US financial analyst are set on pushing the story that Apple will conquer the entire consumer Electronic world, and while we don’t disagree, it seems a little disingenuous to claim they thought of it ‘ Faultline and a number of other digital media watchers have been encouraging Apple to do this long before it ever launched the iPhone.
But one analyst, Gene Munster at Piper Jaffray reckons that by 2011 Apple will launch its own TV set which will have a built in DVR plus the existing capabilities of the product currently being called Apple TV, which is in effect a digital media adapter. It gives him plenty of margin to be proved either right or wrong, because in investment terms 2011 is miles away.
It makes sense for Apple but 2011 is a long way out and any refresh to the failing Apple TV product line is likely to come a lot sooner than that, and will anyway shift it further in the direction of supplying more and more of what viewers need, in order to view broadcast content alongside internet delivered video. Yes Apple might launch a TV, but nothing it has done so far suggests that it can garner anything like the profit margin that it will need to make it interesting for Apple, and without that why would Apple bother. Making TV sets is a huge business, but with a low margin. Apple will want to make a NEW kind of TV set, which can bring it a huge amount of margin and give it just the top skim, perhaps the top 5% of that market.
Our partners over at Online Reporter think that Apple should in fact license its Apple TV technology to TV set manufacturers and pick up a fatter margin that way ‘ nice idea, but it runs counter intuitive to how Apple does business, and also to how TV manufacturers do theirs. That is the Microsoft and now Google way of doing things. Apple won’t do that.
Sony, Panasonic, LG, Philips, Toshiba and Samsung ‘ most of the top TV makers in the world, have all developed their own internet media adaptors to TV sets and Intel has put a CE 3100 chip at their disposal that will do the job at a fraction of the price and also run Yahoo’s TV Widgets.
Apple has its best appeal at the consumer level, and most other major manufacturing companies don’t want to sing to Apple’s iTune.
What Munster appears to be saying is that as broadcasters and content owners are now taking their models to the internet and backing them with advertising, so Apple should do the same, creating its own channels out of its content contracts, and sending those to a TV set.
We understand the logic and this IS what Apple does. It takes a moribund industry (like music), updates it to the digital age with a generous deal for content owners and then uses that as a tie in to sell hardware. This of course wouldn’t work without consumer appeal and design style.
But can it really do this to the entire TV industry. Take content from Studios (or the broadcasters, but in this equation they are the equivalent of radio stations not record labels) and create its own TV channels which would either have to be sold as a subscription or it would have to sell advertising on, and offers it for free, but only to people that have an Apple TV set.
There are obstacles here. For instance content rights, where Apple relies on rights which are almost certainly highly specific to the existing download to own (or rent) iTunes business models. And even if they weren’t, the advertising route would not be for Apple. Who is going to advertise on a TV platform that begins life with a handful of viewers. Joost and Babelgum will testify to that being a tough sell. If Apple said that such a channel would work with its laptops and its portable video viewers, then it would have an advertising platform, but it would ruin its existing business. So it won’t do that.
Yes Apple will be looking enviously at the TV broadcast business and bringing it to the digital age, but no, the model is not obvious and it will take some step of genius (something obvious we are all missing) to include all the Apple devices out there, and trap sufficiently good content without ruining what it already has. Right now broadcasters pay a hefty amount of money for just one TV series, even when it is in its infancy.
What Apple has to do is come up with a model that will save the broadcasters, not the studios. It is they who are pushing for advertising supported models and them that need help. That would put it right up against Google and outside of its comfort zone.
The right Apple deal might be there, just a fraction outside our imagination, but right now building any old TV won’t work, and just converting internet video to TV doesn’t work. Apple would need to leverage off all of its deployed devices and it has already has a system which does that, iTunes.
The other approach is a subscription service approach, forgetting the drift to ad supported content, and that could run on all Apple devices. Again it would need the right content, and that might take the form of actual TV channels which can also be viewed over VoD. That might run alongside iTunes.
So Munster is suggesting a ‘sub-library’ of existing Apple content. And that part of its content will become a cheap monthly sub, and then it can offer that part of it on a TV set, at higher resolution. That won’t ruin its existing models and it will leverage off its installed base because it can be viewed on a phone or iPod too. He sees this as ‘instead’ of pay TV.
In this model Apple does the same thing with LCD or OLED screens as it did with Flash memory, buy a big chunk of it in advance with its cash pile and get it for almost nothing per device and come out a price which is fantastically low.
But if this is so feasible why do we have to wait until 2011. The TV screen market is far larger than the Flash market, and dominating it will be tougher and need more cash. In January Apple paid $500 million up front to LG for OLED and LCD screens and this has been cited as being part of a TV deal. Of course it’s way too small an amount of money to fuel TV screens, and it’s more likely for the next generation Apple iPod Touch or its laptops. But once it builds these relationships, Apple is sure to continue to explore what is possible and it could lead to a TV product.