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Opinion: Why Apple Can't Dominate TV Market Anytime Soon

Ever since we have been exposed to iOS and a growing ecosystem that is supporting and amplifying the impact of the operating system, it is common sense to expect Apple to expand its reach into markets that are direct neighbors to its most successful products. A TV is such a natural evolution. Some of us have wondered why Apple has not released a device that revolutionizes our TV experience similarly to what the iPod has done to the MP3 player and what the iPhone has done to cell phones. The TV, however, plays by different rules; there are powers that Apple cannot control.

The TV market is ripe for an evolution. We are accustomed to and have largely adopted HDTV, but 3D TV failed. The same could be said about smart TV, which flopped with Google's first generation approach. (This should not have been a surprise. I will get to that below.) Still, market research firms are forecasting a tremendous opportunity for IETVs, or, as we may call them in the future, smart TVs. IHS estimates that 81.1 million of the 249.0 million TVs shipped in 2011 had Internet connectivity, even if it would be a bit far-fetched to describe TVs that can connect to Netflix or YouTube as "smart." In 2012, IHS believes that out of 248.5 million TV shipments, 134.5 million will be IETVs. By 2015, 92 percent of all TVs will have some sort of Internet capability (247.0 million out of 268.1 million). Imagine the opportunity for the company that can capture that segment. A mature and established 250+ million market is something that fits Apple's product strategy. Apple isn't aiming for second place; the TV could turn into the first post-Steve Jobs gold mine for the company.

Apple's Opportunity: The Third Screen

From a strategic perspective, the LCD TV screen is the third screen size for Apple – a 1920x1080 pixel display is added to the 960x640 pixel screen of the iPhone and iPod and the 1024x768 pixel display of the iPad. Another screen adds fragmentation and complexity to the AppStore, which will be, in addition to content, the most critical feature to drive the success or failure of an iTV. Just like content needed to grow to support the iPad, content for TVs will have to be created, modified and adapted. However, there will be new application areas and, if executed correctly, an iOS-powered TV can, conceivably, become a seamlessly integrated component in a network that will consist of iPods, iPhones, iPads, Macs and TVs – all of which are connected via iCloud.

What makes an Apple TV especially desirable is the fact that Apple has, among all tech companies, the greatest credibility in the consumer electronics space. There is substantial can-do evidence that would give consumers as well as content providers enough reason to believe that Apple can make a smart TV work, while we know that Intel went awry with with Viiv back in 2006 and Google learned that consumers aren't willing to shell out money for beta consumer electronics. In addition, there has been substantial success with the Apple TV box, which, according to Strategy Analytics, owns about 32 percent of the set-top box market. The step to integrate and evolve Apple TV into an actual LCD TV is conclusive.

Which Features Matter?

Siri and an integrated camera for video conferencing are the most frequently mentioned "killer features" for the rumored iTV these days. I disagree. Let's be honest. When we watch TV, we are incredibly lazy. The last thing we want to do is to lift our rear-end off the couch and engage with the TV. We want to be entertained, which is a rather passive experience and not the active experience we want to have with an iPod, iPhone or iPad. If Apple isn't able to address our laziness, Siri, as well as other active engagement features such as a camera or an email app, will be largely irrelevant.

There is another interesting part of this equation, which we usually describe as privacy. Compared to an iPad or iPhone, which shows content to only one or two users, a TV exposes content to multiple people. As long as you are not the only person in your household, it is highly unlikely that (connected) personal applications such as email or even web browsing turn into killer apps. No one wants to share personal email content. We know that video conferencing is a tough one to break as most of us feel uncomfortable in front of a camera, which gets worse with an increasing number of people who are involved in a video conferencing session. Even a hugely capable Siri voice control may not provide the grounds for a popular smart TV. I cannot remember any instance in which Microsoft's Kinect convinced me to use voice instead of a standard controller to navigate to the content I want.

What remains as the only critical feature is content – active and passive content that makes sense on a TV. The passive content would be traditional TV broadcasts as well as streaming content. The active portion would be AppStore access, especially video gaming. Both roads are covered with rocks that Apple has to remove one by one.

Traditional TV Habits, Passive Consumption

Tom Morrod, analyst with IHS, told me that if an iTV is released, "Apple's positioning is likely to be with operators, putting it up against set-top boxes more than TVs in that case." Problems for Apple include that the replacement cycle for TVs is much slower than it is for phones or MP3 players, making it less likely that we will be throwing out our existing TVs for Apple's TV. Morrod added that TVs are more price sensitive (besides a rather strange, recent survey by Best Buy of what its customers would think about a $1,499 Apple iTV) and that the believed advantage of getting apps onto the screen is much more difficult on the TV than on a phone.

