Apple TV: Worth Watching?

Last week, to much fanfare, Apple released Apple TV; but if it weren’t from the company that changed digital music with the iPod and which more recently shook things up with news of the iPhone, most people would likely never have heard of the product. The reason: there are already numerous other systems which actually do what most people think that Apple TV does. It may be the sexiest, but it is not the first device to try and bridge the cavernous divide between the computer and the television, nor many argue is it the best. However, as Douglas Shapiro, analyst at Bank of America points out, “It isn’t the first attempt at solving the ‘last 10 foot problem’ of connecting the PC to the TV but in light of Apple’s track record with music it is likely to be regarded as the most credible.”

What the $299 Apple TV does is create a way for downloaded digital content to move from the computer to the TV screen. More specifically, the device receives digital content from the iTunes application on a designated PC or Mac over a wireless network for display on widescreen TV sets. In this case, as in so many, the devil is in the details. Apple TV does not work on any TV and all content must be a part of the iTunes system. It bears mentioning that the unit only works with widescreen televisions but this is probably not as large an issue as some sources make it out to be; a relatively high percent of the target market are probably set up with one already. As for the fact that all content must belong to the iTunes ecosystem, this is a real issue. On the music side of things iTunes, Apple’s online digital content store, works quite well. There are issues to be had with how its DRM technology makes it difficult to transfer music off the iPod, but since virtually any song one can buy online is available via iTunes consumers have yet to feel real constraints. This is far from the case with the iTunes video catalog.

According to Bloomberg there are over 4 million songs available on iTunes; the catalog for movies is about 400 and for television shows about 350. Regardless, Jonathan Hoopes, an analyst with ThinkEquity Partners sees Apple TV as an agent of change, “Just as the iPod/iTunes combination has changed the way people consume music, we think Apple TV will become an iPod for the home it its own right.” Hoopes may be right but there are those arguing that in trying to be just that, an iPod for video in the home, Apple TV reveals its weakness. Writing for BusinessWeek, Stephen H. Wildstrom notes, “The best thing about Apple TV is that it tries to do for video what the iPod has done for music. The worst thing about Apple TV is that it tries to do for video what the iPod has done for music. The reason for this paradox: Apple’s laudable effort to simplify video downloads by running everything through iTunes leaves too much good content out in the cold.” Therefore, “Unless iTunes becomes a universal source for video, as it is for music, Apple TV’s simplicity and convenience will require unreasonable trade-offs.” While Chief Executive Officer Steve Jobs hailed the device as the “DVD player for the 21st Century” plenty of people are saying the shelves need a little more stocking.

By mandating its users employ iTunes, Apple TV is not only limiting what is available, but is going against the trend of offering more, rather than fewer options. According to a report released last week by media research company Nielsen, the average U.S. home now receives 104 television channels; that is eight more than last year. Furthermore, there is an ever-expanding amount of video content available for viewing in streaming format; all this, including content from YouTube does not fit the Apple TV/iTunes model. As David Pogue, says in his New York Times piece, “Apple TV offers a gracious, delightful experience — but requires fidelity to Apple’s walled garden.”

Still, some analysts believe sales will not disappoint. Bloomberg refers to Citigroup analyst Richard Gardner, “Apple TV sales may top $500 million this year and reach $1 billion in 2008.” Bloomberg also refers to Gene Munster of Piper Jaffray in reporting, “Apple may sell 2 million devices this year, winning support from among the 110 million customers of the iTunes software that powers the box.” As Munster points out, the iTunes user base is a key component. Microsoft already has its Media Center software embedded in some Windows operating systems, but there are only an estimated 12 million users; that gives Apple quite a leg up. Furthermore, analysts point out that many users of iTunes will stick with what they know; an iTunes extension such as Apple TV is the likely choice.

Though some are making noise that Apple TV could be Apple’s big flop, or the opposite, the next thing in digital media, the truth is that Apple has just stepped into a rapidly changing ecosystem. In making this step the company does bring its association with success in the digital music arena and the name Apple; if for no other reasons Apple TV is worth watching.

A more complete version of this posting, with journal articles, and research reports can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the PCs & Peripherals section of Northern Light’s Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Apple TV – Is There a Niche?, March 23, 2007
The question is whether Apple will rise to the top, or be swamped by the existing solutions. Can it carve out a niche? Unsurprisingly, vendors of existing products don’t think so. In fact, Jeff Binder, senior director of Motorola’s Connected Home Solutions, said the Apple TV unit might very well turn out to be what he characterized as a “dud.”

Apple TV Has Landed
New York Times, March 22, 2007
After many delays, Apple TV finally went on sale yesterday for $300, but there are plenty of companies trying to solve what you might call the “last 50 feet” problem. A couple of prominent examples: In addition to its game-playing features, Microsoft’s Xbox 360 ($400) performs a similar PC-to-TV bridging function; in fact, it even has its own online movie store. Netgear’s week-old EVA8000 ($350) also joins PC and TV, but adds an Internet connection for viewing YouTube videos and listening to Internet radio.

Apple May Court Studios to Help Sell TV Set-Top Boxes
Bloomberg, March 21, 2007
Apple Inc., maker of the iPod music and video player, may need to become an even bigger booster of digital film and television shows to win broad market adoption of the TV set-top box it released today. The $299 Apple TV sends movies and TV shows over a wireless connection from computers to widescreen sets.

Apple TV’s Blurry Future
BusinessWeek Online, March 21, 2007
The best thing about Apple TV is that it tries to do for video what the iPod has done for music. The worst thing about Apple TV is that it tries to do for video what the iPod has done for music. The reason for this paradox: Apple’s laudable effort to simplify video downloads by running everything through iTunes leaves too much good content out in the cold.

Apple Aiming to Tempt Traditional TV Viewers
Financial Times, March 21, 2007
Millions of video clips are available for viewing free on the internet, through video sharing sites such as YouTube or MySpace and hundreds of other websites. Yet the appetite for watching traditional television does not appear to be waning. Nielsen, the media research company, released a study this week showing that the average U.S. home now receives a record 104 television channels, eight more than a year ago.

Apple Makes Biggest Move Yet into Living Rooms
Reuters, March 21, 2007
The small silver box with a white Apple logo costs $299 and can store up to 50 hours of video, 9,000 songs, 25,000 photos or a combination thereof. It is available this week at Apple’s online store, retail stores, and also from resellers.


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