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The billion dollar hobby

During the latest shareholder meeting Tim Cook revealed that Apple TV sales were above $1 billion in the last fiscal year (ending September 2013). The company later clarified that this figure includes device and content sales.

This poses a problem. In previous statements the company cited device (unit) shipments rather than value. The statements made to date suggested that cumulative volume of 3rd (current) generation Apple TV totaled 6 million units as of January 1, 2013.

The following graph includes an estimate of quarterly Apple TV sales based on comments made to date.

Screen Shot 2014-03-02 at 3-2-8.07.43 PM

As there were no additional comments during 2013, the “Billion Dollar” quote is all we have to go with for the year.  The problem with trying to separate content from hardware is complicated by several factors:

  • How are we to attach content revenues to Apple TV? For example, what if I purchase a series of shows on iTunes or an iPhone and decide to watch them on my Apple TV. Do these purchases count as being “attached” to Apple TV? Do we attach the full transaction value or do we attach the portion that Apple keeps (as in agency accounting)?
  • How does Apple account for channel placement on Apple TV? Do the channels prominently displayed on its user interface pay for this access (even though the user needs a cable subscription?) Is this the primary source of content revenue that is attributed to Apple TV?
  • What about Netflix, YouTube, etc? What is the content licensing deal with these channels? Does the Netflix channel actually cause an Apple TV purchase or does the Apple TV purchase cause a Netflix subscription?
  • Without content, one might think that the $1 billion revenue would yield total device shipments approximately 10 million units in fiscal 2013 (assuming $99 unit pricing). This is not quite right however as Apple’s revenue per unit is unlikely to be $99 unless all units are sold through its own retail stores (including online). Sales through other retailers probably allow for some retailer margin so Apple’s average selling price will be below $99.
  • Another question is the fiscal year accounting. We have visibility into the fourth quarter of 2012 (about 2 million units est.) so we only need to fill in the first three calendar quarters of 2013 to understand the Billion Dollar volume.
  • Finally, I already estimate separately the overall video market (in my iTunes Business Report) which, based on historic data and other inferences suggests a total video content gross (contributing to iTunes revenues) of $1.8 billion for the fiscal quarter. If a significant portion (50%) of this were allocated to Apple TV it would imply that the hardware business contracted sharply in 2013. Put another way, if I add what we know about C2012 units (6 million and an ASP of $89) to what I estimate video content revenues to have been in 2012 ($1.6 billion) I get a $2.1 billion business. This would be a “two billion dollar” business in 2012.

All this makes the Billion Dollar Hobby a puzzle. The way I can make it square with existing assumptions is by saying that “Apple TV content revenues” are mostly, if not entirely, distribution revenues from channel placement rather than iTunes purchases.[1]  As a result, my best guess now is that there were about 7.6 million Apple TVs sold in fiscal 2013, with a bit over 8 million for calendar 2013.

If I’m right, the complete history of the shipments would be similar to this graph:

Screen Shot 2014-03-02 at 3-2-9.08.24 PM

By Apple standards this is indeed a modest story. The total units sold would add up to more than 25 million units with healthy growth. But it would not be in the same magnitude as other iOS devices which have so far sold 800 million units.

More important than this picture however, or the Billion Dollar Business threshold, would be a better understanding of how Apple sees Apple TV as a business. We already knew that it was a low value hardware business. I even suggested that it’s “Apple’s equivalent of the Kindle”: Hardware sold at low margins as a gateway for a high volume content business (iTunes). The problem with that model is that selling other people’s content is never a good margin business. If it were to be sustained, Kindle may ultimately have to become an Amazon Prime salesman.

So that leaves the Apple TV as a product without a satisfactory business model. Unsatisfactory, at least, to Apple’s standards; hence the hobby label. But what if the model is turning out to be a platform for discovery of content and therefore the equivalent of (dare I say it?) a portal![2] The TV UI certainly limits search or traditional browsing interaction but it enables eye candy for a few choice placed offers. It is a low interaction model. Think of how the prevailing UI for TV for decades has been that of pressing one button repeatedly, also known as channel surfing.

If so , the business of Apple TV may be the auctioning of the real estate on the landing page. In some ways this is how iTunes is already behaving by “featuring” exclusive music content.

There are all sorts of implications, which I will leave as an exercise to the reader.

