Is Apple Poised to Move into the Living Room?

If a Wall Street analyst is on track with his predictions for Apple, we’ll see an upgrade to AppleTV - the product that Apple still refers to as “a hobby” - late this year. In addition, Piper Jaffray analyst Gene Munster also sees an Apple-connected television set - think iTunes built directly into a Web-connected screen -on the horizon in the coming years.

Apple has repeatedly downplayed AppleTV, its only real offering for the living room. But during Apple’s last conference call with analysts, COO Tom Cook - who’s filling in for Steve Jobs - said the company saw AppleTV growth triple from the year-ago quarter.

Specifically, the online movie rental feature is attractive to consumers and “we believe there’s still something fundamentally there for the future,” he said.

Munster thinks so, too. He predicts that Apple will sell 6.6 million AppleTV units this year, which could increase the company’s earnings-per-share up by more than 18 cents for the year. He also expects to see new AppleTV hardware with live TV signal input for DVR functionality this year. As for a connected television set, Munster writes in his note:

We expect Apple to design a connected television over the next two years (launching in 2011) with DVR functionality built in. These recorded shows could then sync with Macs, iPhones and iPods over a wireless network. The device would push Apple further into the digital living room with interactive TV, music, movie, and gaming features. With its iTunes ecosystem, Apple could develop a unique TV without any set-top-boxes or devices attached. With the use of a CableCARD for digital HD TV signal, Apple could effectively replace the home entertainment system (including a music stereo, cable box, Blu-ray/DVD player, and gaming console) with an all-in-one Apple television. Such a device would command a premium among a competitive field of budget TVs; we believe Apple could differentiate itself with software that makes home entertainment simple and solves a pain point for consumers (complicated TV and component systems)

At a press event last year where Steve Jobs introduced a new lineup of iPods for the holidays, the company made a big deal about the arrival of games in the app store. Gaming has always been a sweet spot for device loyalty and retention (just look at the loyal fan base of PlayStation, XBox and Wii owners) but not an arena where Apple has previously played.

For that matter, the living room hasn’t really been a place for Apple either. Point-by-point, here is why Munster believes Apple now will become more aggressive in the living room:

• Indications From Management. The company appears to be determined to capitalize on its opportunity to bring the iTunes ecosystem to the living room. On the Q1′09 conference call, interim CEO, Tim Cook, said, “We’re going to continue to invest in [the Apple TV], because we fundamentally believe there is something there for us in the future.”
• DVR And TV-Related Patent Filings. Patents filed in Oct-06 and published in Mar-08 indicate that Apple is exploring DVR functionality, which would require updated Apple TV hardware (with a TV input) and software.
• LG Partnership For LCDs. Apple recently announced a five-year, $500m agreement with LG Electronics for supply of LCD screens. While this agreement likely covers LCDs for Macs, displays, and portable devices, it could also include LG’s larger LCD TV displays.
• The Addressable iTunes User Base. Apple’s addressable market for Apple TVs is strong and growing. As of Sep-08 Apple has over 65m iTunes users, and as of Dec-08 Apple has sold over 32m iPhones and iPod touches, which can already be used as remote controls for the Apple TV.
• Apple Could Win In A New Market. We believe television market is increasingly moving towards a connected TV environment where software will be the key differentiator. Despite the ~70% price declines in the overall TV market in the past three years, Apple could enter this high volume (~10m US units a year) market at a premium price point because of its ability to deliver hardware and software that works well together. Apple has indicated that it only wants to participate in categories it feels it can make a difference (and win) in, and like the smart phone market, we believe connected TVs fit the company’s criteria.

For more than a year, my family has had an AppleTV unit in the living room. My wife streams music from our iTunes playlists on the big screen during Saturday morning house cleaning. My kids love to rent their movies from AppleTV - and we can even watch HD flicks without a Blu-Ray player. And we’ve shared vacation photos (with even some background music) with friends on the living room big screen.

I can’t speak for Munster’s projections - but I can say that his arguments make sense. Apple should start grabbing a bigger piece of the living room entertainment pie. Speaking as someone who’s already had a taste of an Apple living room, I’m all for it.

Comments

[20smoney:]

Agreed. Apple is poised better than anyone to capitalize on the living room. Why would they not? They have the seamless ecosystem of products and content already in place, why not add another room?

Feb 05 04:43 PM

[Network Effect:]

Xmas 06 - iPhone
Xmas 07 - iPhone 3G
Xmas 08 - iPhone as gaming platform via App Store
Xmas 09 - App Store as media delivery platform for AppleTV, Kindle-type device (books, movies, tv, newspapers, magazines, blogs, social networking, etc)

Etc etc etc. App Store is a revolutionary platform and ecosystem. Watch for this latest app (the local restaurant ordering application) to take off. And many, many, many more. Industry after industry after industry ...

Feb 05 05:03 PM

[Anonymous W...:]

This has been coming for a long time from Apple and is integral/core to their overall strategy. Becoming the Leader that puts it all together for the Living Room is inevitable and saying it's a hobby is a "ruse" for meaning we know it's going to take awhile to fully implement our strategy in conquering the living room and entertainment delivery business. Don't you see all the pieces of the puzzle falling in place ? The master plan will result in an April Fool's joke in that guess what, this is not really a hobby- we just needed some time to put ourselves in the position of Conqueror. Once all the soldiers are in place, you will see the magnificent convergence and patented living room.

