Rumors have been swirling about a much anticipated Apple TV (AAPL) for several months, recently being semi-confirmed by Foxconn's investment in Sharp. If the Apple TV turns out to be anything close to what the experts are predicting, it has the potential to permanently change the TV industry.
Here's a look at both the positive and negative aspects of a potential Apple TV, and what could make the it such a disruptive product:
Possibility Of A La Carte Content
This is exactly what the cable industry is most afraid of. Current leaders of the TV industry such as Comcast (CMSCA) and Dish Network (DISH) provide channel packages with a very standardized form, leaving very little room for individual preference or customization. The possibility of Apple being able to provide channels in an a la carte manner would be far more cost efficient for consumers, who could only choose to subscribe to the channels they prefer.
Relevant content has been a hot topic of debate among companies like Netflix (NFLX), which have struggled to stream movies and shows users want to watch. Apple already has a massive library of movies and shows it offers through iTunes. Allowing this content to be accessible via Apple TV seems like a logical step.
This content will most likely be delivered through either Apps or a platform similar to iTunes. iTunes currently has thousands of titles for rent that it offers to its users via streaming, with prices ranging anywhere from $1-5. This means Apple could significantly boost revenue not only through selling the Apple TV product itself, but also through streaming fees associated with iTunes style content.
We all love apps. Imagine being able to choose between Hulu Plus, Netflix, Youtube or ESPN seamlessly through Apple's unbeatable user interface.
Apple's traditional user interface would make it far easier to navigate through 3rd party applications (on your TV) than anything currently on the market. Comcast's OnDemand service looks outdated, and is very slow. And there is no reason for Hulu or Netflix to be looked at as competition because they can be accessed in App form through Apple's platform.
The Apple TV has the potential to be a revolutionary platform where all types of media services can be consolidated for simplicity to consumers.
The addition of Nuance Communications (NUAN) Siri technology in the iPhone 4s has been a huge success. The integration of this into the Apple TV would be a revolutionary step in the TV business, almost immediately reducing all demand for the remote control.
Multiple sources (I and II) have already confirmed that this is very likely, and it seems like a natural progression for the TV industry. Navigating through hundreds of channels and listings can be very tedious, having Siri resolves this problem and makes searching/finding your favorite shows easier than ever before.
iPhone and iPad Integration
The Apple TV will undoubtedly include some sort of iTunes App or feature. This means the TV can double as a speaker system. With the same OS software running on the Apple TV, iPad and your iPhone, syncing iTunes libraries, and Apps (even for games) would be remarkably convenient, and easy for consumers.
Why This Apple TV Is Better
Apple has attempted to enter the TV market before, without much success, but this time is very different. Apple currently holds the world's most valuable brand, according to BrandZ. Back when Apple first tried to launch its first version of the Apple TV, its brand was nothing compared to what it is today. Not only that, but Apple didn't have any of its current blockbuster OS software in place nor did they have access to iTunes massive library of content.
Not only is the time right for Apple to release the Apple TV from a brand standpoint, but its makes practical business sense as well. Its trademark OS system we saw transform from the iPod to the iPhone is still the tech world's top dog. Expanding this to the TV market makes sense, especially given Apple's almost unparalleled resources and brand image.
Apple's products have traditionally been in the luxury category, with higher price points when compared to competitors. The Apple TV will most likely be no exception, and in the past several years TVs have gotten exponentially better without increasing in price at all. This is because TVs are slowly becoming commoditized, as tons of companies join the fray. Companies like Hitachi, Sony (SNE), LG, RCA, Samsung and Sharp are already well established in the business with and have reputations for solid products.
Entering the market with a higher price point in an already commoditized business is no doubt risky, but the same could have been said when Apple was about to release the iPhone. The cell phone industry was becoming commoditized as the cell phone market become more mature, that was until Apple redefined the smart phone.
Another thing that could potentially harm Apple TV sales is the cost of iTunes content. If Apple chooses to use the licensing agreements that it already has in place, it will be pricing content much higher than its competitors. Netflix only charges $7.99 for an unlimited monthly service, and Coinstar's (CSTR) Redbox only charges $1.25 per rental. Right now on iTunes new releases are usually $2.99 per rental, or $3.99 for HD. This would add another incremental expense to the Apple TV that would make it more expensive than its competitors. Not only are consumers going to have to pay more for the TV (most likely) but possibly more for movies and shows as well.
The Bottom Line
Consumers have shown a voracious appetite for Apple's products throughout the past several years. An Apple TV is poised to capitalize on not only Apple's phenomenal brand culture, but the immense convenience and simplicity an Apple TV would provide to future consumers. The standard bulk packaging of channels is a very outdated method, and makes searching for interesting content unnecessarily difficult. The success of an Apple TV has the potential to dramatically raise analyst estimates for FY12 and FY13 (depending on when it's released).
I'm long Apple stock at today's prices because I believe the impending Apple TV launch will help to further Apple's presence across households in America (and around the world). This will enhance the consumer experience within Apple's tech ecosystem and in turn boost sales of the iPhone and iPad as a result. Apple currently trades at a forward P/E of about 11, that is in line with the overall market's valuation despite the fact that Apple has much higher growth potential.