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Beneath contempt: The Apple TV business model

Last year we sold … 2.8 million Apple TVs. This year, just in the first six months of our year we’ve sold 2.7.

Tim Cook at D10 1:45.

I note the “our” in “our year”. This implies fiscal year (that and the fact that he spoke in the past tense before six months had passed in the calendar year.)

Given the public information we have so far, it’s now possible to estimate with some confidence the sales history of Apple TV. The following chart is my estimate. It includes all the known data so far with some interpolations to fill in the gaps.

Assuming average revenues per device of $100, we can get an estimate of about $344 million in Apple TV hardware revenues for calendar 2011. This is not a large amount relative to Apple’s other lines of business. It is, for example, only 14% of the overall Peripherals revenues and only 5% of the iPod.

However hardware revenues are not the whole story. The business model for the device is in many ways the polar opposite of the business model of the iPhone. Whereas the iPhone employs “break-even” iTunes App Store (and the Music and Video and Book stores) in order to sustain its high hardware margins, the Apple TV business has low hardware margins that sustain content.

The complete picture therefore has to include an assessment of the content attach rates and the agency fees that Apple gets for that content.

Let’s assume that each Apple TV is used to generate $10/month in content sales. This is not a lot. It’s equivalent to 5 TV shows or one movie purchased or two movie rentals per month. The model I have shows that the installed base of Apple TVs was about 10 million by the end of 2011. That means that the run rate is $1.2 billion in content sales for the Apple TVs in use.

Now Apple does not book all that. They book only about 30% as revenues as their agency fee. That means that Apple TV could be generating revenues at a run rate of $360 million (to Apple.)

If we add that to the $344 million in hardware revenues we get about $704 million for 2011. This is still not a huge business. It is about equal to the revenue from iPad Smart Covers[1]

Looking forward, if Apple TV units sell at double the rate of last year and we increase the footprint accordingly, we could see a revenue rate of $1.2 billion for 2012.

Now this is not a high margin business. The margin on the content may be less than 50%–depending on transaction costs and hosting/traffic fees. The margin on the hardware is also likely to be below 40%. So the business is not wildly profitable. But it probably is profitable. Which means it makes sense to keep it running while waiting for other pieces to fall into place.

As Tim Cook repeated, they are very interested in this space. However, any discussion of the future must include an analysis of the business model and the sustainability in terms of profit that keeps long term development focused on getting the product to be good enough for the right jobs to be done.

What we should think about however is this “polar opposite” business model. Apple is running this as a “hobby” or as an internal experiment. Sales are (relatively) tiny but it generates some profit. Volumes are small but they are growing. It’s taking a heck of a long time. It’s asymmetric to the prevailing model the company relies upon. It’s beneath contempt from all observers. Sounds familiar?

Notes:

  1. In 2011 there were about 40.5 million iPads sold. If we assume half of those purchases also resulted in a Smart Cover purchase and if the average revenue per Smart Cover was $35 then total Smart Cover revenues were $709 million.
  • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

    I think that AppleTV has some other redeeming qualities. It could be considered a peripheral to iPad/iPhone, making those devices better. Also, they can use AppleTV as a testbed for various technologies. Like right now AppleTV has a CPU that is manufactured on a new & better process than the one in iPad/iPhone. They can test the process and shake all the bugs out using a relatively low-volume product. If they run in to fabbing-issues with AppleTV, it’s not a catastrophe. It would be if it happened with iPad/iPhone.

    The value of AppleTV is not in the standalone product as such, but as a part of a bigger whole. It increases the value of the whole, while having limited valua by itself. That might change someday, but right now AppleTV is not really a standalone-product, it’s a peripheral.

    • JohnDoey

      The chips in AppleTV are the rejects from the iPad, so they are cheap. If a chip comes off the line with 2 good cores, it goes in iPad, but if it has only one good core, it goes in AppleTV.

      I agree AppleTV is an iOS device peripheral. You used to have to buy a $59 cable to hook an iPad or iPhone to a TV. Now, buy a $99 AppleTV and all your iOS devices can send video to the TV via Wi-Fi. For that alone,it is worth it.

      • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

        To my knowledge, the chips in AppleTV and iPad are made using different manufacturing-process. iPad uses the older process, while AppleTV uses the newer process. And that would make sense, because they can use AppleTV to sort out the bugs in the new process, while leaving the iPad for the old and reliable process.

      • Roger Shepherd

        I think you’ll find the latest iPad 2 (yes – this is what I mean – 2 hours better battery life than the original iPad 2) uses the same process as the new Apple TV. So, I agree, they are rolling out the new process on lower volume products – very sensible.

      • Aenean144

        iPad 2,4 (the $399 iPad 2) and the 2012 AppleTV use a 32 nm Apple A5 SoC, purportedly fabbed at Samsung’s 32 nm plant in Austin, TX. Cook mention’s this as “engines”. Maybe the iPhone 4/4S will move to these processors when the 2012 iPhone is released. They should be cheaper than the current 45 nm ones after the initial production runs are complete and yields improved.

        Even though the AppleTV is marketed as a single core A5, it’s identical to the 32 nm A5 in the iPad 2,4 except that one of the cores came out bad, something about the SoC overall went out of spec for 2-cores and they turned off a core to make it usable, or they simply could be fusing off one of the cores for the AppleTV.

      • melgross

        You are making the second paragraph up. Please don’t say things that you know nothing about.

      • Aenean144

        Maybe you have not looked into it:

        “Apple TV A5 SoC is 32nm, Harvested dual-core A5″
        http://www.anandtech.com/show/5740/apple-tv-a5-soc-is-32nm-harvested-dualcore-a5

        The picture is right there on Anandtech. As for fusing off a core, or making using of an otherwise good chip with a bad core, that’s just standard industry practice. Intel does it. AMD does it. Sony/IBM even do it by saying the PS3 Cell processor has 7 guaranteed cores. It’s a good thing.

        This was the immediate speculation as soon as the Apple advertised the AppleTV 3rd gen has single core A5. The only surprise was that it used 32 nm fab instead of 45 nm ones.

      • Nangka

        That’s the main reason non-USA Apple TV sales are for.

        If they reveal sales based on geography, I bet it’s getting to like iPhone 2G early days where quite substantial sales are channeled to rest of world.

    • tca

      iTV will be just a “service” in Apple TV with some improvements. As i see it now the improvements will be:
      1. iTV similar to Newsstand, but instead magazines you will subscribe ($5-$20/month on avg) libraries of movies from participating content providers. GUI may look completly different then shelfs in Newsstand, because interface will be major improvement over existing ones. Those “libraries” will be similar (not in interface but in fact they will be source of content) to existing apps on ATV: Netflix, Youtube, MLB etc. Consistent access/browsing experience among and within them will be provided through iTV’s API and part of that improved interface.
      2. $15/month subscription for unlimited streaming from iTunes in Cloud. It will be one (and first, to give Apple critical mass in the beginning) of many those libraries in iTV application/service.
      3. general apps on ATV
      4. ATV will be controlled through iOS devices, Mac, Siri on ATV, Leap on ATV, TV set’s remote (it already does in limited way)
      5. ATV will take streams from any iOS, Mac or 3rd-party airplay lincensed device.

