Seeking Alpha
Profile| Send Message| ()  

The investment market and tech websites are again awash with news and speculation concerning the serious entry of Apple (AAPL) into the television business, selling hardware, software, content or a combination of these. Many pundits believe if they do it right – in the Apple tradition – the company can compete strongly in the television market. There are several components to this story which would affect the market effectiveness and profitability of an iTV.

Hardware – The Apple method is to introduce new hardware filled with Apple controlled software and content. This means Apple would be selling branded television sets. Recent published reports out of Asia indicate the company has been sourcing manufacturers for a 32 inch and a 37 inch flat screen TV. Samsung (OTC:SSNLF) and Sharp (OTCPK:SHCAY) could be likely producers. Another telling point is that the company has not licensed the Apple specific AirPlay streaming technology to any television manufacturer. AirPlay is available in a wide range of audio, iPhone and computer equipment, but no televisions.

Software and Content – Apple currently sells its Apple TV set top box for streaming hi-def and Internet content through a wi-fi connection to a television. The limiting factor for Apple TV at this point is a limited amount of television content. TV viewers are not going to give up their major network, minor networks, premium networks and pay-per-view in exchange for streaming movies and YouTube. Apple must find a way to deliver at least as much content as the cable companies currently offer.

Television a la carte – The game changer for Apple would be if the company came out with a system where customers could receive any and all of the content they wanted on a subscription basis. Instead of paying the cable company $100-plus a month for hundreds of channels – of which only a few are watched – customers would be able to select which channels they receive, or even narrow the choices to which shows, movies and events. Customers would be able to tailor their television reception to the content they want to watch when they want to watch them. Of course, this is a dramatic departure from the way television is currently delivered and would significantly change the marketing of content and the charging of advertising rates.

Apple is keeping a very close hold on their television plans for 2012, and all of this discussion is just speculation at this point. Some sectors which would be affected by an iTV would be the television manufacturers, the cable companies, the networks – large and small – and the Internet service providers. Content companies like Netflix (NFLX) could see their fortunes go in either direction.

An Apple television would be produced by a manufacturer and initially only sold in the U.S., so it is hard to make a judgement on the prospects for manufacturers. Cable companies like Comcast (CMCSA) and Time Warner Cable (TWC) could see a serious erosion in their cable TV subscription bases. On the flip side, Apple TV customers will still need Internet connections and probably at higher bandwidth levels, so the savvy cable marketers could figure out a way to use the shift to Apple TV to their advantage. Television networks like CBS Corporation (CBS), Discovery Communications (DISCB) and News Corp (NWSA) could see their whole business models upended if the networks must start courting television viewers to add them to their Apple TV subscriptions. Will many viewers with this level of selection choose programming with 20 minutes of commercials every hour? Probably not.

A functional Apple TV system with hardware and competitive programming would be a significant competitor to many players in the $150 billion television industry. If Apple is able to include an ability for customers to pick and choose which content comes to their iTV and cut out the television programming they are not interested in, the Apple TV could be a game changer. To continue the levels of growth the company and its investors have become used to, Apple needs a game changer if it enters the television market.

Source: Apple's Strategy For iTV: Investment Implications