Feb 05 05:10 PM

[uh-huh:]

Apple TV was not HD (DVD resolution is not HD). The distortion in color was not agreeable, especially on a flat panel.

I'd rather see someone other than Apple do this, because Apple really don't care about quality (other than for the pretty boxes they dress their intel reference designs up with).

Feb 05 05:39 PM

[brewer:]

Apple is not known for having the latest specs. They are about getting it right. There is a distinct pattern here. Mac was b&w only until they got it working just right. iPod was music only at first, mac only before that.

They work toward perfection not by adding junk you don't need, but by putting in just what is needed.

Apple doesn't care about quality? Yeah, Dell, HP, MSFT are all about quality, right? Riiiiiiiight??? LOL!

Feb 05 05:45 PM

[Zoltan L. K...:]

The last hints of Tim Cook imply an evolution rather than a revolution in this field. It will take some experimenting and Apple will surely upgrade its AppleTV, be it just for the higher capacity of parts. In the longer term innovation in this segment will have to take into account several factors like the marketing/distribution of movies, computers as a hub and peripherals, changing habits etc.
Whatever Apple will come out with some day, it will most likely be great.

Feb 05 06:39 PM

[jmmx:]

I think it was 1994 that I bought a Mac Quadra 660AV. I borrowed my friend's videocam (analog of course) and over the next few years, I made several clay animations with my daughter. 1994. I still think they are cool.

Feb 05 08:37 PM

[FreeRange:]

What a ridiculous statement - Apple cares deeply about quality in every single aspect of what they do. To the engineering of their award winning hardware, to the incredible sophistication and ease of use of their OS and systems integration. And lets not forget about their off the charts level of customer satisfaction and loyalty. You have no idea what you are talking about.


On Feb 05 05:39 PM uh-huh wrote:

> Apple TV was not HD (DVD resolution is not HD). The distortion in
> color was not agreeable, especially on a flat panel.
>
> I'd rather see someone other than Apple do this, because Apple really
> don't care about quality (other than for the pretty boxes they dress
> their intel reference designs up with).

Feb 06 02:10 AM

[Bill Youngs:]

I've owned an Apple TV from the get-go, and I've had great luck lately with the choice and quality of the films I've rented. That and YouTube access are the icing on the cake. But for me the cake itself is the wonderful platform it offers for my home movies -- travels, family, nature. I still remember the incredible hassle of setting up a movie screen and projector years ago and then showing my three-minute super-8 films. While better, the option of showing my movies to friends huddled around my computer screen still left a lot to be desired. In contrast the ATV does a great job of presenting my home movies -- friends even ask for more!

Feb 06 02:12 AM

[Vox Rationalis:]

uh-huh wrote: "Apple TV was not HD (DVD resolution is not HD)."

Key word here: "was." The original Apple TV software didn't do HD. The current version does 720p. Which, last time I checked, was HD.

Tool.

Feb 06 07:52 AM

[GSlusher:]

Re: earnings from Apple TV. I don't know if Munster et al have taken into account the fact that the Apple TV, like the iPhone, is accounted for on a "subscription" basis over 24 months. (That should put the lie to those who contend that the iPhone accounting had something to do with the ATT contract.) Apple did that for the same reason as the iPhone: to be able to legally provide free software/firmware updates that added capability. (Note that iPod touch owners have had to pay for some of the updates, for this reason.)

Feb 06 01:55 PM

[Barry Bazzell:]

The convergence of the internet and the TV is obviously in its early stages. Intel and Yahoo are promoting widgets. Nvidia is enhancing graphics. Ethernet ports and Wi-Fi connections are on the horizon. IPTV is also on the rise. At the end of the day, Apple will most likely emerge with a premium product that will set the standard as they have done so often in the past.

Feb 06 04:38 PM

[uh-huh:]

@ BS Writer wrote

>>uh-huh wrote: "Apple TV was not HD (DVD resolution is not HD)."

>Key word here: "was." The original Apple TV software didn't do HD. >The current version does 720p. Which, last time I checked, was HD.

well if you call DVD resolution HD good for you, I call that DVD resolution. I call 1080p HD. ATV ain't capable of that.

>Tool.

And what's with Apple fanbois and name calling? I never understood that aspect of the Apple cult. Seems to mostly come from people who don't really understand what they are talking about.

Feb 06 07:17 PM

[cherf:]

Time after time I read theses articles predicting the ultimate move into the living room by Apple and I think "where have these people been?"

Folks, it's over. I've been running a network of television and stereo systems in two separate states using Apple equipment for almost 3 years and I don't own an Apple TV box. The 1.6GHz mini with a DVD player works fine.

Apple connected television? You've never seen a DVI -> HDMI cable? Please.

This article is a lot like predicting it will rain someday. It's over folks. Apple is already firmly entrenched in the living room. Anyone around here use Front Row?

Feb 08 06:56 AM