The anticipation and speculation surrounding what could be the next product on the cards for Apple (NSDQ:AAPL - News)—Apple TV—raises some questions about how, and if, the TV industry will get as disrupted by Apple as the mobile world did with the introduction of the iPhone.
A report today in the Wall Street Journal on the so-called Apple TV says that Apple has been talking with media companies about the launch of a new product—possibly a new version of Apple’s existing TV box, or possibly a whole new TV set—that would include voice and gesture controls, the ability for users to access their media files across all of their Apple devices, letting content follow people on whatever devices they used; and possibly even full pay-TV services similar to those being offered by Microsoft (NSDQ:MSFT - News) via its deals with Verizon and other TV providers.
If any of the above turns out to be true, it will be a fair advance on what Apple offers already in its existing Apple TV service, which lets users access their iTunes media files, their own media files, and content from partners like the NBA and Netflix (NSDQ:NFLX - News).
The market for TV services—encompassing advertising and pay-TV—is potentially a big market for Apple to tackle. The TV industry currently makes $150 billion annually in the U.S. alone on advertising and pay-TV subscriptions. And that’s before you factor in revenues from TVs and other hardware.
But it’s unclear so far what involvement Apple would want to have in that industry: The article notes that SVP Eddy Cue is among those leading on the project, but that Apple has been “vague” about the details, not going as far as licensing content yet for the service.
One key thing to watch is whether Apple tries to work itself into TV content in the same way that it has done in mobile content.
With Apple’s existing suite of wireless products, the company has come to control not only the device but one of the primary forms of content distribution on those devices—its App Store. While carriers are still able to sell users their lucrative service contracts tied in with devices, that App Store, and Apple’s billing behind it, have largely meant that carriers have been cut out of trying to create and develop those content revenue streams themselves.
That’s not a massive business today, of course—contributing, as some believe, only two percent to Apple’s market cap, even if that does work out to a value higher than all of RIM—but the potential and customer lock-in is Apple’s to explore, not the carriers’.
Could Apple do the same in television? Most immediately, probably not. There are some key differences already today, most notably that players in the TV industry already have big, established businesses variously funded through pay-TV, advertising and device sales. In mobile, the fruit was ripe for the picking, given the very low penetration in smartphones—and some would argue a lack of compelling products before the arrival of the iPhone—and relatively low usage of mobile content.
Priced at $99, the current Apple TV has not set the world alight in the same way that its iPhone, iPad and iPod wireless products have been game-changers in their own categories. The last reported sales figures for Apple TV product were from a year ago, when Apple said that it was approaching unit sales of one million.
This new product, from the sounds of it, will be Apple’s do-over, where it will try to incorporate some of the latest TV innovations—gesture and voice controls are already appearing, for example, on Microsoft’s Xbox TV service when a user has Kinect hooked up; and companies like MobiTV have already been offering users the ability to watch their services seamlessly across different devices—but perhaps also work in a few more innovations that have yet to appear in the world of TV technology.
But as the WSJ article notes, one thing that seems to have held Apple back so far are the margins on TVs: they are significantly smaller compared to other new products—the portable, wireless devices—that Apple has added to its portfolio in recent years; and the most expensive TVs are on an order of magnitude more expensive than the most expensive iPhone, which will likely mean less volumes sold for Apple.
Some have estimated that Apple’s gross profit margin for the iPhone 4S could be close to 75 percent.
That seems to imply that if Apple is set to disrupt TV, it may end up doing it on terms different from those that it dictated on products like the iPhone and iPad.
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