Apple and the TV industry

The TV industry is a major segment of the consumer electronics industry and Apple is the leading consumer electronics company in the world. Thus far Apple has entered the TV market with a stand-alone device, Apple TV. There has been speculation about whether Apple might enter the TV market by creating an actual TV. The most convincing objections to that idea cite the unfavorable industry structure: the power of the cable operators, the low margins on TVs, the infrequency of people buying new TVs, etc.

I thought it would be interesting to go back and look at the reasoning analysts used to predict the failure of the iPhone before its launch in 2007. Some predicted it would fail because the other handset makers would successfully compete with Apple:

The iPod also conquered the problem of small screens and cheesy navigation. With its newfound popularity, the company was also able to get music publishers to agree to its terms. Unfortunately for Apple, problems like that don’t exist in the handset business. Cell phones aren’t clunky, inadequate devices. Instead, they are pretty good. Really good. Why do you think they call it a Crackberry? Because the lumpy design and confusing interface of the device is causing people to break into cars? No, it’s because people are addicted to it. Samsung has scoured the world’s design schools and hired artists on three continents to keep its phones looking good. Motorola has revived its fortunes with design. KDDI, a Japanese carrier, has a design showcase in the teen shopping area of Tokyo just to be close to trends. And Sharp doesn’t skimp when it comes to putting LCD TVs on its phones. Apple, in other words, won’t be competing against rather doltish, unstylish companies like the old Compaq. The handset companies move pretty quick and put out new models every few weeks. [emphasis added]

Other analysts predicted Apple’s phone was doomed because of the mobile phone industry structure – mobile operators commanded so much power via subsidies, retail distribution etc:

Apple will launch a mobile phone in January, and it will become available during 2007. It will be a lovely bit of kit, a pleasure to behold, and its limited functionality will be easy to access and use. The Apple phone will be exclusive to one of the major networks in each territory and some customers will switch networks just to get it, but not as many as had been hoped. As customers start to realise that the competition offers better functionality at a lower price, by negotiating a better subsidy, sales will stagnate. After a year a new version will be launched, but it will lack the innovation of the first and quickly vanish. The only question remaining is if, when the iPod phone fails, it will take the iPod with it. [emphasis added]

I am not citing these analysts to mock them. Hindsight is 20/20 and it was quite reasonable at the time to assume that a new phone from Apple would confront the same issues that new phones from other companies confronted. What Apple ended up doing, however, was creating a phone that was so incredibly desirable to consumers that it completely restructured the industry, causing a massive shift of power away from the carriers.

Regarding the TV industry, here is what Steve Jobs said last year at AllThingsD:

Q: Is it time to throw out the interface for TV? Does television need a new human interface.

A: The problem with innovation in the TV industry is the go-to-market strategy. The TV industry has a subsidized model that gives everyone a set top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us… ask Google in a few months. The television industry fundamentally has a subsidized business model that gives everyone a set-top box, and that pretty much undermines innovation in the sector. The only way this is going to change is if you start from scratch, tear up the box, redesign and get it to the consumer in a way that they want to buy it. But right now, there’s no way to do that….The TV is going to lose until there’s a viable go-to-market strategy. That’s the fundamental problem with the industry. It’s not a problem with the technology, it’s a problem with the go-to-market strategy….I’m sure smarter people than us will figure this out, but that’s why we say Apple TV is a hobby.

So Jobs doesn’t believe an “additional box” is a viable strategy for seriously entering the TV industry. This leaves three places to enter: 1) integrating into set top boxes, 2) integrating into other TVs, or 3) Apple creating its own TV. Regarding #1, the last thing the cable operators want is for internet-delivered programming that bypasses their cable channels to become widespread – they see that as the fast track to become a dumb pipe. Re #2: This just seems very unlike Apple – the most vertically integrated company in tech, and famous for wanting to control every aspect of the product and user experience.

Re #3, let’s imagine Apple develops a TV that is as groundbreaking as the iPhone was. The biggest problem “smart TVs” have today is that they need clunky IR transmitters to control set top boxes because the cable operators won’t willingly interoperate. So a new Apple TV would have to drum up such incredible consumer demand that the operators would feel compelled to support it. This does indeed seem harder in the TV than in the mobile industry. At least in the US you had 4 nationwide mobile operators at the time of the iPhone launch. In TV, consumers normally have at most two real choices for traditional cable programming – cable and satellite – and two real choices for two-way internet – cable and DSL/FIOS.

