following:

  • Apple TV app store* in the ATV user interface
  • Criteria and submission process for getting apps into the TV app store
  • APIs that are specific to the ATV, and APIs for other iOS devices that cannot be used on the ATV
  • Resolution-independent graphics, overlays for video, and other TV-related extension
  • Integrated touch-on-iDevice/see-on-ATV user interface extensions to AirPlay

* A variation on the approach would be that the app runs on an iDevice but the TV display is essential to the app. That eliminates the need for an Apple TV app store.

Either approach still means that there are apps that run uniquely with the ATV. It still helps drive the cross-selling between iDevices and the ATV. And the ecosystem will cause Apple TV sales to explode. Even one or two “killer apps” that exploit the TV display will do the trick. Look for Apple to also enhance iBooks to be able to use the TV display alongside the iPad or iPhone. Kindle can’t play there. Google TV can’t play there.

Once again, Apple laps the field.

May 31, 2012

The One Ring to rule them all? Just ask Siri.

My comment on the story in 9to5 Mac (from the original in BGR) of a “control out” API to allow peripherals to work with the Apple TV, to be revealed at the Apple WWDC (Worldwide Developers Conference) in June.

As usual, we look backward to try to see where we are going and end up surprised by the new. It’s not just about a TV, it’s about everything. This is the ONE RING TO RULE THEM ALL.

Apple isn’t just going for the TV, they are going for the entire house, for every consumer product. It will be more than HDMI CEC controls, though it might include those to control some legacy TVs and peripherals. HDMI also includes Ethernet on the cable, so they could do much more with peripherals that support an Ethernet-based protocol. But why limit it to the HDMI cable? If it also works through other connections like Bluetooth and powerline, it can control the lighting, the thermostat, security, the oven and other appliances. Cars and their components can support the “control out” API. Even PCs and Macs might be controllable. Even apps running on devices.

Why would third parties add “control out” to their products? Siri. If you want Siri to be able to control your product, just support “control out”. Apple is overselling what Siri can do now to build demand for Siri integration.

Maybe they should call the API “game over.” Sony and other top-line TV compoenet makers might balk at handing the keys to Apple by supporting the API. But second-tier makers in China and Korea will see it as their chance to leapfrog the big names. Sharp might support it too, because they’re so dependent on Apple for future business opportunities. They’ll have to cave, or become irrelevant. If they delay while developing their own alternative, they risk losing their hotness to Apple again.

Apps will also have to support a Siri API to be controlled by voice. The same API set willalso allow Apple to build a UI for all of the streaming apps from Comcast, HBO, etc., without having to sign content deals. It’ll be the simplest interface you can imagine, layered over the most complex jumble of apps, peripherals, etc the consumer has ever seen. But Siri will promise to make it all work together.

trilliondollartv.wordpress.com

It’s a quick take on a topic I’ve been planning to write about for quite a while. But the news stories didn’t seem to connect the dots, so I jumped in. I apologize for the typos.

May 15, 2012

Where would Apple sell a TV set? Not in an Apple store.

Andy Hargreaves, analyst for Pacific Crest questions whether Apple would want to dedicate any space in its own stores to an Apple TV, based on a key retail calculation: gross profit per cubic foot.

“An Apple television would be a terrible use of retail space relative to iPhone, iPad or the Apple TV set-top box. A 46″ Apple television would likely produce less than 1/200th the gross profit per cubic foot as an iPhone at retail, and less than 1/50th the gross profit per cubic foot of an iPad. We believe this is critical given the limited inventory space at many Apple and partner stores.” (via Fortune Tech)

Profit Problem? Maybe.

Hargreaves assumes that Apple’s margin percentage would be far lower on a TV set than on an iPhone, effectively the gross profit of selling one TV = selling one iPhone. This is in line with the small margins for other high-end TVs. A 50″ TV box I measured at Costco a few months back has about 200x the volume of an iPhone 4S box so the basic calculation is quite obvious. Mr. Hargreaves does not consider the lifetime value of the Apple TV, which could be much greater if there is a monthly service contract attached to the TV. (That’s how Microsoft can justify offering an XBox for $99 with a 2-year contract.)

Apple may feel a TV is so strategic that a lower GP/CF is acceptable, and I think the margins for Apple can be made to work over time. But there is a more basic problem – space.

Real Estate Problem? Definitely.

Apple stores currently sell lots of little boxes like the iPhone, a moderate number of medium size boxes, and a few of its largest boxed items like the iMac 27 inch, which has a box less than half the volume of a 50-inch TV. A successful TV set will sell in the hundreds every week per store. Apple doesn’t have stores big enough to store sufficient TVs for a week’s likely sales. And they aren’t building stores that big or remodeling to get that kind of storage space. Even setting aside space to demo an Apple TV set would be hard in many Apple stores, unless the TV area replaces an existing segment like the third-party product section, or they cut down other sections by 25% or more. And imagine the increased crowding in the stores.

So where would Apple sell an Apple TV set? In the US, Best Buy has that kind of space, as does Wal-Mart, which is rolling out Apple mini-stores now. Costco sells a few Apple items, and lots of TVs, so that’s another potential outlet. We may have to assume that an Apple TV set would sell through big-box stores.

In that case, sitting next to a bunch of other TVs without an Apple employee to show it off, how does an Apple TV set stand out?

What Does This Tell Us?

Does the lack of expansion space in its stores mean Apple doesn’t plan on building an Apple-branded TV set after all? It’s not definitive, but it’s a clue we’ll consider as we go. It could mean that Apple would sell a flagship TV in small volumes to promote its set-top boxes, or license the functionality to another TV set makers. Polling suggests that the market opportunity may be too big to resist.