Will AppleTV Do to Hollywood what the iPod Did to the Recording Industry?

| About: Apple Inc. (AAPL)

With Apple (NASDAQ:AAPL) expecting to ship Apple TV in mid-March–also known as any day now–analysts are sizing up what it'll mean for the company. The consensus view: Apple TV is interesting, but it's no iPhone.

apple-tv-250 ThinkEquity analyst Jonathan Hoopes begs to differ in a research note today. His take: Apple TV will be a big hit. Hoopes values the business opportunities facing Apple TV at $5.3 billion to $11.4 billion.

Wildly optimistic? Perhaps. Then again it wasn't like anyone saw the iPod coming either.

Do we have a TV revolution on our hands? Let's look at Hoopes' Apple TV logic.


The humble AppleTV has ceded the limelight to iPhone (see blog focus) and has been overshadowed by the buzz preceding the launch of Leopard. Yet, we believe the potential is huge for this small device. AppleTV is an ideal conduit for multiple services including DVR, paid-for content (e.g., VOD), gaming, or advertising. We identify and value these business opportunities at $5.3-$11.4 billion, with substantial upside potential.

In other words:

AppleTV is not just another set-top box. Instead, 802.11n Wi-Fi wireless networking, an Ethernet port, and an Intel processor combine with a simple-to-use Apple Remote and what looks like a revved version of Apple's Front Row music, photo, and video sharing, streaming, and presentation engine to deliver a novel next-gen digital content experience.

My take: It's true that Apple TV has taken a backseat to the iPhone as far as buzz goes. That means the perception will be that Apple TV will be deemed a surprise success since few are expecting it. However, the services Hoopes mentions all have plenty of entrenched rivals. In the end, Apple TV is competing with cable boxes, which now offer many of the same features sans WiFi connectivity. As Jason O'Grady notes: What problem is Apple TV really solving?

Hoopes: The analyst argues that Apple TV could do to Hollywood what the iPod did to the recording industry.

As a digital media content delivery vehicle positioned in users' living rooms, we think the AppleTV/iTunes combination could become as disruptive to legacy video purchase-and-consumption behavior as the iPod/iTunes combination has been to the traditional music business model.

The analyst also adds that sales of movies, games and TV guide services would be very lucrative for Apple.

My Take: Apple TV could be very disruptive and iTunes could be ported to the living room easily enough. The key will be ease of use. Apple TV's benchmark for ease of use isn't Windows. It's a set-top box. That's a different hurdle. Early adopters will be all over the Apple TV. But most traditional remote control users aren't going to tinker with anything that may delay immediate gratification. And given the number of video downloading services out there you could argue that Hollywood already gets digital distribution way more than the recording industry did.

Hoopes: Apple software is critical.

We note that iTunes preceded the iPod by nine months. The iTunes/iPod combination benefited from the popularity of MP3. Similarly, with iTunes version 7 (released last September), Apple introduced support for movie downloads paving the way for a device to take advantage of demand for time-shifting DVR (digital video recorder), any-time VOD (video on demand), and place-shifting Sling technologies that are popular today-not to mention the momentum in high-definition flat panel TVs sales.

My take: If anyone can make software to make the Apple TV as seamless (and potentially better) than set-top boxes its Apple developers. But again there's a ton of competition. One thought: Wouldn't it make sense for Apple to buy Sling and/or Tivo (NASDAQ:TIVO)?