Perhaps Apple won’t enter the market due to its structure. But that didn’t stop them in mobile phones where the structure was similarly difficult. The mistake analysts made about the iPhone was to assume the current industry structure would be sustained after Apple’s entry. I’d be wary of making the same assumption about the TV industry.

Anonymous

My feeling is Apple won’t ever ship 720p or 1080p glass. That age has passed. Does Steve Jobs get excited to do ta-da with 1080p glass? Probably not. But the first consumer 2K or 4K TV? Yeah, he probably likes that idea.

A lot has been made of the iPad screen not being 720p. Instead, it is 1K. A Retina iPad (likely with A6) would be 2K, the next standard up from HDTV. Even though 2K is only a little bigger than HDTV, it’s perfectly compatible with scaled-down 4K. 2K is like mini-4K. You just scale the 4K down in an even increment. So the A6-based Apple TV would be a 2K post-HD device. It needs more than an HDTV. An Apple TV with built-in 2K glass makes sense at that point, along with 2K iTunes downloads. Also buying the ITV name makes sense at that point.

Steve Jobs might say that Apple had to do their own glass because everybody else’s glass is too low-res and nerds will howl that 2K is only a little bigger than 1080p while missing the point entirely that it is really an early 4K TV. Then a couple of years later: a 4K iTV with Retina Display and 4K iTunes downloads.

At 3 meters viewing distance, the definition of Retina Display changes. A 20 inch 2K screen or 40 inch 4K screen could still have pixels that are too small for your Retina.

Who else has a content strategy for 2K/4K? For Apple it is just upgrading their SoC’s as usual, upgrading iOS video API’s, and upgrading iTunes Store. They can move much faster than cable, satellite, Blu-Ray.

So I think it’s more little Apple TV set-tops to finish out the HD era, then Apple will really move into the living room in the 2K/4K era.

http://twitter.com/andrewinit Andrew Dodd

Retina TVs are with us already and have been for a few years now. It you do the maths you can’t distinguish pixels on a 40″ 1080p screen from 1.6m away; even a 40″ 720p screen is “retina” from 2.4m away.

I don’t see 4K being a factor in the consumer market at all. If it ever gets launched as a TV standard it’ll probably end up being like Super Audio CD and DVD-Audio, entirely ignored by 99% of the market. The only way I can see this changing is if there is a radical change to how people watch TV (eg. wall size TVs and life size actors)

Apple is obviously focussed on downloadable and streaming content and 720p is a decent compromise given most people’s home bandwidth.

http://twitter.com/doingfor happyMedium

Just for purposes of discussion:

What would be the significant differences between an Apple-branded TV and a 27-inch Imac (besides screen size).

How does integrating the current, easily-upgradable-every-two years-for-only-$99 appleTV into the casing of a once-every-five-years $2000 display improve the user experience at all?

What problem for the consumer does an apple-branded 42-inch display solve?

As I write this a commercial for the horrible samsung smartTV came on. I’d rather have iPad in lap and have the TV just dumbly play shows. Just make it a little easier for me to find what I want to watch and don’t make me pay for the stuff I don’t watch and you win. Doesn’t have to be magical.

I think Pandora or StumbleUpon Video could have a much better opportunity in TV than Apple could.
http://downlinemarketing.info William Tower

I can’t even remember the last time I watched broadcast television. Apple does not need a TV just better AirPlay suport in other devices and more iPad 2 sales!
http://statspotting.com Statspotting

Very good article, Thanks for the post, and the effort in pulling out all those old iPhone links.
http://pulse.yahoo.com/_GB2MGWMCEI3WN7T3ASDVL3A64E Seth E

In looking at the available options to Apple, I don’t think you paid enough attention to this line from Jobs:

“The only way this is going to change is if you start from scratch, tear up the box, redesign and get it to the consumer in a way that they want to buy it. But right now, there’s no way to do that”

Jobs is outlining exactly what he thinks Apple needs to do ie:

- tear up the box;
- redesign; and
- (most critically) get it to the consumer in a way that they want to buy it.