Notes:
  1. This revenue will end up in licensing/other revenues in iTunes/Software/Services segment and separate from Apple TV (which is a part of Accessories). []
  2. Exclamation point. []
  • claimchowder

    That does seem to make a lot of sense. Especially when the remote is your iPhone and you end up buying stuff from the portal with TouchID. Thanks for the brain food as always, Horace.

  • Walter Milliken

    My view of the Apple TV has been a bit different — I see it as basically a “smart wireless cable”, a peripheral device for Macs and iOS devices that allows them to use a larger screen very easily. It also happens to have some basic native functionality. It’s a cheap piece of gear that adds a lot of functionality both to other Apple hardware and to the TV to which it’s attached.

    I deliberately bought a non-”smart” TV recently, when I needed a new display for my daughter’s Wii, and then I bought an Apple TV mostly because it was a cheap add-on that would be useful in a number of ways, and far more useful to us than any native smart TV platform.

    However, Apple’s recent changes in positioning the Apple TV suggest that, if they also saw it as a smart cable during the hobby stage, they’re thinking something different now.

  • jpintobks

    As Walter Millikam I decided not to buy a TV set with WiFi capability and no other internet software included and bu an Apple box. The use of mi HD TV is now to watch content Bloomberg, Sky, etc not through cable which I still pay, but by Apple TV platform which is clean and also give me the choice of news or programs in those channels, including Life broadcast.
    I find my cable box redundant since now I can be selective and search what I want in the spaces of preference .
    Regarding content, the supply of new film, many including foreign films, Indis and high quality documentary is increasing.
    I don’t think this a hobby anymore. Will be good to see Apple releasing figures for content sales and AppleTV devises.
    The Kindle model as a source of sales and revenue is not a good one as you describe and hope Apple don’t follow that path.

    • charly

      I don’t know the British market but i do know my local market. Apple TV doesn’t support the Hulu type sites of the national broadcasters unlike the smart TV’s and is as such useless. Apple TV also has problems with not supporting youtube competitors let alone the streaming sites (though smart TV don’t do that last one either)

      • barryotoole

        FYI: you can watch Hulu on AppleTV, but will have to pay $8 a month, unlike free on a PC/Mac. You can also watch Hulu+ on your phone or tablet as well.

      • charly

        I don’t live in the US so no hulu for me anyway. But my national broadcasters have also Hulu-like services but they don’t work on Apple-TV

      • barryotoole

        I didn’t know that, sorry. But if it’s an internet based service, I wonder why one shouldn’t be able to subscribe.

      • charly

        Multiple reasons. Silverlight and Apple TV don’t work well and Apple just doesn’t have the market share

    • barryotoole

      As @charly says, I don’t know about the British market either, or of the US market outside my local one, since I may not be allowed to do what I’m doing in a small Midwestern town elsewhere, by Comcast/TWC.

      I am serviced by a small regional cable provider, but do not have cable ($69). Instead, I’ve got really high-speed (for US) BB at 75/35 ($110). My main staples are Hulu+, Netflix, PBS and video podcasts I subscribe to.

      I also occasionally buy from iTunes or use other channels like Bloomberg, YouTube, etc., and am trying out ABC by watch the Oscars today. At times, I use AirPlay from my iPad/iPhone to see something that’s on the internet.

      In US parlance, I’m a ‘cord-cutter’. This may be the future of the home entertainment. The catch is that the cable companies supply BB as well, and they have little competition in any given market, and if the Comcast-TWC merger deal is okayed by FCC it will be the last nail in a cord-cutter’s coffin, because together they service 60% of American homes.

      This really would decide what the future of AppleTV, or even others like Roku, will be. If one can purchase BB from a company without subscribing to a cable package, and the BB is high-speed with reasonable or no caps, these devices will flourish. I can envision AppleTV with apps which you can put in folders to leave the main screen uncluttered.

      I won’t mind paying $8 for HBO, of other station I want, like I do for Hulu and Netflix.

  • handleym

    “So that leaves the Apple TV as a product without a satisfactory business model. Unsatisfactory, at least, to Apple’s standards; hence the hobby label.”