      • tca

        I forgot to mention that the participating “libraries” will be searchable through iTV application/service similat to Spotlight on OSX. When “library” will be added/installed to iTV service (like magazine to Newsstand) it will enlist movies it offers with the iTV.
        When serching for a movie i.e. “Rocky 9″ the Spothlight will give you a list of libraries offering the movie with a movie/subscription price. If you already subscribe the library (channel, as used by youtube, might be beter description than “library”) you could watch it immediately under current subscription. In other case you could subscribe any of the offering “libraries” (channels) or buy the single movie. Using in-app purchase.

  • http://www.richardsnotes.org Richard

    AppleTV is iOS in the living room. One more device in a house connected to Apple’s servers capable of “tickling” our credit cards.

    I think AppleTV and iPod Touch are the sleeper products in Apple’s line. Both are entry level devices for iOS that get more people on iCloud, more people in the Apple Store, and give Apple more credit cards.

    Frankly, I think Apple would be foolish to build a TV set, a low margin commodity market. Best to enhance AppleTV, connect it up to existing flat panels and allow users to control their TVs through AppleTV. AppleTV and a home network of iOS devices are already becoming the core of a simple but powerful home automation system. Add a few more connections over time and a few standards for controlling other devices and that’s it.

    • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

      “Frankly, I think Apple would be foolish to build a TV set, a low margin commodity market.”

      Well, computers are a “low margin commodity market”. Except Apple’s computer-business, which has healthy profits and margins. How about phones? Only Apple and Samsung are earning any money.

      Just because TV-business is low-margin commodity business right now, does not mean that Apple’s entry in to that market would be low-margin business as well.

      • http://www.richardsnotes.org Richard

        You might be right, but I still think Apple will continue to put energy into making iOS devices that can run content on and control flat panels made by others. Remember, a lot of folks have already bought a big, HD TV and whether Apple’s is bigger and better may not tip enough of them to dump their current screen for Apple’s, which is sure to cost significantly more.

        Again, time will tell… we’ll no doubt find out in the next year.

        By the way, Apple’s computer business has never really competed with the low margin commodity market that is Dell, HP, Gateway, etc. They never had to; they sold enough computers at higher margins to a smaller but more loyal group of Macheads (me included). I don’t see Apple’s computer business as a parallel to the TV question; the parallel I see is buying a Mac and a third party screen to run your Mac on. The screen (TV) is a slave to the content, which is an AppleTV or a computer. Yes, Apple makes fine screens but my guess is more Mac users use third party screens.

        I’m guessing that the iMac (all in one with Apple screen, akin to Apple TV set) isn’t doing as well as the MacBook Air at the moment and you can run any third party big screen off a MacBook Air.

        I don’t know, you may be right, we’ll find out at some point. As a user and stockholder it frightens me that whatever happens in this area will not meet the expectations of a public that has unrealistic expectations of Apple.

      • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

        “Remember, a lot of folks have already bought a big, HD TV and whether
        Apple’s is bigger and better may not tip enough of them to dump their
        current screen for Apple’s, which is sure to cost significantly more.”

        I don’t think that anyone is expecting them to do that. But people do buy TV’s, all the time. They replace their old TV’s or they buy an additional TV. It’s not like they buy a TV, and never buy another TV. Last year, about 250 million TV’s were sold worldwide. That’s a pretty big business, no matter how you slice it. Is it big enough for Apple to enter it? Who knows.

        And note, if Apple does release their own TV, it doesn’t mean that they will stop selling the standalone box.

        “By the way, Apple’s computer business has never really competed with the
        low margin commodity market that is Dell, HP, Gateway, etc.”
        “the
        low margin commodity market that is Dell, HP, Gateway, etc.”"

        Yep, you are right. And Apple’s TV-business (if they ever have one) does not have to compete with the low-margin commodity market either.

      • http://www.richardsnotes.org Richard

        Time will certainly tell. Jonathan Ive seemed to be saying that the current thing he’s working on is the best thing he ever worked on at Apple which leads me to believe you’re right.

        I just don’t want them to flop in this or any other area… it’s taken a long time to get here and I think they can cruise on upgrading their current line for a while longer yet.

        I’m not sure that I agree that most people buy high end TVs all the time. Our 55″ Sony cost $1600 a few years ago, still has a great picture and while Sony’s UI is crap, I rarely see it, instead using AppleTV, an iPhone and an iPad to get content on it.

        Where are they going to put these TVs in their smallest stores? No doubt people will buy they from stores and online and have them shipped. You can carry a 27″ iMac out of a store but it’s not easy.

        It’s a fascinating discussion and fun to speculate about, both as an Apple follower/user and as a person interested in their business.

      • http://search.websonar.com:8080/ Duane Bemister

        The iTV will just be a downloading/scheduling app on a new iMac with the option to airplay to your other screens. It’s the only way to display the high quality video they want.

      • vincent_rice

        If this sort of thing makes you nervous Richard, perhaps Apple is not the place for your investments. “Cruising on upgrading their current line” is precisely what Apple must NOT – do otherwise in five years time they will be joining Nokia, RIM et al. Fortunately it’s not in Apple’s DNA to cruise – happy to hear Cook re-enforcing that.

      • normm

        Apple’s iPod dominance has lasted a decade. They repeatedly cannibalized their best products in that process. I think they’ll do the same with tablet and phone.

      • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

        “I’m not sure that I agree that most people buy high end TVs all the
        time. Our 55″ Sony cost $1600 a few years ago, still has a great picture
        and while Sony’s UI is crap, I rarely see it, instead using AppleTV, an
        iPhone and an iPad to get content on it.”

        I don’t mean that individual people buy TV’s all the time. They don’t, since TV’s have multi-year lifespan. But so do computers. People don’t constantly buy new computers, do they? My main computer is a MacBook pro from 2007. But that’s doesn’t stop Apple from having a healthy ang growing computer-business. Same thing with phones: people upgrade every 2-3 years on average. You don’t have to be in a commodity-business, where people are buying more of your stuff all the time (like, foodstuffs) in order to have successful business. Cars are another good example: they have long lifespans, but we have successful businesses operating in that market.

        People as a whole buy televisions all the time. Don’t believe me? Go check your local electronics-retailer. They have zillion TV’s for sale and people are buying them all the time. Individuals are not, they buy a TV and use it for several years, but people as a whole.

        And even if Apple does release a hi-end TV, it doesn’t mean that everyone is going to buy one. Macs are hi-end computers, and 90% of people are not buying them. And Apple seems to be happy with that, since the business is healthy and growing. iPhone is a hi-end phone, and there’s zillion people buying cheap phones. But that doesn’t stop Apple from being the most succesful phone-manufacturer out there.

        “Where are they going to put these TVs in their smallest stores? No doubt
        people will buy they from stores and online and have them shipped. You
        can carry a 27″ iMac out of a store but it’s not easy.”