He then foxes by saying that “*right now*, there’s no way to do that”. This is classic Jobs. He did it with the iPhone and the iPad. Now he’s doing it with Apple TV.

So what did Apple do with Apple TV 2? They:

- Tore up the box
- Redesigned it

The only question is whether Apple got “it to the consumer in a way that they want to buy it”. It’s clear, though, that Apple got a lot closer to this goal with Apple TV 2 than they did with Apple TV 1. The next step will be more content/apps and a reduced price with lower component prices.

As to whether Apple will sell actual TV’s, I very much doubt it. Margins are too low and the market is too saturated and relatively mature.

Anonymous

Exactly! HDTVs are very good products. Apple is never going to remake the TV. But the cablebox content distribution is horrible. Nobody cares about channels and programs that they don’t watch.

They sticking with a $100 box for ATV3 and not worrying about profits on the hardware. Jobs wants a large footprint of these boxes, so he can sell more content. Replacement unit sales won’t matter. It is all about a box in every house, since the real money is to be made off of content distribution. It is all about doing deals with the studios right now. The big fights at apple right now are going to be 99 cents per show VS a $20 to $25/mo unlimited streaming option.

Reed Hastings has to be pissed. I expect to see Netflix going for more exclusives and maybe buying an entire network like Showtime.

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Anonymous

People tend to be very parochial when they discuss television. Most of the posts on here relate to the US market, which is very different than a lot of other TV markets. Apple tends to conquer the world, not America. The 2nd Generation AppleTV has flopped outside of the US. Its killer App, Netflix, is only available in North America. Without it, the AppleTV is very limited. That is not an accident, it is deliberate. What will emerge, is an Apple Netflix for the world, like iTunes was the record store for the world. Apple may even buy Netflix, or do one 10 times better.
I see little point in Apple manufacturing large home TVs. The generation the advertisers want are not the ones who never go out and sit infront of the box all night. It is the ones who have an iPod or iPhone in their pocket. They already have a screen and it is with them all of the time. The key to Apple disrupting this market, like they did with music players and phones, is not bigger, it is smaller. A nano Phone/TV getting iDevices into a lot more hands. Ignore 1080 this and HDMI outputs that, the kids are not bothered by such grand specs. It will be a mobileTV platform. There will always be people who will have their 52inch Plasmas. They will be the same people who have their 5 grand HiFis now and do not own an iPod. Apple will not cater for this elitist viewer, they will target the masses. (a home iPad, a mobile light large screen 24 or 36 inch, could happen, but nothing bigger).
Anonymous

“Regarding the TV industry, here is what Steve Jobs said last year at AllThingsD”

There is a big difference between what Steve says and what Steve truly believes.
Steve said this to make it harder for his competition to get the funding and resources to beat him to the punch.

Steve hates TV.
AppleTV is not a hobby, it is his personal quest to change an industry he sees as backwards.
http://sweller.myopenid.com/ Steve Weller

I would not be at all surprised if Apple’s disruptive move into the TV industry occurs via original content. Think how much they could screw the current system by making shows that are consistently excellent. Pixar has already made its mark in cinema.

Instead of curated apps, how about curated shows?
http://profiles.google.com/filip.verhaeghe Filip Verhaeghe

Forth place to enter: gaming console. Apple TV 3 is an iPad 2 in a form factor that can be placed on top of your TV with the FaceTime camera facing the user. The iPad 2 already provides amazing gaming experience, and FaceTime camera is used to provide a Kinect like “controller”. The new data centers allow to sync across devices, so you can surf and email on your TV. Many apps gets ported to the console interface API. Minority Report, but with Apps. The same gaming experience is also provided on the iPad 2/3, which can act as a TV with built-in FaceTime camera.

The Apple TV is purchased as game console, but iTunes provides the means to stream movies and other content. This provides the entry point Apple needs to strong-arm content providers the iPod way.

http://profiles.google.com/filip.verhaeghe Filip Verhaeghe

Sure would love one for business conference calling too.