    Here’s an alternative theory. Apple TV is experimentation and proof of concept within the US, but with the real goal of serving the world outside the US.
    The US is ahead of everyone else in terms of available content and channels, which makes Apple TV seem like a bit player — if they weren’t there I could get much the same result through Amazon or Netflix or Hulu Plus or HBO to Go or …

    But the rest of the world, even the rest of the world with good broadband, is not like that. There are both limited channels for acquiring native language content and (differently) limited channels for acquiring US (or other foreign) content. To the extent that Apple can provide a solution by negotiating with the local rights holders, dealing with whatever (undoubtedly backward and unhelpful) “TV” distribution restrictions exist, and so on, Apple TV can slide in as effectively a next generation Cable TV service (with cable TV revenues) in countries that have never had cable TV.

    In theory Amazon, Hulu, Netflix etc could do the same thing, but they seem uninterested in this path, perhaps because they realize they just don’t have the local knowledge. Apple has something of a head start to the extent that they have built the iTunes stores and know something of the local players and laws.

    So I’d say, by far the most interesting thing to look for with Apple TV is when and how it goes international…

    • charly

      Most population centers in the world have cable TV. Any major city with broadband internet has cable or IPTV (in the case of poorer countries often delivered by Long John Silver Streaming TV Company who deliver more than the American market)

      Apple buyers outside of USA, Canada, Japan, Uk etc. are not even close to average in those markets. The knowledge you get from those people is useless to start a successful, semi-mainstream media business.

      Apple tv is already international. They already sell in Europe.

  • Norville Barnes

    Isn’t Apple TV and all other OTT provider’s biggest obstacle exactly the existing value chain in broadcast TV monetisation?
    The content rights are sold by geography and ‘windows’ with value fading off from live/premiere window to re-runs/archive window with several steps in between.
    Effectively this means OTTs are unbundling the Free-to-air TV model.
    Apple specifically has certain advantage of owning user’s interaction time in 24/7 space due to iPhone / iPad huge numbers.
    Broadcasters, even the ones with advanced digital strategy struggle to fully own users outside of the lining room (where their boxes are installed and plugged to TVs) and are dependent to apple, Samsung etcetera to reach audneces in ‘always on’ media world by allowing their broadcast being one of the apps on the App Store and users devices.
    As Apple is best integrated across content distribution value chain it might be best positioned to capture value from free and pay TV model, disrupting it enough to capture enough market(s) share.
    What would that mean for Pay TV as they loose advertising dollars even more is difficult question – can newspaper industry scenario happen there?
    Will Apple (and Google) pay for top media rights? They seem to consciously avoiding it even though they certainly have the cash.
    How if any can SKY or similar super broadcasters counter this?
    Would like to hear your thoughts….

    • charly

      Sony is better integrated. Integration doesn’t work.

      • barryotoole

        Disagree. That has been really the reason for downfall of Sony. When different departments have turf battles, like Windows and Office at MS, you can’t have an integrated product or company.

      • charly

        Like Sony hardware makers that wanted to build an mp3 player and Sony music that didn’t.

  • Walt French

    Horace wrote, “The way I can make it square with existing assumptions is by saying that “Apple TV content revenues” are mostly, if not entirely, distribution revenues from channel placement rather than iTunes purchases.”

    Gosh, that sure sounds similar to Netflix paying Comcast for satisfactory service levels. Different, in that customers aren’t paying Apple monthly service fees to be able to watch whatever they want, and that a given homeowner obviously has options to going through Apple. But is this pay-to-play, as it sounds?

    • charly

      Comcast has monopoly power, Apple TV not so much so the profit for Apple should be much smaller

  • stefnagel

    Apple TV will be a hobby, in Apple’s eyes, until the day it can produce an AIO, computer plus TV, and not an add on box. No screen means it’s a hobby, in the Apple glossary. An iMac panel (which I happily use as TV now) running iOS is sitting in some Apple lab I trust. Once costs and content agreements allow, it will happen.

    • charly

      People expect a service life of a TV that is at least 10 years if not 15 years. That is not really a problem for “smart” TV because people don’t really use the smart” part anyway. But an Apple tv-set would be bought because of it being a smart TV. Problem is i don’t think Apple can support it for 10 years, let alone for 15 years. A small part of this is that Apple isn’t good at supporting software but the big part is just silicon. The chip used now is just not fast enough in 5 years time. So a better solution would be screen with integrated update-able smart TV box but in that case i don’t want an Apple screen but a Samsung or LG screen

      • stefnagel

        No, Apple would not have to support an Apple AIO TV, anymore than it does its other consumer devices. It’s all cost dependent, noted. If most folks replace 2-3 three year old iPads at $500 a crack, an Apple TV is clearly a big enough market segment for Apple to bother with. If an acceptably large Apple TV can be priced under $1000, run iOS and iOS apps and games, connect wirelessly to your phone or tablet … heck, who needs regular TV content?