As for the content, Morrod believes that an iTV will have limited reach unless Apple gets "a deal with one of the big MSOs." Even then, there is still "a dedicated and guaranteed bandwidth for premium content streaming to a TV." Imagine the friendly letters from AT&T and Comcast to Apple iTV users when you burst through the 120 GB or 250 GB monthly data limits. I am sure that your ISPs are willing to sell you extra bandwidth, but are you willing to pay for data for another device in your household? "HD TV will stretch the network and requires support from the operators long term," Morrod said. In the end, the analyst believes that Apple has a shot to dominate the TV market, but not right away. "It will take longer and probably not be quite as easy for Apple to break the market, although they may well offer a new business model that may appeal to a few pay TV operators," he said.

TV operators hold the key to Apple's TV success: content. Without traditional TV content, access to everyday broadcasts, on-demand and other premium content, an expensive LCD TV is a difficult pitch, even for Apple. The management of such contracts could be a nightmare for Apple. There may be hundreds of carriers that Apple is dealing with, but there are thousands of broadcasters once Apple extends its reach globally.

Active Content: Apple's Game Console

Leveraging active content on a TV involves a learning process that begins with what we are comfortable with: games. There are plenty of games that make sense to be displayed on a TV, possibly even a touch screen TV. Apple is likely to be offering APIs to developers that lets consumers use iPods and iPhones as remote controls for games on a TV. By using games as a foundation as well as the feature set of iOS on more compact devices, a new generation of TV-specific applications could surface. However, it is not a market that is as conclusive on the TV as it is on a tablet. The addressable market will be much smaller initially and will somewhat limit developer interest, especially if the iTV launches in just a few geographic regions. For example, IHS believes that the 2012 IETV market in North America has a volume of just 31.7 million total units. By 2015, the market will reach about 45.6 million units.

Market Fragmentation

In short, the smart TV market shapes up to be a greater mess than the smartphone arena. Besides iTV, there is Google TV, and Sony is playing a few different games and is much more interested in a consumer platform with its Playstation Network, which was recently renamed to Sony Entertainment Network. Let's not forget Microsoft, which may also be interested in making a stronger play with its Xbox Live and Kinect platforms that are clearly moving beyond video games.

"It looks like the [TV] market will be more fragmented than the phone market for the next few years at least, dominated by own-brand vendor platforms," said Morrod. "Samsung in particular looks to be very entrenched with a future Tizen-bada platform. However, there is space for Google’s platform to unify across brands, and Apple’splatform on what is likely to be a very limited initial run of Apple TVs."

The Bottom Line: Not a Slam Dunk

I hate to be pessimistic, but as common sense as an iTV may sound like, it is strategically problematic. A TV is the most likely flop for Apple since its ingenious Cube, which was sold from 2000 to 2001. Passive content will be the key to success. Restricted access will break the iTV's neck before it launches. With passive content in place, Apple is likely to use active content, thus amplifying that success. Apple iOS devices live and breathe through their apps. Take them away and the devices will die, at least in the consumer space beyond Apple customer loyalty. The iTV (just like a Google TV) will need great apps and deliver developer incentive to overcome the initial limited customer base. The integration of those apps across the iOS ecosystem can seal the deal, as long as Google isn't there yet.

  • jacobdrj
    Let me explain where the TV market is right now:
    Its complicated. Much much more so than it was back in the 80's and 90's.

    Where in the 90s, watching TV consisted of 1) Turning on the TV and 2) changing the channel, now you need to turn on all of your various devices, get them all on the right input/output, and then 'attempt' to flip through channels via either a slow manual flipping or with a menu screen, that is generally pretty slow too.

    Watching a movie was all about hooking up the VCR, turning to channel 3, and pressing play. The tapes produced lower than SDTV quality, the tapes degraded and failed occasionally, but it was easy, and never failed to the point beyond use, like DVDs with a scratch, so long as the tape hadn't been recorded over or physically broken. Sound systems were stereo at best, but were still mature, and had sufficient power due to the allotment of size permitted by already bulky tube-based TVs.

    There are oodles and oodles of new features with TVs these days. Great features. DVR features. Connectivity features. The ability to stream your DVR content over the internet to almost any device. Sound systems that simply blow your mind... The clarity of full 1080p HDTV is unrivaled and unquestioned compared to the 90's. However, the shear complexity and the lag involved with modern TV is a huge downer.

    I can't just channel surf anymore. It is too aggravating with digital cable/IPTV. The DVRs I have used from 2 satilite providers, AT&T Uverse and Comcrap have all failed expectations wildly... The only thing close is using a cablecard with my own computer, but that is very expensive, as far as initial investment goes.

    DVDs are so volatile. Bluray is gorgeous but so expensive.

    Watching TV over the internet, via Netflix, or even via commercial ridden Hulu is a far superior experience in most cases of general use, even with inferior sound and visual quality.