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Anonymous

I don’t think so – TVs are big ticket items that most consumers expect to last years and that aren’t replaced too much. Instead I expect Apple TV to get better and to integrate with Apple’s laptop’s and i devices more and more. Oh and their allegedly forthcoming cloud (yes I know that Apple TV is an earlier starter in this regard re. its streaming capabilities).
http://www.appmarket.tv Richard Kastelein

The Hobby bcomes a Business? We have heard this before – several times at http://www.appmarket.tv
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http://twitter.com/cimota Matt Johnston

The only issue here is the assumption that ‘television’ is a thing and not a service. The cable networks are getting it. Deliver TV over IP to devices which can be played by the user anywhere in their home. It is essentially the opposite of Google TV. They’ll be able to deliver more content, in unskippable ad segments, to more people with more simultaneous targeting. No sense in sending tampon ads to JimmySmith123 and no sense in marketing high end HDMI cables to JennySmith1974.

Better still – let Jimmy send his video over AirPlay to the 60″ Plasma in the den with his brewskis and let Jenny enjoy SatC in the living room with a rum and coke. And when they change room, the video moves with them.

Remember the cut Apple takes from subscriptions? Apple will be making money off the subscriptions, I think they’re happy.

People have to remember that Apple used to be in the TV business. They built tuners into multiple lines of computers and their remotes were pretty nice too. But even for folk like me, two screens was a better way.
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http://twitter.com/fellowcreative Carl Jeffrey

Great post, thanks Chris. If you’re interested, these are my thoughts:

“…Apple is the leading consumer electronics company in the world” < undoubtedly.

Apple are game changers: sure they provide shiny hardware (like all consumer electronics companies) but Apple is also the leading consumer software company in the world, so all of their electronics run the world's most intuitive user-interface and greatest delivery platform (iTunes/iOS) – this is why they innovate beyond anyone and everyone else… and that's hard to beat, no matter what industry you're in!

With this said, over the past ten years I believe Apple's customer focus and strategy has changed from the 'niche but expensive' Master/Professional *creator* market, to that of the 'mass-production cost-effective' *consumer* – hence a focus on iMovie, not Final Cut Pro (now obsolete compared to Adobe Premiere).

The iPhone 4 provides a 960×640 retina screen, and can record 30fps HDTV at H.264 720p (1280 x 720)
The iPad provides a 1024×768 screen, and is capable of 'scaling' its output to HDTV 1080p (1920 x 1080)

As long as the home television market is fixed upon DVD (720×480), BlueRay (1920 x 1080) and what it likes to think of as 'high definition and Full HD' then I believe Apple are more than capable of changing the industry (and the entire game) but I believe it will be their delivery platform that makes it happen – just like Hulu, Netflix, YouTube etc. will no doubt try in one way or another.

I think the future game-changer for TV and Film will have their sights set firmly on 4k (4096×2160) and above (with additional social/real-time/live/life integration). The distribution speed (cable/fibre-optic/wireless/3G/4G) is the current bottle-neck to such content delivery. The market can and will be changed if the 'quality and quantity' can be increased, the file size reduced, or a new delivery method found – and Apple certainly have this in their sights – I look forward to watching it play out.

In the long-term, and with much anticipation and excitement, I'm keeping my eye on an organization not mentioned anywhere in this post… I have a sneaky suspicion that we'll all be looking back in the year 2018, talking about how a little-known man called Jim Jannard changed the entire format of 21st Century TV, Film, Entertainment and 'consumer electronics'. See: http://en.wikipedia.org/wiki/File:28k_RED_CAMERA.svg

Anonymous

I believe you just answered your own question …

IF
“…Apple is the leading consumer electronics company in the world” < undoubtedly.
AND
"Apple's customer focus and strategy has changed from the 'niche but expensive' Master/Professional *creator* market, to that of the 'mass-production cost-effective' *consumer*"
THEN
"future game-changer for TV and Film" = Apple doing cost-effective mass-production
Anonymous

I believe you just answered your own question …

IF
“…Apple is the leading consumer electronics company in the world” < undoubtedly.
AND
"Apple's customer focus and strategy has changed from the 'niche but expensive' Master/Professional *creator* market, to that of the 'mass-production cost-effective' *consumer*"
THEN
"future game-changer for TV and Film" = Apple doing cost-effective mass-production

http://www.facebook.com/people/Luis-Manuel-Dias/100001545278981 Luís Manuel Dias

People do not expect to buy a new TV every 3 years. They expect their TV to last 10 years. This is why Apple TV will never happen.