        There are people buying Mac Pro’s + screen at Apple Stores as we speak, and they seem to manage.

        And I bet that if Apple does release a TV, we shouldn’t really think of it as a “television”, since I bet it will do a lot more. I bet they will talk about the new stuff you can do with it (“you can install apps on it, you have have Facetime-calls, you can buy and rent content, you can [insert cool idea no-one has thought of yet here] with it!”), and then off-handedly say (“oh it has HDMI-inputs, so you can hook up your DVR for plain ol’ televison”). Kinda like when Jobs introduced the iPhone: he talked a lot about how you use contacts on the phone, and then he made off-hand comment regarding the dialpad: “and here’s the last-century way of dialing”. TV on the AppleTV would be the “last century”.

      • http://www.richardsnotes.org Richard

        I think all of your points are excellent Janne and no doubt you’re right. Cook’s recent appearance at “all things D” seems to support it. I’ll be very curious to see what it is, what it does, and whether I’m interested in buying it. I’m extremely happy with our AppleTV and was thinking they’d just enhance that box (DVR, tuner, apps) and maybe they will as well as build an all in one TV.

        So, do you think they’ll pick a size and that will be it? Or, multiple sizes? What size do you think they’ll pick?

      • http://www.richardsnotes.org Richard
      • Timothy Meade

        You also have LCD to LED migration to consider. For me the real question isn’t interface, it’s what video processor capability can Apple build in house.

      • http://twitter.com/nuttmedia nuttmedia

        The reason Apple can command higher margins is because their offerings are sufficiently differentiated in the respective market (better design & finish, they just work, service, the ecosystem etc). Whatever product they release that would compete with current HDTV’s would have to replicate that.

        JoeyDoey alludes to 4K as a possibility — not sure if 4K translates well enough to the average consumer as enough of a differentiation. Hell, I know of dozens of people who mistakenly still watch non-HD channels thinking they are getting an upgraded experience simply because it’s bigger and wider. But he is right in that there needs to be an element that sets it above and apart from what we know of today. See my earlier comment for some ideas that have already been floated.

    • JohnDoey

      Phones, media players, and PC’s of all kinds are low-margin commodity products. That is all Apple sells. Obviously, their TV will be the same as their other products: a high-margin version.

      The thing you are missing is that the reason TV’s are low-margin commodity products is that all makers are making the same “HDTV.” There are specs like 1920×1080 pixel screen that all TV makers use because that is the biggest commercially-available content. They cannot put a better screen on there and make it worth your while to pay a premium. However, Apple *can* do that. They can launch a TV with the next size up — “4KTV” — along with “Dark Knight 4K” in iTunes Store, and a few hundred similar titles, and Apple would easily sell one of these TV’s to every Final Cut user, every even remotely well-off Apple user, and to many people like me who haven’t owned a TV in years but could actually stomach an Apple TV on my wall.

      Apple is also the largest vendor of video-editing tools by volume. They can put 4K in iMovie if they want.

      They are also the vendor of the single-most popular consumer video camera (iPhone) and can push 4K that way as well.

      The new iPad screen has more pixels than any TV available today, so this has already started.

      Apple did not ship a BlackBerry-style smartphone and they won’t ship a Samsung-style TV. It will be more akin to the screen at the movie cinema.

      • http://www.richardsnotes.org Richard

        I respectfully disagree. I don’t think they’ll sell a flat panel of any kind but will continue to sell enhanced tools for displaying content on existing flat panels. Time will tell…

      • Tim Ambler

        Where is all this 4K speculation coming from?

      • bregalad

        At typical TV sizes and typical viewing distances many people can’t tell the difference between 720p and 1080p. Good luck getting the general public to consider 4K at the price Apple would charge for it. I don’t think today’s Apple is happy selling thousands of units of anything. They have multi-million sellers now and aren’t looking back.

      • tca

        …and Apple does not make 4k movies as well. They are provided by content producers and as such available to all interested parties. So 4k movies are not going to be differentiation factor.

      • http://www.facebook.com/profile.php?id=538209503 Janne Ojaniemi

        4K TV? Um, I don’t think so. That’s four time the number of pixels on 1080p. It would take A LOT of bandwidth to get 4K content to homes. For example: 1080p version of “Hugo” is 4.84GB on iTunes store. If we do the simple math, and assume that 4K-version would be four times the size, it would mean filesize of almost 20GB. And that’s just one movie.

        If Apple wanted to improve image-quality of iTunes-content, they could keep 1080p-resolution. blu-ray is 1080p too, and it look a lot better than iTunes-content, due to higher datarate.

      • normm

        John, I usually agree with you, but not this time. As others have said, added cost, bandwidth-limitations and marginal visual benefit militate against the big value-add for Apple being higher resolution.

        Steve Jobs said, at All Things D in 2010 http://allthingsd.com/video/?video_id=FF922002-FA63-4B68-A326-EA12EC800612 that the hard problem with TV was not technical, but business. Each cable company provides a box for free, and so people are reluctant to pay for something extra. He also said that the cable market is highly balkanized: there are no standards that are widely used by most cable companies, which makes it hard to come up with a solution by working with cable companies.

        The current Apple TV addresses these issues by providing its own content, but there still isn’t enough content at a good enough price. If Jobs felt he had “cracked” the TV problem, it wasn’t primarily a technical problem that he would have been referring to.

  • Andrew

    $10 a month seems high.

    I may be an unusual use case, but I predominantly use mine for AirPlay streaming of free to air content (eg. ABC iView app in Aust) and other media from our laptops/iPads.

    • JohnDoey

      That is a great use, but I don’t think $10 is high. Some people pay their Netflix $7.99 per month through iTunes, so they only need to hit iTunes once a month for a current release rental to get to $10.

      • JonathanU

        Yes but do you think Apple collects 30% of the Netflix fee? I highly doubt it. Also the 30% figure in general from selling content on itunes seems high to me. Apps yes, music, movies and shows are unlikely to be charged a 30% premium by Apple. Apple doesn’t have enough power over the content providers to charge anywhere near that amount as an agency fee…

    • Tim Ambler

      This jumped out at me too. I have no idea whether $10 is high, low, or just right, but obviously a lot turns on the accuracy of this estimate.

      Personally, I’m like you. I’ve owned an ATV for quite some time now and have never purchased a thing with it. Primarily, I use it to access my Netflix account and use AirPlay.

    • http://twitter.com/jgrclarke Josh

      Just as a counterpoint, in my house of 5 people, we spend in excess of US$100 a month on iTunes video (more for music, books, comixology etc). The wife and I almost never watch “TV” anymore, nor use DVD’s.

  • MikeBIGIDEA

    The meaningful value of Apple TV could be Apple’s learning on unmet jobs to done. This would be embodied (hopefully), in a new product or service.

    It was interesting to note how market followers struggled to classify both the iPad and iPhone (complicated by the word phone in the name). Both, (clear now in hindsight), address jobs better than alternatives (to a staggering degree). Even Clay, in early conversations I had with him, doubted the iphone (he considered it just an expensive, feature rich phone). This points to the difficulty in anticipating disruption, versus explaining success after the fact.