        Just saying, no screen, it’s an Apple hobby; screen, it’s a product.

      • charly

        A mobile phone is a different product than a TV. A Mobile phone model with a fail-rate of 100% after 4 years can be a good phone. A TV model with a 100% fail-rate after 4 years is a reason to sue.

        ps. So ipod nano isn’t a product?

      • stefnagel

        The tv, shuffle, mini are all marginalized, hobby, items. The nano has a screen.

      • charly

        What screen size. $1000 for a TV wouldn’t have been expensive 5 years ago but it is now. Buy an Apple TV box + a brand name 40″ and you end up with half that.

        You can claim until the end of day that there will be 1 billion Apple users but are there even a billion people with a credit card? (my guess would be between 1 and 2 billion with a banking card) And you really think you can get more than 50% of those?

        People don’t keep TV’s because the cost so much but because they are so big and to expensive to trow away. The cheap enough to trow away barrier is something like $40 so that is a long way off. Setting up a TV isn’t difficult but it does take time and effort so that is a barrier.

        It is not breaking that is a problem. It is software and 10 years of Moore’s law. 10 years means supporting at a minimum 5 different models with a massive speed difference so using the same software may not be realist. Also $1000 is $100 a year. With a 30% cut that means people have to buy $333 per year in media services. But that is with overhead and profit for Apple. Problem is people don’t spend that much more on media in total so free $1000 TV is not realistic.

        The change from tube SD TV to LCD (or Plasma) HD TV took a long time and is still not over and it had much better advantages than the change between HD LCD and any imaginable new screen technology IMHO

    • http://twitter.com/LunaticSX Lun Esex

      A significant problem with Apple producing an all-in-one TV/set top box(/computer) is that Apple is still going to want to sell a standalone set top box that provides 90%+ of its functionality, to attach to existing TVs. This means that Apple would need to convince customers that the extra 10% of functionality of an Apple-branded all-in-one TV is worth the price premium they’d be paying over the $99 AppleTV add-on they can get for their existing TV, or a cheaper new TV from a competitor (due to the razor-thin margins existing TV manufacturers make).

      I’ve no doubt that Apple has studied this calculus and determined that it’s not a good market to be in.

      Regardless of how much some of us want Apple to come in and “fix” the horrible mess of the coffee table full of remotes and ugly, painful on-screen interfaces that the TV hardware market is in right now, the majority of consumers just aren’t going to feel so much more compelled by an Apple offering in this space to pay the price that would be needed for an Apple-branded TV set to make it worth Apple’s while to manufacture them.

      This is not like smartphones in 2007, or tablet computers in 2010, or portable music players in 2001. It’s more like the PC market, where Apple’s gains and inroads go at a much slower pace. In fact, if Apple hadn’t already been making personal computers from the beginning I’d expect that if they were making the decision any time since the mid-’90′s they’d decide that that was a poor market to enter.

      • stefnagel

        As a hobby, you’re right. But when Apple decides to do TVs seriously, it will take full control of the displays, that is, the UX. And I said it won’t be a TV … any more than the iPhone is a phone … Any more than an Apple watch will be a watch. Apple makes computer systems. Always has. Imagining Apple as anything else fails to grasp what Apple is in its essence.

      • charly

        What full control? How many cable settop box’s don’t work by using the TV purely as output where the settop remote is even used as on/off switch for the TV.

      • stefnagel

        I’m referring to control over the display characteristics, akin to Apple’s push into retina displays. It’s all about typography and legibility and such and finally user experience.

      • charly

        I understand that but the problem i see is that that wont never be used because the cable companies want to control the interface and are very successful in that

      • http://twitter.com/LunaticSX Lun Esex

        It’s a screen at 10 ft that’s used to watch video. It’s easy to handwave and say “it’ll be something different,” but adding computer components and a UI that’s designed to operate at 10 feet distance doesn’t make it different to the majority of consumers from a TV+set top box.

