Posts tagged ‘apple tv’

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.

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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.