    I’m guessing the market will struggle to define any new large screen product. The key (and the interesting assignment) will be to view the new product through the jobs lens. And, I suspect, to see the seeds of the concept in Apple TV. That would indicate a disruptive Apple learning process (as opposed to luck, Steve Jobs magic, etc).

    It would be interesting to list unmet jobs (that many of us have), that might be addressed by a large screen Apple product – then, to match that with what they eventually come out with…

    • http://twitter.com/nuttmedia nuttmedia

      I’m increasingly becoming a fan of James McQuivey’s “non-TV TV” concept. It fits very nicely within the framework you’ve constructed.

      http://blogs.forrester.com/james_mcquivey/12-05-23-apples_coming_plan_to_take_over_the_tv_business

      A “new” device, that seeks to meet a new aggregation of jobs, currently being met in piecemeal by other items in existence (TV, iPad, Mac/PC/, Bluray, phone etc). He said at least twice that they are intrigued by “pulling the string to see where it goes”. AppleTV, in its current incarnation, is more an antecedent to what truly might fit into their guiding philosophy on product: 1) ability to control the technology 2) make a significant contribution beyond current competitive offer 3) something they (Apple) would want to use
      As cited in the blog post, possible jobs would be:
      shared calendaring, planning, vidchat, photos, videos, FaceTime
      You can see it become the anchor dashboard for a digital family. Clearly, such jobs are not “unmet” per se, but put in this form factor with Siri and touch as the interface, and it becomes “Minority Report” for the masses.
      To make it amusing, think a more elegant version of a hokey Apple video from the ’80′s:

      • bregalad

        Why on earth would I want a big flat panel hub in my kitchen/hallway/living room when all that information is already beamed to the pocket of each family member? The information is the only thing that needs to be centralized and iCloud will do that. Distribution of the information should be direct to each user wherever in the house or world they’re currently located.

        The only useful purpose of a large screen is displaying content that doesn’t fit on the existing 3.5 and 9.7 inch ones. I see movie/TV content and games where the iPhone/iPad is the controller rather than the display device. Both those suggest a living room product that replaces the existing TV rather than a hub. We all know that the current TV market is low margin with last year’s model selling for considerably less than any that went before it.

      • nuttmedia

        Why indeed. Recall that many dismissed the iPad as an overgrown iPod Touch at introduction. As is common with novel technology, you don’t know why you need (want) it, until it is in front of you.

        But yep, you’re exactly right. iCloud represents the centralization of content and information and the non-TV TV potentially represents another spoke in the Apple wheel along with its sister spokes: iPhone, iPod touch, iPad, Macs.

        In certain use cases, data flows from the hub to each spoke (e.g. iCloud Match content), in others, data flows from a single spoke and through the hub to the other spokes (calendar, iWork, photo stream) and in still others, they interact with each other irrespective of the hub (iTunes sync, AirPlay).

        AppleTV is training us for the eventual release of that “true” next spoke. One that is as much a computing device as it is a wide screen monitor. This will become more apparent with an OS update later this year and the eventual introduction of third-party apps. Boom — you control the technology and you bring more to the table than the current offer, which allows for command of better margins.

  • Jag

    What if Apple revamps their monitors to include a range of 40 inch to 60 inch LED panels with both HDMI and ThunderPort, and re-christen them as iPanels. All of them will have an embedded wide angle camera and mics, and a slot in the back to accommodate a new thin version of Apple TV puck which will have ThunderPort connection.

    Imagine if the new Apple TV puck is rechristened as iTV and drive the iPanels with a range of features including, FaceTime and group iChat, a version of iMessage, voice control with Siri context aware assistant, and gesture control. And what if iTV is sold through telcos, cable cos and ISPs who will bundle this as a VAS offering and offer both regular content from iTunes and also streamed cable channels?

  • poke

    But why no App Store? They could be enabling 3rd parties to explore alternative forms of content and methods of content delivery without having to rely on content deals. An Apple TV with the A5X and an App Store would make a good console.

    • http://twitter.com/nuttmedia nuttmedia

      They are waiting for the product at the end of the string they are pulling before they launch an app store

    • vincent_rice

      There will be an app store at the appropriate time – one consequence of which will be a complete disruption of the Digital Signage market!

  • http://www.arekdreyer.com arekdreyer

    What’s the basis of assuming that half of the 40.5M iPads also resulted in a Smart Cover purchase?

    • Tatil_S

      The number of people who you see walking around with Smart Covers and the inevitable, but invisible more who bought one, decided it did not provide enough protection or realized they needed a stand functionality and left them at home without returning it. :)

    • http://www.asymco.com Horace Dediu

      No basis.

  • http://twitter.com/RangachariAnand Rangachari Anand

    AppleTV plus an iPad is a fantastic way to spend a lazy afternoon browsing through youtube and iTunes. AirPlay is really one of the greatest features that Apple has come up with in my opinion.

    • http://www.asymco.com Horace Dediu

      It is, and Apple like to keep it a secret.

  • synthmeister

    The thing about the AppleTV is that Apple has almost zero risk/cost in producing the devices. They simply recycle a modified iPod touch w/o a screen and a mild variation of iOS. Yet it produces a great network effect for every other Apple device–iPhones, iPods, iPads and Macs and provides yet one more entry point into the iTunes Media ecosystem of music, iCloud, photos, movies, TV shows, podcasts and iTunes U.

    I don’t think we should look at the AppleTV as a typical Apple hardware device–it is really a peripheral or an accessory for both the Mac and iDevice universe, similar to the Mighty Mouse or even a Thunderbolt to HDMI adaptor. In fact, it is actually more like an external peripheral for the whole iTunes ecosystem. No one else really has anything like it.

    What is tantalizing is that the AppleTV is just a few baby steps away from becoming a full-fledged member of the iOS hardware family. It has some serious disruption potential.

  • Steve Weller

    Apple TV is part of Apple’s strategy of controlling the “experience chain”. They’re building a base of installed units so they can generate comparative engagement numbers and take them to content providers and creators. It’s costing them nothing because they’re leveraging existing technology and engineering effort, and it’s making a small profit.

    Once they have enough units, they’ll start crossing their provider’s profitability thresholds one by one, and things will get more interesting. Think mass-market, high-capital creative works: movies, video games, etc.

    Another thing to watch is the growing number of people who use their Apple TV exclusively to consume. They never go to movie theaters, don’t have a cable account, etc. These people are lost to the current distribution systems, and are not coming back. Eventually they will be the sought-after market segment, and Apple will have them all.

    • Mike Wren

      “Another thing to watch is the growing number of people who use their Apple TV exclusively to consume. They never go to movie theaters, don’t have a cable account, etc.”

      Since most people get their internet service from their cable company this puts cord cutters in a precarious position. Cable companies are starting to try useage based pricing. They can do tricks like not counting programming from their own “private internet” services against the useage without violating net neutrality. And what happens to most cable channels that currently get a subscriber fee from the cable company. It’s a very tricky environment and so far Apple has gotten little traction in their negotiations after years of trying.