        Plus you failed to address my initial point: It’s not a good market for Apple to be in when 90%+ of the functionality of an Apple-branded TV set could be accomplished by a TV bought from a competitor selling at razor-thin margins plus a $99 AppleTV add-on box.

        This is totally different from the iPhone. You couldn’t just snap a $99 add-on screen onto an existing dumb phone and get 90%+ of the functionality of an iPhone. It *had* to be integrated. Any Apple “iWatch” will have to be the same. The TV experience, on the other hand, is already fragmented into multitudes of different screens, set top boxes, content providers, and other ancillary components like audio systems. Could Apple integrate all of that and provide a single solution? Maybe, at least technically. Would consumers be willing or interested in replacing all of their components en-masse with a single Apple solution? Probably not, especially at the prices Apple would have to charge to maintain their typical margins.

      • stefnagel

        To address your initial point. Which I thought I did. Apple won’t sell TVs; it will sell computers that look like TVs. Precisely the way it didn’t sell phones; it sold computers that looked like phones. (Apparentely the iPhone was a lousy phone in rev 1, in fact.) And Apple will get the margin that it gets for every other device it sells cus:

        It won’t do it until it can capture a “headstart” technology, probably having to do with the screen (or camera).
        It won’t do it until it can launch it with a booster rocket of TV content, altho’ I wonder about this as a necessary condition.

        To address your last point: Why would Apple have to integrate all of TV out of the gates? If it can serve apps, shows, images, tunes, games, facetime, and maybe Disney, it’s good. As with iTunes, it can pull itself in a pull, rather than push position, that is, all the scattered pieces will organize themselves to fit Apple TV. In fact, pull is the only way TV will ever get organized. Apple as attractor.

        Really my argument is that Apple TV, ultimately will have a screen cus’ Apple must control the UX to get its margins and it cannot control the UX without controlling the display. And that’s why Apple has always said Apple TV is a hobby. No matter how much $$$ it brings in.

        No screen, hobby; screen, product.

      • http://twitter.com/LunaticSX Lun Esex

        Your argument falls apart in the handwaving that “it’s not going to be a TV,” without giving any compelling distinction between them to consumers.

        “If it can serve apps, shows, images, tunes, games, facetime, and maybe Disney, it’s good.”

        All of this is technically possible with a $99 AppleTV set top box plugged into an existing competitor’s TV. This is the dilemma.

        Apple *could* make a “better TV” (or “TV-like computing device,” if you choose), that builds in the existing AppleTV functionality a little more smoothly, but to what degree can it be better than someone’s else’s TV with a $99 AppleTV attached? There is no obvious way in which it would be better *enough* to justify Apple’s margins for such a device.

        “Apple won’t do it until…” (some mythical unicorn appears that solves the margin problem, provides a magical new technology, and gives it a “booster rocket of TV content”). Well, ok, then.

      • stefnagel

        I give up.

      • charly

        You forget the cable companies. It isn’t a problem technical for Apple but regulatory with the the cable companies. they don’t want to loose their set top box and their in with consumers.

      • http://twitter.com/LunaticSX Lun Esex

        No, I’m not forgetting the cable companies, I’m making a different point. I’m saying that before you even *get* to the issues involved with the cable companies that the obstacles of making an integrated device that’s better enough than an existing TV paired with a $99 AppleTV to sell at Apple’s customary margins are enough to prevent Apple from even bothering right now. The issues with the cable companies are just yet another layer on top of that.

      • charly

        Having a good settop box integrated with the TV would be enough for people to buy an Apple television, even with Apple profit margins but cable companies will never allow that. Though i expect that netflix will attack the cable companies by adding aereo (the idea or the company) to its service. The problem for Apple is that they don’t have a netflix type services

      • http://twitter.com/LunaticSX Lun Esex

        You are putting too little weight on the challenge of Apple selling a branded TV set at a price people are willing to pay that maintains Apple’s margins compared to a cheap third party set.

      • charly

        A kind of Bang&Olufson strategy. Profitable but is it more than a hobby for Apple? I have serious doubts about it being big enough. Remember also that their competitors are not computer companies so they don’t have to update and patch their “smart” TV’s. especially patching will be a disaster.

