Apple TV – In or Out of TV?

Matt McNally – January 2013

Matt B&W Photo V1_116x124pxOver the last week,  Decipher have been plotting out what we see as the key dates and events for 2013 – Channel 4 appearing on Sky OD; launches of new mobile devices; the appearance of the new BT Sport channel, and so on. One of the events which has caused the most discussion and debate – and has been doing so for the last few years – is the possible launch of the much-rumoured (but never confirmed) new type of Apple TV. Will it launch? If so, when? And what will it be like?

Broadly there appear to be two areas of innovation for Apple in the TV arena – an upgrade on their already-existing external Apple TV (increasingly called ‘puck’ due to its small size and likeness to an ice hocky puck), or the launch of an actual TV screen with or without a branded hardware partner. Decipher believe that the idea of Apple having an actual TV screen is the far more exciting option for consumers and will probably be necessary to give Apple the scale it needs in TV, but it is worth spending a little bit of time on the options Apple have in terms of developing the puck.

The Next Generation ‘Puck’

While producing a screen is a seductive idea, creating a new version of the existing Apple TV box may be a simpler route to market.  There are two potential approaches to this.  Firstly, a major improvement would be opening up the Apple TV development environment, and the integration of a TV app store, as they have done with phones and tablets.  This would see a steep change in its consumer appeal, even without streaming live TV channels.  It’s a major improvement which many people – us included – have been crying out for. We have been pretty underwhelmed by the existing Apple TV (barring the Mirroring function which lets us throw video and apps on our iPads up onto the TV screen).

An environment which is open to third party development leaves the door ajar for domestic Platforms – such as Sky and Virgin in the UK, and broadcasters/ content rights holders – such as ITV player and LoveFilm –  to place apps on the device. This could lead to the puck being used as a way to have a pretty impressive multi-room content offering. A family could have a Sky box in the main room and an Apple TV in the bedroom with Sky Go and Netflix apps, not to mention the vast amount of content available through iTunes. All this without having to spend a couple of grand on a Smart TV which will most likely be out of date in 12 months. The question here, we imagine, is whether Apple are happy to have direct competitors sitting alongside iTunes on the consumer’s puck – although there are already 3rd party video apps like YouTube and Major League Baseball.

On a bigger scale Apple could launch a much bigger ‘puck’,  or even a full set top box with broadcast tuners, an EPG, a PVR and iTunes.  This would then compete against existing set top boxes and be a particularly strong competitor for Freeview and YouView.  The benefit of keeping their innovations in a separate box is that they would be immediately usable by anyone with a TV screen. The box could sit, like an iPad, on the home network and operate as one of the emerging generation of TV centric home media servers.

An Apple TV Screen?

The exciting  option would be for them to produce an actual TV screen. Once again, there are a couple of forms which this could take. One option would be for Apple to partner with an existing manufacturer who would build the hardware, with Apple providing the operating system. This approach would most likely work best with a manufacturer who does not already have an established Smart TV presence. Sharp, for example,  have a weak ‘smart’ strategy and don’t have a competitive Smartphone business (as Samsung do).  However this would fly in the face of the usual Apple modus operandi of controlling the entire product process, including having control of the hardware. It seems strange to imagine Apple moving from beautifully designed pieces of uniquely branded hardware, to sticking an Apple operating system into another manufacturer’s TV –  but it would give them scale and reach.

Given Apple’s historical desire to be in charge of its own destiny, many believe that it is far more likely that they will develop and launch their own Smart TV. This would – one would expect – be a beautifully designed, premium piece of hardware, with an interface which both complements and builds on the existing iPhone and iPad environments. Given the amount of people who will buy any and every Apple product which they can get their hands on, there seems little doubt that if Apple were to choose this option then the product would sell.

However, there are caveats here too. The most obvious is that Apple like high-margin products where they can make a significant profit on every unit sold. This is a far cry from the low-margin world of TV manufacturers, and raises the question of whether Apple would want to compete in this area at all.

Conclusions

Market analysts clearly see the need for Apple to claim a place in the living room if it is to be a credible player in the converged media world. So the impetus for them to do something is strong. There is a question of where they can find competitive advantage in screens, outside of their adoring and loyal fan base. Unless they pull a user interface rabbit out of the hat, like they did with iPhone, its not clear what they could exploit in TV to make the venture, whether STB or screen, worthwhile?

However, that advantage may be delivered by the impending leap to 4K or Ultra HD. An excellent recent article by David Morgenstern at Zdnet makes the case that as Apple have already made their most recent iPads and iPhones compliant with the new standard needed to deliver 4K, and as they also have iTunes as an ideal content delivery system to provide 4K video, they may look to produce a 4K-Ready TV through which consumers can access Ultra HD content from the iTunes Store.

All in all, there is unsurprisingly no definite answer on what Apple will do this year, but as discussed above,  they have four options: opening up the puck to third party developers; radically overhauling the puck to bring it far closer to a STB; licencing their software to screen manufacturers  or producing their own TV screen.  Which one they pick is open to debate, and it is possible that they could do all of them.  No matter what their choice it is sure to be very interesting, and we look forward to following developments closely as the year progresses.

Matt McNally


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