      • http://www.asymco.com Horace Dediu

        Please consider the global market. All Apple products are designed for a global market. None are designed uniquely for the US. “Cable” and “net neutrality” are mysterious ideas to the rest of the world.

      • justanotherdude

        But Apple also wouldn’t build a product that ignored the US market, aka the largest global profit pool from TV viewing.
        And the reality is, US TV content comes from an oligopoly that has no interest in being “disrupted” by Apple (both on the content and MSO sides). That’s why “apps” for Apple TV (the STB) make so much sense for now. They would allow Apple to build a content base organically, which could dilute the value of traditional TV distribution channels over time and force the large TV content providers to the negotiating table.

      • nuttmedia

        @asymco:disqus In your examination of Hollywood/Entertainment economics, did you come across any data on the foreign syndication of US TV shows? I’ve yet to come across interesting info on country-based iTunes store sales to help give shape to demand. My intuition would say that it isn’t an insignificant piece of the pie. If my Europe/Asia friends are good proxies, there’s ample interest. I’m curious about what existing contractual barriers may or may not be in place.

      • http://www.asymco.com Horace Dediu

        I’ve never seen any data but the maps in this post givens an idea of how the distribution of moving pictures is severely limited: http://www.asymco.com/2011/12/23/the-tv-store/

      • http://twitter.com/nuttmedia nuttmedia

        Ahh. I missed that post. Thanks! That would be interesting data indeed. Seems more than ripe for disruption…

      • Marc S.

        You’re right, as people use less TV and more internet cable companies will charge more for broadband. That’s only fair. The difference is that I only have one source of cable TV and many sources for internet. I am already paying much more for internet than for TV. I wouldn’t mind a good price war among competitors.

        As for subscriber fees, the same networks that think $2.99 is too little for a single program sell their entire network to cable providers for pennies a month. When the mass of appleTV owners is large enough, the potential for profits using a new medium will become obvious even to network executives.

    • SailorPaul

      Correct.

      And the monthly revenue analysis from that group is way too low – my family AVERAGES $130 per month to Apple TV. Granted we have three ATV units in the house (curren gen, my hand-me-down gen2, plus my fiancé-now-wife’s gen2, but even so…

  • http://twitter.com/jtoeman Jeremy Toeman

    change your thinking on it: the appleTV is an iPad Accessory, that’s it. much easier perspective that way.

    • http://www.asymco.com Horace Dediu

      How do you think about it during 2007 through early 2010?

      • http://twitter.com/mark_a_howard Mark Howard

        Before iPad I described it to friends as an iPod for your TV.

  • http://twitter.com/WalterMilliken Walter Milliken

    I’m uncertain whether Apple will get into the screen business, if only because there are so many sizes in the market, which might cause problems with the number of models they might need to cover different size rooms. I’m not betting against it, but I don’t rate it as a no-brainer, either.

    That said, what I am anticipating is that we’ll see a rather quiet addition of some kind of support for distributed applications in iOS 6 and Mac OS Mountain Lion that will allow software on Apple devices to be more easily split across two devices, with the typical use-case being an iOS device as an input/primary UI and a secondary device like a Mac or Apple TV being used primarily as a graphics output engine.

    This notion goes beyond Airplay, which simply generates image or audio content on one device and displays it on another; I’m looking for a remote-operation split between input/computation/output functions in programs. This might inclue a way to push a backend driver program to the remote display engine, or it may just make use of the relatively narrow-bandwidth APIs at input events and output drivers (the latter might be some kind of augmented OpenGL).

    This basically gives you, for free, a very nice gaming console with powerful input devices, as well as more conventional content consumption. (Right now, the Airplay model is not all that good for high resolution video games, due to the numbers of bits that have to be pushed across the link, which limits real-time performance and/or resolution.)

    If we start to see such features in the iOS 6 announcement, it would strongly indicate to me that Apple is going to introduce some kind of new Apple TV, either the rumored panel or a new display-driver box like the current Apple TV.

    The other piece I see missing in a “TV by Apple” strategy is getting legacy video (cable and satellite) into the device. This might show up as another low-price, Apple TV-like box with a Cablecard for cable, that enables Airplay streaming and possibly capture/replay on other Apple devices in the household, maybe including a Slingbox-like Internet streaming capability as well. (The latter has bandwidth issues that Apple may be sensitive to, though.)

    Overall, I expect to see Apple moving towards a decentralized multi-device strategy with ubiquitous content-sharing and eventually applications split across multiple devices, using the high-speed home WiFi system as the “bus” connecting the components, and the Internet/iCloud to support the “content everywhere” capability.

    • vincent_rice

      You’re not thinking ‘Apple’ enough Walter. There may be many sizes of screen in the market but only two are really needed. Simplify, simplify. Secondly Apple will have no interest in legacy devices – why should they? If you have a sat or cable box just plug it in the back but don’t expect Apple to provide any great support for your outdated distribution model.

    • vincent_rice

      You’re not thinking ‘Apple’ enough Walter. There may be many sizes of screen in the market but only two are really needed. Simplify, simplify. Secondly Apple will have no interest in legacy devices – why should they? If you have a sat or cable box just plug it in the back but don’t expect Apple to provide any great support for your outdated distribution model.

      • kgelner

        I would argue that is not at really true for TV sets, that people really do need a range of sizes – they want whatever the largest one is that would fit in the space they have.

        Many people also prefer projectors over traditional TV sets…

        I think what still makes sense for Apple to do is build something that attaches to any screen via HDMI. Now what they can and should be totally replacing, is the cable/satellite box.

      • Tatil_S

        Correction: very few people prefer projectors. :)

      • http://twitter.com/WalterMilliken Walter Milliken

        Unfortunately, the existing distribution model isn’t outdated — individual video streams take *far* more bandwidth than the cable/sat broadcast channel model. The “new IP video” model isn’t currently operable at scale. The last mile and backhaul infrastructure isn’t really there yet, unless video consumption drops drastically or the compression ratios go up substantially, especially for HD.

        Apple seems to avoid bandwidth bottleneck issues, judging by some of their choices in what they allow their cell phone apps to do. Often this is attributed to carrier concerns, but I’ve noticed it elsewhere on occasion.

        Also, I think there’s too much legacy content out there, mostly sports and news, that isn’t necessarily easily accessible online. I can’t see Apple redefining the TV experience without somehow integrating that. A separate Cablecard box lets them do that without having to make any content agreements; they merely need to get the metadata to control it from outside sources, which I believe is already the way TiVo works, so it’s not that hard to get. I don’t see Apple wanting to include all the messy cables from the old sources, either.

        For the bandwidth problem, one disruptive thing Apple *might* do is support a “buy/rent in advance” model that pulls down video during non-peak times (probably within a 24h period). This would require carrier cooperation, but since it would monetize unused capacity, they *might* be willing to sell it cheaply, and outside their normal bandwidth caps.

