Reality Check: Apple TV isn’t turning into a TV
June 3rd, 2010
Daniel Eran Dilger
After Steve Jobs described in detail why his company isn’t putting its efforts into trying to revolutionize TV, TechCrunch has decided that the answer may be for Apple to begin building its own televisions, a gangrene solution to a hangnail annoyance. More likely: Apple will merge Apple TV with the Mac mini and deliver a new iPhone OS based device to serve streaming iTunes content and apps to the living room TV.
Apple televisions aren’t going to fly
This idea keeps raising its head as analysts regularly step forward with predictions that Apple will begin branding its own TVs real soon now. This is absurd. Apple’s products are getting smaller and selling in higher volume from the company’s small retail stores, not getting tremendously large and selling at razor thin margins from huge warehouse outlets the company doesn’t have.
Do any of these analysts know why Apple doesn’t sell its own printers anymore? There’s too much competition, not enough potential for any profits (margins all come from consumables, not the devices) and it makes more sense to partner with third parties to make these products available, earning a fair retail profit while giving up the thin manufacturing profits.
In the area of televisions, Apple has no interest in stocking TVs in its retail stores. It simply can’t. Go to Best Buy or any other TV retailer and you’ll find walls of different TV sizes and technologies to fit a wide range of consumer choices. Apple can’t compete with that dynamic, low profit market in its boutique, mall-bound retail stores. The idea is preposterous.
Of course, there’s also some variety in PCs, but nothing quite as vast at TVs. The price span of PCs at Best Buy is pretty narrow, while TVs range from cheap to very expensive. It would be extremely difficult for Apple to stand out as a premium vendor of TVs, far more difficult than standing out among PCs with its Macs.
And very clearly, Apple isn’t looking for more Mac-style premium niche businesses (notice how its backing out of the server market and RAID devices); it’s creating new, high volume mobile devices that can stand out in their mix of price and features. This would not only be harder to do in televisions, but would be far more expensive for the shred of profit that Apple might make for all its efforts.
Where is Apple TV going?
Recent rumors of a cheap iPhone OS device that could replace Apple TV as a hard drive-based, Mac OS X running appliance and stand in its place as a streaming device for iTunes content make a lot of sense. It could alternatively be branded as an AirPort Express for video.
Apple already knows how to deliver slick TV features, as a variety of hotels and cruise lines have set up rich media systems that port digital TV and on demand content to Mac-based TVs. The problem is that this sort of thing requires a sophisticated back end, a fat pipe, and a fairly expensive TV (attached to an Apple TV or full Mac).
As Jobs pointed out, cable systems across the US are run by a hodgepodge of different operators, each using different equipment and signaling. Sure, analog cable is simple enough, but that requires analog-to-digital encoding hardware to present in a fancy user interface. Digital TV is different across various systems, and is completely different around the world. Just ask the DVR companies that build equipment that works differently in each country.
Apple has never shown any interest in putting millions into fixing TV menus and programming guides for cable systems because there’s no money in it. There’s no potential for profits from hardware as the market is locked up by operators who already have cheaper alternatives they think are good enough. There’s little opportunity to directly sell users on nice hardware, unlike the opportunity Apple created for itself in smartphones.
And there’s huge risk that any work Apple created would be immediately ripped off. That means Apple’s opportunities in the TV business are pretty much confined to being the free R&D arm for Androids’s Google TV.
Apple TV & the Mac mini
With inventories of Mac minis growing reportedly scarce, it’s likely Apple will scrap the existing Apple TV and simply port its software as a free bundle for Macs, reverting it back to its origins as Front Row (4.0) and serving the role of giving people another reason to buy a Mac mini instead. The Mac mini is a lot more powerful and in some cases versatile, and Apple needs to stock it anyway, so by merging it with Apple TV the company gets one placeholder serving two niches at once.
That opens a gap for a media streaming device based on the iPhone OS, designed to stream content from the expected iTunes cloud service. As an iPhone OS device, Apple could easily get developers to port their iPhone and iPad apps into a format that could work on TV, being controlled by touch from an iPhone, iPod touch, or iPad. That solves the whole pointer/keyboard problem that has always plagued “web-enabled” TV devices.
Such a move would shore up the iPhone OS App Store with a fourth TV leg, joining smartphones, media/game players, and tablets. With that launched now, Google TV would look rather lame by the end of the year in its attempts to create Android apps for TV sets from a variety of squabbling TV makers, each with its own user interface. Google doesn’t understand the problem of fragmentation, so expect Google TV products to be far more of a mess than tablets and even worse than Android smartphones.
A headless iPod touch for the living room
A new streaming device, essentially an iPod touch without a screen, could be sold on the cheap as a near-loss leader as a way to sell iTunes content including movie rentals, TV apps and casual games. It could help launch iTunes cloud services, and the software that powers it could be included on new iPhones and iPod touch devices, enabling users to get the same TV features from their phone or media player.
This would also enable Apple to invest in media platform features that benefit all of its iPhone OS devices: things like iTunes Radio support and third party apps for Netflix and Hulu (although there’s no way Hulu is going to license its content for playback on TV). Note that an iPod device is what many of us originally expected instead of the Mac-based Apple TV.
Such a product would be hard to beat, given its low cost and deep integration with iTunes. Google still has nothing like iTunes, which is why Android has nothing like the iPod touch. By making a “headless touch,” Apple could extend its coverage to the TV, enabling it to recycle its investment into Apple TV as a Mac feature.
It’s not like the company is making hardware profits from Apple TV now, so swapping in iPhone OS hardware that’s cheaper to build and doesn’t involve moving parts and leverages the vast economies of scale (that enable Apple to sell its iPod touch for $199) makes a lot of sense. Meanwhile, Apple gets an extension of its App Store that works in the living room with little additional effort from Apple or its third party developers.