Why an iTV is the Wrong Move for Apple - You'll likely never see a full-sized Apple TV- For good reason

The string of remarkable successes of innovative and market defining products, the iMac, the iPod, the iPhone, the iPad, will not include an Apple branded television set. All of these either created a market niche or redefined an entire product category. The iPod gave us something we didnt know we wanted and the iPhone gave us exactly what we knew we wanted but couldnt figure out ourselves. In each case, Apple made a product that addressed a hole in the market, filling a need that consumers ravenously bought. A television set would fill no market gap, or drive purchases of digital media.

Apple also has a history of making changes in their product lines that radically shifts industry standards. While not every product they bring to market has the same impact as the iPod and iPhone, most famously their Newton PDA and the QuickTake camera, Apple was the first to bring a CD-Rom and laser printer to market. Apple is often the first company to drop technology like they did with the SCSI interface much to the dismay of people who had thousands invested in peripherals. Apple focuses on making their products more simple and elegant to use regardless of the immediate popularity of the changes.

Apple also ignores adding sensible features and devices without explaining why. Steve Jobs famously opposed adding any sort of Blue-ray DVD player to the Macintosh line-up. There were a few that could be purchased as third party peripherals, but none straight from Apple, which, in retrospect, makes complete sense. Apple was creating the means to deliver content without all that bothersome media. Apple singlehandedly redefined the music industry with iTunes becoming the largest deliverer of musical content for several years and making physical media irrelevant to the masses unless you are Jack White, Neil Young- or a Vinyl enthusiast like you and I.

At one time, Apple would never consider products designed outside of their own walls. That changed with the acquisition of SoundJam which Apple morphed into iTunes. With a single acquisition, Apple made digital content delivery a massive revenue stream for the company making 5 cents from every song downloaded. By adding television shows and movies to iTunes, Apple simply leveraged their pre-existing infrastructure without having to build new devices. They added to what they can sell us.

Content delivery has become the revenue stream companies pursue. The mega-mergers of communications titans like Comcast and Time Warner would consolidate the means of delivery for a generation and make the company gargantuan sums of money. ATT and DirectTV are trying to merge for similar reasons. Those companies have huge investments in the communications infrastructure we all use. Apple is not going spend its war chest building a competing infrastructure. It will build devices that utilize those mechanisms without having to worry about maintaining the networks. Thank you very much, AT&T, et al. Apple just bought Beats Music and Electronics. Certainly not for the universally panned headphones, but for the online music service which is succeeding with subscribers where Apple’s own iRadio is performing far below expectations. Perhaps the most telling is the announcement of HBO Now to open the Spring 2015 Keynote. Consumers can now cut the cord with the bloated and, as anyone can tell you that’s spoken with customer service at Comcast, often infuriating services of Cable Television. HBO has found the cajones to break the ties of exclusivity with big cable and give the people what they are looking for- pay only for what they want to watch. While it’s at it, why not take of advantage of Net Neutrality and distribute this content via cable internet to Apple TV’s user-friendly, now even more economical $69 Apple TV? Brilliant. Now I know why HBO and Apple were so buddy-buddy on stage.

Sony is spinning off its television arm into a wholly owned subsidiary to staunch the losses it incurs. Even the venerable Royal Philips, founded in 1891, has divested itself of a once lucrative television brand, settling for a royalty for the use of its name. Given the speed the TV industry has gone from 780p to rolling out 4K and 8k televisions it doesn’t make sense for Apple to sell a screen where the margins are so slim and the cost of entry so high. There is no space in the market for a single purpose device like an Apple branded TV screen. They will let other companies take the hit for the capital investments needed to retool and build screens. Apple can add channels and content providers to their little black box with software updates. Again, no need to build something new. The consumer doesn’t have to choose between splurging on a fantastic new television with all the bells and whistles and Apple’s products. The Apple TV can already be used any screen, is inexpensive enough to buy on impulse and can be replaced without a huge investment on the consumer’s part when it does become obsolete.

Back in 2003, Dell Computers began selling televisions, and then stopped in 2008, Acer 2001 to 2009. Sony tumbled from the pinnacle of the CRT TV throne when it found itself without manufacturing facilities to build flatscreen LCD TVs. Sony has yet to fully recover from that near fatal misstep. Apple has few manufacturing plants of its own famously sourcing screens for the iconic iPhone from its biggest rival, Samsung. Even with over $150 billion in their war chest, it would be a sizable chunk to drop on building, or more likely, acquiring a facility to build television sets.

The typical profit margin on LED televisions hovers around 10% - 20% while a 64GB iPhone 5s costs about $199 to build for which Apple charges the premium of $849. That’s a much larger profit margin than on a TV set. Apple’s cost to make that little $99 AppleTV box was about $64 in 2010. So it’s probably lower by now. Even so, that is much more inline with the television set market without all the fuss about screen sizes and resolutions. Apple just makes the device to drive the images. Its revenue stream comes from what people do with those devices. Apple would rather make 5 cents from every movie and television show downloaded via iTunes than sell an Apple branded TV set. The margins on the TV set would be razor thin given the cost of manufacturing and would not deliver anything different from what Apple already has in its stable of products in one form or another. Unless Apple could technologically leapfrog far enough ahead of its rivals to utterly control the industry, it will continue to make connectable devices that utilize the latest and greatest the consumer has already purchased. Apple is reducing the number of unique items it makes in order to maximize the return of investment of building products. The 27 inch Thunderbolt display Apple sells is the same monitor built into iMacs. On the Apple Store the only other monitor for sale is a Sharp branded 4K monitor.

Apple would much rather sell you a small, rather unobtrusive box to connect to any single purpose TV (with an HDMI port), computer monitor, or projector. Inside the little Apple TV are some pretty potent guts designed to deliver content to the consumer. Connected to an existing Ethernet network or WiFi to stream HD content without dropping a frame an AppleTV delivers movies purchased or rented from iTunes immediately upon purchase. It will stream your music library from iCloud to any AirPLay connected devices. Netflix, Hulu+, ABC, ESPN, and dozens of other content providers are available on AppleTV as well. All available on whatever television you already own for $69.00. And each and every transaction puts a few more coins in Apple’s wallet without Apple doing anything other than shuffling code.

Let’s not forget Apple already built a Macintosh TV. All the way back in 1993, it was a slightly improved Performa 500 that could play cable TV on the built-in Sony Trinitron. (How’s that for irony?) Not being Apple’s best selling product ever, it was only manufactured from October 1993 to February 1994. After ousting Jobs and stumbling through the ‘90s on the Apple Deathwatch, Apple has risen to become the on-and-off-again most valuable corporation on the plant. If they learned nothing else from the Bad Old Days it is make elegant and efficient products. Consumers will pay a premium for quality.

Buy the Apple TV, take the included white Apple logo stickers and put one on the screen you already have. That’s as close to a branded TV set as Apple will ever get.

TAGS: Apple | Apple iTV | Apple TV | Audio Den | HBO Now |

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