      • charly

        You forget the cable settop box. Cable companies love it when the only button you use on your TV remote is the on/off button. I don’t see why they would love Apple entering their field, especially if it comes with movies rented with itunes instead of on-demand cable.

        PC are a poor market to enter. Free linux and its massive software catalog(really) is even a failure. ChromeOS is like the third or fourth try at a webbrowserOS and it is only successful because of massive Google support and the dropping price of hardware compared to the price of windows.

      • http://twitter.com/LunaticSX Lun Esex

        Apple is already essentially competing with set top boxes via the AppleTV combined with the iTunes content library, Netflix streaming, Hulu+, etc. If it weren’t for the bundling of cable TV packages with broadband Internet access, along with live sports exclusivity deals, a lot more people would surely be “cutting the cord” today.

      • Space Gorilla

        This makes me think of CarPlay, which at first glance seems like a system on top of an existing system. Why couldn’t the Apple TV simply provide an improved UI on top of what already exists, including the channels/signal from your cable or satellite box? Maybe that’s too complex?

  • nuttmedia

    On a personal level, the job to be done for Apple TV is enabling Internet media consumption on a large screen, a piece of which being the iTunes ecosystem. Taken alone, Apple’s offer probably isn’t enough to justify thoughts of a full fledged business at scale. Netflix, HBO Go, MLB, NBA (NFL in a year or so) etc makes it more interesting. Small wonder the list of content partners has been proliferating.

    But the pink elephant in this discussion is the as yet unannounced, but inevitable, Apple TV App Store. If/when that comes to fruition, a whole host of new jobs to be done (i.e. sources of value) are potentially introduced. But the missing link, as anyone who has used Apple TV with the new content knows, is the question of interface management. If the historical Apple magic is sprinkled here successfully, a truly viable business will be born.

    • barryotoole

      The Catch-22 is that the cable companies are BB providers as well. Why would they want AppleTV to make a dent in their profits by allowing unlimited BB to homes without the person having to buy a bloated cable package – defeating the purpose?

      Remember, the Internet is not yet classified as a utility in the US, and the new head of the FCC is a former cable industry lobbyist. If the Comcast-TWC merger is approved, forget about what you just said!

      • nuttmedia

        Understand your point, and certainly disintermediation has delayed content providers from flocking en masse to a high potential, new distribution channel.

        To help bridge where the service exists via traditional satellite/cable, requiring an operator login (e.g. ESPN, HBO Go, etc) seems to have become the de facto convention. Reduces channel conflict, but puts a foot in the door.

        Regulatory issues are still a bit murky, but IMHO, will not impact establishment of an Apple TV App Store… It’s going to happen… and I think content deals like the one recently announced by Disney may be a harbinger for things to come.

      • barryotoole

        I agree. There’s little doubt that there’ll be an AppleTV App Store, but it’s value will depend on how FCC handles the issues.

        For example, it can let the Comcast-TWC merger happen, but classify Internet as a utility and have net-neutrality. I’m not against caps per se, but they should be reasonable.

        I’m sure this will happen sooner or later.

      • Space Gorilla

        Streaming does seem to be an issue. I wonder, with a beefed up Apple TV plus modular storage, could content be downloaded/stored on the device for playback at my convenience? I would prefer to have my movies and shows stored in a digital archive. Maybe with Thunderbolt and Apple TV that becomes possible? Then it’s just a question of what content is available to view/purchase through the Apple TV. Of course that doesn’t solve the issue of live events.

      • nuttmedia

        I do think the concerns around NN will work themselves out. Too much value is at stake. Even the Netflix/Comcast agreement is a bit of a red herring on this topic given its specific context. But a real test will come to bear and the faster it is resolved, the better for us users.

        As an aside, with the current ATV, if you purchase content via iTunes Store you can download a version to a local computer which you can then stream on your network via iTunes Home Sharing.

      • Space Gorilla

        Yes, we do a bit of that, as well as some games via iPads and Apple TV, but there’s the odd bit of lag, which annoys me. Even the slightest hiccup when playing a movie or show is not acceptable, for me. Which is why I lean towards wanting the content on a device that is then directly connected to my TV via HDMI. Or, if tech like Airplay can be greatly improved, that’ll work, as long as there’s zero lag, zero jitters.