kibbles

and yet, people upgraded from flat panels to 720, to 1080, to slim frames, to 3D… and when the new tech comes out that trumps current tech, they will do it again.

nobody keeps a 10-year tube anymore. id be amazed if your set even lasts 10 years.

try 5 years.

http://www.bijansabet.com bijan

the current TV landscape has been broken for so long – ads that no one watches, awful set top boxes, forced subscriptions bundled into content we don’t watch, crazy content windows and ugly displays with poor UI, insane remote controls, confusing hardware wires and configuration for users….the list goes on.

someone needs to change this picture.
http://www.cognation.net deancollins

Chris, not sure they can pull it off but agree regarding new interface being long overdue.
At the end of the day though http://www.LiveFanChat.com will still be there to support whatever changes are developed.
Anonymous

Great article and you may not be wrong, but unless I misunderstand, I don’t see how Steve Jobs’ comments on television have any bearing on whether Apple will build a TV or not.

When he says that every TV already comes with a “subsidised box” I take that as him referring to the standard cable/ADSL box that everyone has as a starting point. An Apple TV set then, is only viable when we can “rip up” the cable TV box. When what is offered as an alternative is so good that people are willing to forget about cable TV, and also when the cable/phone operators are willing to provide Internet pipes without necessarily requiring the consumer to buy cable TV channels as part of the package.

He’s essentially talking about how the industry is monopolised and controlled and how the people in control of the pipes he needs to use are blocking any other content but their own. The key to breaking open this monopoly is “what is offered” (offering something different from the usual cable dreck), but then you run right into another monopoly, that of the production companies and networks themselves who have an intricate world-wide network of back slapping and pay-offs to ensure that everyone gets paid many times over for their stuff and that there are barriers to distribution and licensing everywhere.

Eliminating the arbitrary media distribution barriers between *countries* would probably break it all open, but I don’t see any of this as having much to do with a design of an Apple branded TV set.

Integrating the Apple TV hardware into TV sets so that a portion of the consumer base regularly prefers getting their content from the Internet instead of from cable could conceivably push the concept of getting a big dumb pipe in the house, but building a TV set wouldn’t help AFAICS.
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http://profiles.google.com/cameron.palmer Cameron Lowell Palmer

Apple has already placed itself with Apple TV 2 to destroy the concept of traditional TV. I would imagine the next step would be to provide subscription-based ‘TV Channels’ or ‘Packages’ for on-demand viewing. However, content providers like HBO, Showtime, Fox, NBC, don’t want on-demand TV because it would gut their businesses, probably overnight. That is why we still buy individual episodes, and they are rarely released in realtime. If a player was going to make the leap of faith to Apple TV it would probably be HBO or Showtime premium channels, but the advertising driven channels aren’t going to make the jump without someone holding a gun to their collective head.
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Anonymous

i think apps will be Apple’s answer to the “go to market” dilemma. the MLB app for Apple TV shows the future. it is better than anything CATV can offer baseball fans via mere channels. you can buy the service a la carte, and one month at a time. combined with a unique web data base. next will be a Hulu app, an MTV app, and then network apps. and so on. apps will = channels. you only subscribe to the ones you want, not an expensive bundle like CATV ( or buy an album to get one or two songs you want, like the music industry forced us to do before iTunes).

even with the Remote app for iOS, the UI is still clumsy tho. but Apple can certainly improve Remote, and it bet it will.

and Apple would be smart to license Apple TV to select HDTV OEM’s that aren’t trying to create their own ecosystem to compete with Apple (Sony, Samsung), like Vizio. so it’s built right in to the TV with no separate STB and has a unified UI with the TV. i don’t see Apple selling its own brand of TV.
http://www.facebook.com/profile.php?id=692271649 Luis Eduardo Gutierrez

There are a lot of advantages to such an enormous screen. I think it would be something similar to a TV with XBOX Kinect already integrated. Facetime and others would be amazing!
http://www.facebook.com/VertexFitness Dwayne Wimmer

I am looking forward to Apple getting into the TV business, they could revolutionize it like they did with the cell phone business.
Anonymous

They need their own Apple Satellite to beam programming across the country. This sidesteps all the incumbent infrastructure. Bundle their own content and deliver to their own hardware.
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Anonymous

What sucks about the TV?