    If someone can make some kind of unified, easy RESPONSIVE TV system, they will get my business.




    Reply
  • ap3x
    jacobdrjLet me explain where the TV market is right now:Its complicated. Much much more so than it was back in the 80's and 90's.Where in the 90s, watching TV consisted of 1) Turning on the TV and 2) changing the channel, now you need to turn on all of your various devices, get them all on the right input/output, and then 'attempt' to flip through channels via either a slow manual flipping or with a menu screen, that is generally pretty slow too. Watching a movie was all about hooking up the VCR, turning to channel 3, and pressing play. The tapes produced lower than SDTV quality, the tapes degraded and failed occasionally, but it was easy, and never failed to the point beyond use, like DVDs with a scratch, so long as the tape hadn't been recorded over or physically broken. Sound systems were stereo at best, but were still mature, and had sufficient power due to the allotment of size permitted by already bulky tube-based TVs.There are oodles and oodles of new features with TVs these days. Great features. DVR features. Connectivity features. The ability to stream your DVR content over the internet to almost any device. Sound systems that simply blow your mind... The clarity of full 1080p HDTV is unrivaled and unquestioned compared to the 90's. However, the shear complexity and the lag involved with modern TV is a huge downer. I can't just channel surf anymore. It is too aggravating with digital cable/IPTV. The DVRs I have used from 2 satilite providers, AT&T Uverse and Comcrap have all failed expectations wildly... The only thing close is using a cablecard with my own computer, but that is very expensive, as far as initial investment goes.DVDs are so volatile. Bluray is gorgeous but so expensive. Watching TV over the internet, via Netflix, or even via commercial ridden Hulu is a far superior experience in most cases of general use, even with inferior sound and visual quality.If someone can make some kind of unified, easy RESPONSIVE TV system, they will get my business.
    I have to agree with you. I have UVerse and the Whole Home DVR solution they use is not very responsive although I do like the HD channel line up. They use Microsoft MediaRoom for that solution. I used a Tivo with a Cable Card before that and liked that solution but was missing the extended cable options. DirectTV there was a sluggishness issue but that was a long time ago. Don't know about now.

    I have to agree with you. If a company can come up with a solution that does all that and have great picture quality with deep blacks I am all in.
    Reply
  • sinfulpotato
    At my parents house in my bedroom is an old tube tv. I use the term old loosely, as it was manufactured in 2003. I prefer it over the awful overly complicated set up in the family room.

    Annoying menu after menu, I can't just channel surf. The whole experience is just clunky as hell. I miss the days when a display was simply just a display.
    Reply
  • hoof_hearted
    @jacobdrj agreed - what we have right now is hundreds of channels and nothing to watch, complete with commercials and a $60-100 / month cable bill. I actually don't have cable and just interenet and Netflix. No commercials and being able to search, browse by genre (scfi for me) and pick from a menu is the best. I would rather pay $30 for the whole season of Santuary DVDs, rip it to my XBMC and watch reruns than pay a $70/month cable bill.


    When they let me pick and pay for my content, then they will have my business.
    Reply
  • memadmax
    People still watch TV?
    Reply
  • supall
    I just hook up the tv to my PC and be done with it. One connection is all it takes and finding shows online is much easier than looking at a tv guide.
    Reply
  • tsnorquist
    What cable companies need to do is provide a la carte service. Charge $1 to $5 per channel a month and be done with it. I don't watch 1000 channels, I watch about 15. If someone offered this sort of setup, they would would acquire every subscriber in the area.
    Reply
  • headscratcher
    I don't think that Apple stands to compete well with MS for the TV screen. MS realized, I think, years ago where all this was heading and went all-in on a gaming console that they were then able to evolve in to much, much more. Apple can't offer this and would have a lot to catch up on.

    All the hot "innovative" stuff I hear said about what Apple can bring to the TV, my XBOX360 has been doing for quite a while now.
    Reply
  • headscratcher
    headscratcherI don't think that Apple stands to compete well with MS for the TV screen. MS realized, I think, years ago where all this was heading and went all-in on a gaming console that they were then able to evolve in to much, much more. Apple can't offer this and would have a lot to catch up on.All the hot "innovative" stuff I hear said about what Apple can bring to the TV, my XBOX360 has been doing for quite a while now.Networks like ESPN will never let that happen. You are going to pay ESPN whether you watch them or not if you have any cable package or satellite.
    Reply
  • gm0n3y
    memadmaxPeople still watch TV?I watch tons of TV shows... downloaded from torrent sites and watched using my computer.

    Don't get me wrong, I have an ~$80/month cable package that only gets used to watch the news and hockey games. But I'm not going to sit down at a specific time to watch a show with commercials. PVRs are decent, but then I might as well just download the shows, its even easier. Plus, being on the west coast, I can often watch them a couple of hours before they're out here.
    Reply