      • Tatil_S

        iPods never integrated an FM radio, even though it was the dominant form of music and audio news consumption and it still is a very popular medium. Apple is not about being all things to all people, so it would not surprise me if regular TV support is minimal if Apple actually does go into TVs. Sports is a very easy to integrate area as the number of sources are fairly limited, but in the end there is not as much demand for time shifting in sports, as it is best consumed live, so it is not as tricky as movies and shows.

        Broadcasting is certainly more bandwidth efficient, but Netflix and Hulu are already very popular among the target population, so apparently there is enough bandwidth to accommodate the demand.

      • kibbles

        er, ipods did integrate an FM tuner.

      • http://pulse.yahoo.com/_XD4Z2QYS3VFTZP3XNH6DCCSVSY David H

        But don’t forget the regulators – sorry, Horace, this is a US-specific point – as much of the “TV support” in our traditional markets is not market-chosen but mandated by Congressional ‘must-carry’ rules dictating which channels cable and satellite operators have to carry.

      • http://www.facebook.com/mrmikey2323 Michael Dlugos

        Huh? My fourth generation iPod Nano has an FM radio in it. Maybe the new iPod Touches don’t have FM, but older Nanos sure did. I use that feature all the time.

      • Tatil_S

        My mistake. Classic iPods, iPod Touches, Gen 1 and 2 (and possibly 3) Nanos and none of the shuffles had FM radios. Apparently, I missed the current gen Nano, but my point stays the same. Apple does not have to provide a huge amount of support for broadcast TV on its interface beyond what is already available on other TVs. (FM radio was a feature that SanDisk and others tried to emphasize as a selling point over iPods, but it was not enough to sway most consumers in the US.)

  • http://twitter.com/chriscbs Chris Spiek

    Great post, Horace. Let me know when you’re ready to come on Jobs-to-be-Done Radio and talk about how Apple TV connects to the Jobs that hire TV to do (Maurice McGinley does a great job of mapping the jobs here: http://howigotmykink.blogspot.com/2012/05/televisions-job-to-be-done-image-source.html).

    • http://www.asymco.com Horace Dediu

      Very interesting.

    • Walt French

      Chris, the link isn’t working for me. Can you re-post, maybe using a shortener?

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  • Walt French

    I take it as a given that for Apple to succeed in “TV,” it must somehow disrupt our existing model of watching.

    I don’t personally see 4K as enough more than a niche for several years. Google/Logitech have already failed with a unified internet/cable box and I think that’s because YouTube, “TV-as-we-know-it” and movies each call for somewhat specialized experiences—and 5–10 minute low-res clips seem quite different from the others. Unless Apple has secretly bought all of Verizon’s and AT&T’s spectrum rights, it ain’t about mobile access. In general, hardware and distribution seem to be well-worked-over fields.

    That leaves the payment stream as disruptions. If Apple were to get 98%+ buy-in from producers, that’d be a critical-mass step that’d give them entry to wide-scale adoption of pay-per-view, but that’s not really disruptive against what an Amazon or Google could negotiate. So we’re not talking movie distribution.

    By elimination, I am left only with elimination of ads on “TV,” substituting some other payment model than $79/month to the cable company + 1/3 of your time watching ads. Inevitably, it’ll include some big bucks for the pipes that Cook is happy not to own. But will viewers worldwide pay hard cash to watch American Idol, Glee and the 10 o’clock news? (I’m in Minneapolis today: not 11pm.)

    The US median household income is $49K; if that’s 1.5 working people that’s about $16 per hour. Let’s round it down to $10/hour after tax. If ads are of no value to us but take 1/3 of the broadcast hour, that median household pays $3.33 worth of their eyeballs for 40 minutes of entertainment, or $5/hour. If I understand the stats, primetime TV viewers are good for $25 CPM, izzat 50¢ for the 20 minutes of ads a viewer sees in an hour? Apple could charge viewers $1.50/hour (or take a chance on a fixed/month equivalent), cutting “cost” to consumers by 70%, pay producers a premium, and still have the 50% margin they love (I assume that we’re talking only one or two pennies of tech cost).

    For higher-income households (the type who buy computers), this is even a BETTER deal.

    Alas, I can’t see this flying. I’m not aware of disruptions caused by hard cash outlays instead of enduring soft costs, unless it’s presented as a huge premium. And enough people like the GEICO and Budweiser ads that the shows might seem sterile in isolation.

    So how, gentle readers, is Apple REALLY going to disrupt TV enough to make a dent for itself?

    • zato

      2 years ago, I bought a new TV (42″ Panasonic plasma) and a 27″ iMac. I never really watched the television. All my entertainment now comes from the iMac. Even NFL football games. But I can’t watch most prime-time TV shows. I have not seen a single episode of any of them. The networks that make/pay for these shows want me to watch the commercials so that I will become the bitch of the junk-food industry, the addict/slave of the pharma industry, or the manipulated tool of the political industry. Alternatively, I can wait a year for the DVD. This is the present business model, and the established players will do anything to preserve it. Apple or Google can get a few token shows or movies that wouldn’t sell any other way, and even Netflix, which sells billions worth of rentals for the content creators, doesn’t get much more.
      But the audience for prime-time is shrinking. More and more people will turn off their TV’s for good. Steve Jobs is wrong about the desktop being a truck. The desktop, especially a 27″ or even larger, is the new TV.

  • Oak

    The interesting thing to me is: Television and the living room are a total mess. Everyone wished it was solved, and so many are *hoping* Apple can do it for us. If they do, it will be a Big Bang indeed, a great disturbance in the Force, as if millions of voices suddenly cried out in relief: “Please, take my money!”

    • barryotoole

      It is hard to predict what Apple has up it’s sleeve to solve the TV problem. I see it using one of the two approaches:

      1. Convert the present AppleTV from an ‘Input 2′ to an ‘Input 1′ device. This could be accomplished in partnership with a Cable company, to replace the primary setup box.

      2. Have a selected TV maker (? Sharp) to load the AppleTV O in selected TV sets, much like the GoogleTV.

      For either of these scenarios, there will have to be apps created specifically for the AppleTV OS, and a fast broadband connection. Partnering with a cable provider would solve the BB problem as well, so #1 seems to be a more likely outcome.

      However, it is also possible for Apple to partner with more than one cable company, so there can be an Apple TV set where you can choose which provider you’d like to serve you Internet and programming selected, much like choosing AT&T, Verizon or Sprint as your carrier. That would make #2 to be possible..

  • mediagrunt

    Although I would very much like Apple to succeed in this space, let’s not forget that there are myriad other competitors. Even being an Apple user, I ended up buying a Roku box because it was more versatile. Microsoft is gunning hard in this space with Xbox streaming, and cable companies are not sitting idly by either. Unlike with other products, I haven’t seen evidence YET that Apple has really “cracked the code” on TV.

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  • Tim F.

    What happens to the revenue picture if, say, 20% of Apple TV units sold include the display (presumably IPS LED) priced in the $800-1500 range?

    What are the average margins in the HDTV flat-panel market? (I assume abysmal, comparable to the weakness in PC margins…)

    Are competitive/flat margins acceptable to Apple in exchange for supporting the app/content/iCloud ecosystem?