    • http://twitter.com/matthewwanderer matthew

      “the job to be done for Apple TV is enabling Internet media consumption on a large screen, a piece of which being the iTunes ecosystem.”

      And the scope of Apple TV’s job is being limited by the content owners – not Apple – who exist in an highly controlled industry that is resisting disruption.

      Apple’s Apple TV strategy seems to be playing to Apple’s strengths as a business strategist. That’s to say, Apple is (1) patiently building an enticing platform for content owners while (2) delivering an attractive product that generally meets or exceeds the expectations of its customers.

      I like Apple’s chances here. Big Content will come around in time.

  • totan das

    “So that leaves the Apple TV as a product without a satisfactory
    business model. Unsatisfactory, at least, to Apple’s standards; hence
    the hobby label.”

    Here’s an alternative theory. Apple TV is experimentation and proof
    of concept within the US, but with the real goal of serving the world
    outside the US.
    The US is ahead of everyone else in terms of
    available content and channels, which makes Apple TV seem like a bit
    player — if they weren’t there I could get much the same result
    through Amazon or Netflix or Hulu Plus or HBO to Go or …

    But the rest of the world, even the rest of the world with good
    broadband, is not like that. There are both limited channels for
    acquiring native language content and (differently) limited channels for
    acquiring US (or other foreign) content. To the extent that Apple can
    provide a solution by negotiating with the local rights holders, dealing
    with whatever (undoubtedly backward and unhelpful) “TV” distribution
    restrictions exist, and so on, Apple TV can slide in as effectively a
    next generation Cable TV service (with cable TV revenues) in countries
    that have never had cable TV.

    In theory Amazon, Hulu, Netflix etc could do the same thing, but they
    seem uninterested in this path, perhaps because they realize they just
    don’t have the local knowledge. Apple has something of a head start to
    the extent that they have built the iTunes stores and know something of
    the local players and laws.

    So I’d say, by far the most interesting thing to look for with Apple TV is when and how it goes international…

    • charly

      Are you sure that America is in front of media distribution. I personally believe the pirates are but have no idea how the market works in South Korea, Taiwan and China so i wouldn’t be surprised if those markets, and their high domestic content, would lead the way.

      Amazon operates only in a few countries. Hulu exist in other countries but under a different name and owner, Netflix as SVOD company only exist for a few years and is expanding fast but for international markets you often need non-hollywood content which takes time to acquire. They also have to deal with other local netflix like companies who often have a significant advantage in local content.

  • jinglesthula

    @Horace footnote 2 on this post is one of the funniest things I’d read all day :)

  • egd3hr

    Could anyone imagine a model where cable providers would subsidize hardware the way mobile networks do today?

    • charly

      See settop box

      • egd3hr

        Understood. But looking toward the smartphone / network model, where the hardware is branded and an incentive to commit rather than generic as is the case today. If AAPL can make Apple TV & iTunes the preferred UI and hardware for the access of content, as they did with music. I have to believe that AAPL has been investing in this “hobby” to find the cracks in the cable business model.

      • charly

        Ipod was a success because most music was pirated or at least graped from a CD. That made it a level playing field. In the visual media pirating is more streaming and as such more difficult for mainstream products to use and the competing platforms have already much better connections to the IP owners

      • http://twitter.com/LunaticSX Lun Esex

        “Ipod was a success because most music was pirated or at least graped from a CD.”

        That’s just parroting the arguments of the CEO of Real Networks in 2006 to try to explain why their business was tanking in the face of the iPod and iTunes Music Store. It was part of his whinge about iPods being “not interoperable,” by which he meant “Apple won’t implement *our* proprietary DRM on *their* iPods!” I cry no tears for them.

      • charly

        Real business was tanking because flash was better (and that says a lot) but the music played on ipods didn’t come from itunes, it was mostly pirate download, ripped or synced with friends

      • http://twitter.com/LunaticSX Lun Esex

        Only a very small percentage of music across all iPods at the time came from pirated sources. The vast majority came from the legal practice of people ripping CDs that they already owned.

        With the demise of Napster coinciding with the rise of the iTunes Music Store the amount of legally downloaded music on iPods soon vastly eclipsed the quantity of pirated music on them. At whatever point the iTunes Music Store became the #1 worldwide music retailer it hit an inflection where legally downloaded music (not just from iTunes but also Amazon, etc.) started becoming a greater quantity of the content on iPods than even ripped CDs.