Too many cords, too bulky, terrible remote(s), separate set top box, doesn’t do internet, separate media players, surround sound a hassle…

So here imho is the Apple Air Cinema…

First the pieces:
(1) a box that takes cable/internet input(s) from wall, broadcasts wirelessly;
(2) a lightweight screen that scales dramatically (say 33 to 100 inches);
(3) a hybrid laser/LED projector with receiver;
(4) remote/controller – a slimmer monochrome ipod touch;
(5) smart surround sound speakers.

No work to set up, easy to use, totally portable, supports multiple users at the same time, multiple upgrade paths.

Prices start at $599, comes in 5 colors. The Apple Store is taking orders now, we’re shipping in 2-3 weeks.
http://twitter.com/clintgunter Clint Gunter

An Apple TV Set could be great. My take on it: http://www.clintgunter.com/post/4735145097/a-tv-for-your-mom
Fanfoot

Nice article Chris, points well made.

Still think its unlikely. Margins, replacement cycle, etc.

Today most of us get our TV via either cable or satellite. Sure < 10% get it over the air, but lets ignore those people. They're not affluent Apple-loving types anyway probably. And there's not enough of them. So Apple went with a co-existence strategy, they'd have to deal with those providers–either your TV is just a dumb display for the cable/satellite co's STB, or you integrate. And by dumb display I mean that the remote that comes with your TV goes in a drawer and is never seen again. If you integrate you've got problems. Cablecards have killed off everyone but Tivo and they're teetering on the edge. Satellite doesn't allow you to integrate. AT&T doesn't either. So integrating doesn't look so good. Sure if the FCC moves decisively in 2012 to push AllVid forward they might have a shot, but I don't think they will, and that's 2012 not now. Meaning 2012 + much delay would be the earliest Apple could possibly move.

So, forget co-existence. You'd have to go with replacement. Meaning convince people to give up their cable or satellite provider and just live over the top. And buy a TV based on that promise. A TV that they're going to keep for 10 years. 10 years is a long time on the internet for a hardware device to remain relevant. Will people take that bet? Regardless of the economics?

Is Apple going to offer all the content people are used to? Including say Football (exclusive deals) and the Olympics (exclusive deals) and all those cable channels that you can't watch on the internet because they're funded by the fees cable/satellite pay them every month, and and and …

I don't think so.

I have an Apple TV. I like my Apple TV. If they could just get HDMI CEC to work so it would switch inputs on my TV automatically more people might actually use one. Offer apps. Develop the market over time. Then make the move. Then. Not now.
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http://twitter.com/luforfor Luigi Forlai

I think that Apple to penetrate the Tv Market as to take account of a major difference between the Mobile Market and the Tv Market: the content production cost and the DIRECTION of the money flow in the TV Market.

In the Mobile Market once you offer the the customer the device (the IPhone) the CONTENT COST that is delivered through the device is ZERO or is PREPAID over other markets (the Internet):
- free (the voice),
- USG (you tube videos etc) or
- prexisting over the Internet.

In otehr words: there is no need to create specific content for the IPhone

On the TV Market the content cost are relevant and cannot be incurred by Users because they are to overwheming fo them therefore the Content Aggregators have a leverage that they do not have on the Mobile Market. Even there simpler Tv Program (a reality show) cost hundreds thousands dollars.

Because the Content Cost are so relevant, Content Aggregators (Studio or Tv Network or Cable Network) ANTICIPATE to Content Producers ALL or GREAT PART of Costs. The money flow goes from the Content Aggregators to the Content Producers where in great part of Internet the Content Producers take the Cost and Risk on themselves.

Apple if wants to enter the market probably has to build a great TV Product and sign agreements that gives Content Producers ANTICIPATION of money.
Mike Machado

Really simple. Apple TV slot in every TV. Most TV manufacturers and retail outlets bundle. Apple adds another 20-200M endpoints for VOD, games and subscription content. They will make it happen.
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Chris Dixon

Apple and the TV industry