    Can Apple actually deliver unique profit margins in the mid- to high-end prosumer market for flat-panels? (I would think Apple can deliver the guts of the current Apple TV add-on for $60-80 (and you bring your own iPhone, iPad, iPod touch remote) whereas the mid- to high-end offerings of Samsung, Panasonic, Sony are sadly useless, excessive, expensive “gadgets” (3D, apps, widgets, Skype, touch remotes, etc…) added on to their mid-range offerings.)

  • http://financial-alchemist.blogspot.com Turley Muller

    Apple records Tunes music sales as gross revenues, not net revenues as it does the App Store. There have been over 16B songs downloaded and well over 25B in iTunes revenue, and with each download averaging $1, iTunes sales logically must be recorded as gross, or iTunes revenue would be less than downloads. I wanna say this is the same for video too, since Apple had fought with studios over pricing because they were concerned Apple was underpricing content in a bid to spur hardware sales.

    Apple stated long ago that iTunes was a break-even business, which would make sense if you take $1 in revenue for a song, about 70 cents in COGS, leaving 30 cents for plus delivery & CC fees, plus overhead. Net profit margin eventually evaporates. The App Store is reported as net revenues, which makes it more profitable on paper since essentially the gross margin is 100% for apps vs music around 30% since there is no COGS being paid to the content developer.

    I think your 10M installed base estimate is high. If you go back to the restated financials after Apple abandoned subscription accounting you will see the adjustments made to hardware revenue line item. From there, you can back out Apple TV revenue and estimate unit sales which I calculate to be about 100K for the original model. Around 6M total thru last December.

    I think the $10/month spend estimate is probably too high. However, I think it’s quickly moving to that point. I think the catalyst for Apple TV sales has been iPad and iPhone sales. If one buys a movie or TV show from iTunes on any device, then it is always available for re-download via iCloud which means content purchased on 370M+ iOS devices is available on Apple TV. It used to be that you had to download a purchased TV episode or movie to computer, then use home sharing to stream to Apple TV since it didn’t have storage. Now, you can purchase content and never have to download into offline storage.

    • nuttmedia

      Agree 1000%. The thought of downloading 1+GB of data and having to push that around devices was a considerable friction point. Now it’s as if the content is just sitting on the shelf, completely unencumbered. Heck, it’s even better than sitting on the shelf — one doesn’t even have to get up, shuffle through cases, open it, shove it into a Bluray player and wait through loading and endless pre-roll nonsense. It’s press “play” and rock and roll.

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  • terracerulean

    Business models aside, Apple TV is also an rather elegant expression of Apple’s general product and design strategy. It is incredibly simple. It just works. It reinforces rather than competing with both existing hardware and content product lines. Never forget Apple has got not-competing-with-yourself down to a fine art that many other tech companies of its size can only dream about.

    On the personal side my Apple TV has been a charm to use from day one. From time to time I take a deep breath and make a run at implementing something a little more capable and inclusive in the home-media-centre category. (And I am an IT pro with many software, sys-admin, and project management scars to prove it) Every time I get to about day three in the design and configure cycle and think ‘Oh f**** it!!’ This is just not worth the effort, and I just know the odds that in the next two or three months some bit of my solution is going to be updated or patched and stop working is really quite high.

    I watched a true dyed-in-the-wool propellor-head unix-geek-hero friend of mine throw out thousands of dollars of purpose built home media kit and years or personal IP one weekend in favour of three Apple TVs. His reason. “I’m too old for this s***t”.

    The vast majority of potential buyers will not care a hoot where the cpu comes from how much onboard RAM they get.

    The value proposition is really very simple;

    Is it plug and play (for real)?
    Does it have enough of the stuff I want to watch?
    Is it cheap enough?
    Can I watch my stuff when I want to?

    Apple delivers enough of this to be viable in the current market – in fact is delivers enough of this to be a leader.

    Apple TV is a pretty low cost extension that extends this delivery point of those benefits from iOS and OSX devices to the TV set (and Stereo – don’t forget music).

    Apple excels at growing and extending the capabilities and benefits of its platforms incrementally – without cannibalising their own business.

    Apple creates positive marginal growth for upping your consumer investment – the more Apple stuff you own the more you get form each bit.

    What does kink Apple’s media tail is the good old internet. TV shows and movies through the browser are the holes in Apple’s business dike. It’s not pluggable with a thousand fingers. I wonder what they will do about it. The BBC iPlayer iPad App brings some of that juicy-greener-glass to the Apple TV side of the fence. But in the end that can only cover the enough-of-the-stuff-I-want deliverable if the Apple TV / iOS platform grabs a big enough slice of the end-point market to make it a must have for other content channels.

  • TBOYP

    Everyone seems to forget the “test” Apple did with streaming Paul McCartney live. It almost seems as if you read each others writings and just regurgetate the same items that Muster says. Think different people.

  • Ernest BAKO

    I think the Apple TV will be a lot less about hardware and a lot more abut software. It will be an extension to iOS designed to handle multimedia content on TVs from any manufacturer. The iTV box is the equivalent of the cable TV box, except it will run iOS with the new TV extensions. And here’s another prediction: we will see iTunes on the TV! This will be by far the biggest announcement at the upcoming WWDC 2012. The Apple TV is less about redesigning the existing TV user interface/interaction and a lot more about bringing new ways to use the TV: selling and buying content, including apps. iTunes on the TV may get a new name. So we will have iOS with TV extensions, iTunes for TV and the iTV box. There will probably not be an Apple TV at this time, but rather one or two vendors (Sharp maybe?) who will launch a new TV model working with Apple iTV. Finally, if I am to go out on a limb here with my predictions, we will see an authoring tool for TV multimedia content.

  • James Katt

    Apple should be cautious about its TV moves as it is currently.

    The “Problem of TV” is an ILLUSION that forever traps companies.

    Steve Jobs identified one “problem”: the multitude of boxes and remote controls one has when watching TV. He disliked the complexity and ugliness of this. He wanted “simple” – an Apple creed. Ideally, he wanted to revamp the TV industry so that one simply has a screen and ONE BOX for all of one’s needs. He wanted the consumer to be able to decide which box to choose from. He lamented that the consumer was forced to buy the cable company box since this discouraged buying alternative boxes – pointing to the problems that TIVO has had.

    But this is NOT a problem for the vast majority of people.

    For the vast majority of people, the primary solution of one screen and one box already exists. They buy the TV screen and rent tne cable company box. This is all they need. They chooose one cable content plan to pay for. And that’s it. Problem solved.

    They don’t have to buy new equipment until the television is worn out more than 10 years later.

    The TV industry is mature and saturated in regard to this solution. The only way to get consumers to buy new televisions is to keep making them larger and cheaper. But this led to huge loses among the manufacturers.

    Content for television (and the living room) has inherently and historicaly MULTIPLE SOURCES: Traditional on-air network and local television content. Cable network content (e.g. HBO, Showtime, Oprah). One’s personal content (VHS, Video-8, DVD, Flash drive video and photos). Video games (Microsoft, Nintendo, Sony, Apple) – a larger industry than the movie industry. Bought and rented content (VHS tapes, DVDs, BluRay). Music and Audio (On-air radio and talk shows, cassette tapes, CDs, DVDs, iPods). Internet content (Netflix, Amazon, iTunes, etc.)