        BTW, as it happens, borrowing a CD from a friend and ripping that also turns out to actually be legal.

      • charly

        Sharing of collections was also a very important source

      • http://twitter.com/LunaticSX Lun Esex

        Argued more highly than actually practiced, equally applicable to the competition, and ultimately of minor impact if any.

        Just like the “Home Taping Is Killing Music!” 1980s anti-copyright infringement campaign slogan by the British Phonographic Industry.

  • Andrew F

    For all the wonderful ideas people have about how to make Apple TV a more desirable product, I think there are equally valid reasons for Apple to continue this product on its current trajectory: an upgrade every few years, an impulse purchase price, and just thought of as a portal to iTunes content and as an accessory to iPhone/iPad.

    Once upon a time (in 2007, when it went on sale), an Apple TV that went radioactive at the cash registers and became a $5-10 billion dollar business for hw + content sales would have meant a lot to Apple’s bottom line. Today, even $10 billion might not warrant the resources necessary to treat this as a leg stool of their business. To me, at best, this could put a charge in iTunes content sales and help continue to grow that part of the business and make content creators happy.

    Being purely speculative, but I don’t think Steve Jobs was undermining Apple’s business when he openly discussed his desire to make a television set. I think he said it because he understood it was more of a dream than a real effort to create such a product. Notice how much more oblique he was when discussing the intersecting of biology, which he said would be the most important revolution in technology in the 21st century.

  • http://twitter.com/matthewwanderer matthew

    “the business of Apple TV may be the auctioning of the real estate on the landing page.”

    While CarPlay (who said “yes” to that name, anyway?) provides Apple with less real estate to auction off, I wonder if there’s a revenue play there too?

    • http://twitter.com/LunaticSX Lun Esex

      “CarPlay” is *way* better than “iOS in the car.” :)

  • StevenDrost

    Or, the primary purpose of Apple TV could be to help sell high margin IOS devices by enabling AirPlay.

  • stefnagel

    Why is Apple TV a hobby? No doubt Horace has it right Here’s a further bit of consideration. Without a built-in display Apple cannot do a serious TV. One that wasn’t a hobby in “the eyes of my Apple. Apple must control the UX to demand premium prices. And it cannot control the UX without owning the display. And note well, a display that offers a competitive advantage in some way. So, TV will be a hobby until they sell it as a display. No matter how many billions it makes off the current device.

    Count on it: A wafer thin iMac (which I use as TV now) running iOS on a 4K display is sitting in some Apple lab now.

    Additionally, a serious Apple TV will be a computer, not a TV. Just like the iPhone is a computer, not a phone. And the iWatch will be a computer, not a watch.

    Using iTunes, as with the iPod, Apple can put itself in a pull, rather than push position, that is, all the scattered TV stakeholder pieces will squeeze themselves onto an Apple TV. Apple as strange attractor. As Alexander and the Gordian Knot.

    Aren’t we at the point where we can admit that PULL is the only way TV will ever get organized?
    If Apple can serve apps, shows, images, tunes, games, facetime, and maybe Disney, it’s already ahead of where it began with music.

    And remember, we are talking about a computer, not a TV. Apple doesn’t do dumb. People keep TVs for 10 years cus’ they cost so much. Sure. But also cus’ they do so little. Who wants somebody’s old TV? Whereas I pass my iPhones, iPods, and iPads to my kids and grandkids. Gladly received. These are educational, creational, and not just recreational devices.

    Granted, the same folks who buy Dells and Fires today will not buy an Apple TV. They don’t get it. Or they don’t got it. Either way, they have never been part of Apple’s buyer pool. Which will soon number one billion, 1,000,000,000, creditcard carrying members. That’s enough to get a TV off the ground ya think?

    So why doesn’t Apple do a real TV? Dunno. But we do know that …
    Apple won’t do it until the cost structure allows Apple a reasonable shot at selling a TV securing reasonable margins.
    Apple won’t do it until it can capture a technology that gives it a year or so headstart, probably having to do with the screen tech, or resolution at 4K or the camera.

    Maybe, like Claudius, the Roman emperor, Apple is letting “all the poisons that lurk in the mud … hatch out …”

    I know a real Apple TV set is an upstream row; I just don’t see why