    Some people want MORE CONTENT than the primary solution provides. So they buy MORE BOXES to accommodate these sources of content. This increases the complexity of their television (and stereo) system. But THAT is the nature of the beast.

    Steve Jobs’ vision of a simplified television scenario where ALL CONTENT can be contained in ONE BOX is NOT a viable solution. It would be like trying to squeeze all of the power and complexity and capability of a desktop computer system into an iPad.

    That doesn’t work.

    And it isn’t even a viable solution. Millions of people will always have at least one additional TV box: the console game box. They volunteer to pay hundreds of dollars for their game box and their games. Some have multiple game boxes since they are not mutually exclusive. One can have an Xbox, Nintendo, and a Playstation co-exist.

    The only limitation is one’s ability to pay for all of this content.

    Steve Jobs wanted a solution that people would voluntarily pay for. I gave him one: create an Apple game console. He and Apple’s current CEO expressed dislike for this idea. But it is the viable solution.

    • James Katt

      I would not buy a TV screen with Apple iOS hardware integrated in. Realize that TV screens are a once every 10 year purchase, while iOS devices are bought nearly once a year. The TV screen itself is stable for more than a decade, but the iOS component of an AppleTV is going to become outdated very quickly as technology moves along. Its capabilities are fixed. Thus, if the iOS hardware cannot be upgraded, then the TV with integrated iOS device would be a poor purchase. One would still have to purchase an external upgrade box from Apple to improve its capabilities each year.

  • http://twitter.com/mark_a_howard Mark Howard

    FaceTime is a job to be improved by a new iPanel. With two young children and far flung grandparents – typical in the U.S. where oldsters move to FL or Vegas or NC for retirement – the GP’s had their hand forced (willingly, gleefully) into the purchase of iPad2′s and monthly high speed internet access fees for over a year now to have weekly FaceTime calls with the grandkids.

    In our case, FaceTime was a killer app that resulted in buy in to Apple’s ecosystem as well as two new broadband housholds (hundreds of $$ per year) who before were content with dial up (!).

    The job to be done is video calls with the grandkids, and was fulfilled previous to iPad2 by Skype, substandardly. The iPad made it mobile, where we did not have to all wrestle the wiggling children onto one lap in front of the iMac upstairs under a hot light for extra illumination, and rotate the entire 24″ iMac to show a dance move in the corner of the room.

    Collectively our extended family paid handsomely for a better man for the job, iPad2. However he still could be improved. We find grandmothers covering the microphone input with their fingers, muffiling their adventures in retirement. Grandfathers not aiming the camera properly so we end up looking at the ceiling pot lights – even with a small window clearly showing Grandfather’s outgoing video stream. We find ourselves with the camera switcheroo, us watching the same Judge Judy show they are surreptitiously watching. Convincing them not to turn off the iPads “to save energy” so that we can FaceTime call at any time. Wrist trouble holding the iPad upright for a 45 minute call. iPads left in bathrooms like the National Geographic magazine, resulting in a slow shuffle downstairs to answer (or not) an endlessly ringing FaceTime call.

    iPanel could minimize or eliminate many of these issues, and better yet without any additional ongoing subscriptions costs – only the sunk cost of initial purchase, including Apple’s 40% margin, which we all might happily pay to rid ourselves of these (admittedly niggling) issues alone.

    Beyond FaceTime, the question becomes what other features – within Apple’s control – might make the device such a joy to behold and use, that would support the 40% margins, without having to spend their hoard to consume media companies whole to justify themselves with an unblockable content library.

    iPhone originally had no App store. It had 8GB of RAM. It was barely a smartphone. Yet hundreds of thousands of people were willing to pay $599 with a 2 year contract for it.

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  • http://www.facebook.com/james.scariati James Scariati

    I go back and forth constantly on whether Apple will do a “real” TV or not. On the surface, a real TV seems more like something they would do: an integrated product with everything you need in one device, no mess of wires, etc.

    The problem isn’t that the existing TV market is a low-margin, commodity business: that’s the case with PCs and phones too, and Apple has absolutely no problem competing there with lower-volume, higher-margin products that make them boatloads of money. Rather, the problem I see is that TVs have very low “turnover” – once you buy a TV, you tend not to replace it for a very long time. I’ll use myself as an example: I just purchased a new TV recently, but the old TV it replaced was literally from 1989. The other TV in our household is from the mid-1990s.

    Markets like PCs and especially phones have much higher turnover in part, I think, because the technology itself changes much more rapidly – every few years, you can buy a new phone that blows away your current one. Compare an iPhone 4S to an original iPhone, for example, and then think about the TV you have today compared to the one you had five years ago. The TV is probably the same one! And if it’s not, how much “better” is the current one, really?

    So the question to me isn’t so much about how Apple makes a real TV in and of itself; it’s more about how they actually enter the market. Their current approach is to build a little $99 box – much cheaper and easier to upgrade (keep your TV, replace the box for cheap) – but then that just adds to the mess of boxes and wires you already have, which is the whole problem that a “real” TV is supposed to solve!

    • claimchowder

      I am pretty certain that iTV wil not be for the most part a TV replacement, but rather a screen with apps and sensors for “everything you need at the central place in your home”. Just like iPhone was a screen with apps and sensors for “everything you need on-the-go”.
      For iTV, I expect sensors for: temperature, humidity, brightness, noise, human presence, air flow and air quality, possibly a lot more in later generations.
      Add to that apps for (obviously) TV channels and iTunes, but also interfaces to all kinds of machinery from heating to fans, and from microwave to tumble-dryer (this needs a new generation of connected household appliances, but iTV can be the spark that kicks it off).
      Plus it will be a great FaceTime machine and if Apple does it right, it will be a great basis to work at home via multi-way video-chat and screen sharing. The latter is almost trivial to do for Apple now; they have all that implented already (iChat, Back-to-my-Mac, screen sharing etc.). It just needs some consolidation.

  • SamuraiArtGuy

    Consider the eyebrow raised.

    But gods know, that the overall television scene is a morass, desperately seeking solution. Of course, “Apple [famously] does not comment on unreleased products”

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  • DesDizzy

    I think there are a couple of things that are missing from this blog. The first is that none of the existing “TV” companies make any money. By make any money, I mean “serious” money (I think Samsung are they only player that don’t lose money). So, for Apple to be currently making 3/4 of a $BN on a hobby, is not bad.

    The second thing is that Apple not only has to simplify the user experience (channel hopping remote control etc), which is fairly straightforward (and what Apple is good at), but simplify the program delivery experience, which is much more difficult and will be fought tooth and nail by the existing content providers (except Disney).

    If Apple can get the content providers kicking and screaming into an iTunes like menu service where you can eat only what you want to eat, at a reasonable monthly subscription. This will be as big a game changer as the original iTunes (remember the fight to get the major labels on board?).

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  • Ann

    nice one

  • Ann

    nice one

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