In light of Steve Jobs' comments to Walter Isaacson in his new biography, it's pretty clear that Apple has a TV in the works. Although the company has already has its Apple TV streaming box (the "hockey puck"), Jobs said he wanted to re-invent the TV itself with a new, simple user interface. He even told Isaacson that he had finally "cracked" it.
So there we have it: Apple is working on a TV. But "working on" and "bringing to market" are two different things entirely. Apple is no doubt "working on" a lot of things in its Cupertino skunkworks, many of them never to be seen by a single customer. Whatever Apple may have cooked up, there are realities of the TV market that the company must overcome before any Apple-branded television even has a chance at success.
1. It's hard to make money selling TVs.
The TV business isn't like the other businesses Apple is in. Smartphones and tablets produce healthy profits for Apple, with beefy margins. After all, an iPhone 4S costs less than $200 to produce, according to teardowns, but Apple sells them to carriers for much more (the "low" price you end up paying is subsidized by the carriers for those lucrative two-year contracts). The iPad has been aggressively priced from the get-go, but since Apple sells them mainly through its own retail chain it can keep the price low while still making money on every sale. Even Mac sales are growing at a healthy pace, with Apple's last earnings report showing the 22nd consecutive quarter the Mac has actually beat the overall PC market.
The TV business isn't like the other businesses Apple is in. Smartphones and tablets produce healthy profits for Apple, with beefy margins. After all, an iPhone 4S costs less than $200 to produce, according to teardowns, but Apple sells them to carriers for much more (the "low" price you end up paying is subsidized by the carriers for those lucrative two-year contracts). The iPad has been aggressively priced from the get-go, but since Apple sells them mainly through its own retail chain it can keep the price low while still making money on every sale. Even Mac sales are growing at a healthy pace, with Apple's last earnings report showing the 22nd consecutive quarter the Mac has actually beat the overall PC market.
All of those markets are healthy, profitable, and growing. The TV market is the opposite. Both Sony and LG are showing big drops in consumer-electronics income in their recent financial filings, and Sony directly attributes this to "a decrease in LCD television revenue... resulting mainly from a deterioration in market conditions in the U.S. and Europe...." The Consumer Electronics Association agrees: its own statistics have seen the overall size of the TV market drop from a peak of 34.8 million units sold in 2009 to a projected 32.6 million in 2012. On top of that, prices are in free-fall: In 2007 the average screen sold for $982; this year it's $545. Apple's brand is powerful, but is it strong enough to convince people to pay more for TVs while the market's pressuring everyone else to go cheaper?
2. People don't buy TVs that often.
The "deterioration" in market conditions in the U.S. and Europe has a lot to do with world economies, but there's also another factor at work: People simply don't buy TVs that often. Consumers typically upgrade about once a decade, and if you look at the actual product lifetimes of displays, even that's way too early. Over the last 10 years, the U.S. has pretty much fully adopted digital television—the CEA clocks the current HDTV penetration rate at 87 percent. That means everybody who was going to buy an HD set already has.
The "deterioration" in market conditions in the U.S. and Europe has a lot to do with world economies, but there's also another factor at work: People simply don't buy TVs that often. Consumers typically upgrade about once a decade, and if you look at the actual product lifetimes of displays, even that's way too early. Over the last 10 years, the U.S. has pretty much fully adopted digital television—the CEA clocks the current HDTV penetration rate at 87 percent. That means everybody who was going to buy an HD set already has.
Such a market requires a completely different approach than the one for iPhones, where a huge number of users see no issue in upgrading year after year, or even Macs, which start to feel long in tooth just a couple of years after purchase. Either Apple will have to adapt its product strategy to the long game of selling TVs—Apple's set can't become obsolete too quickly—or it'll have to accelerate the upgrade cycle of TVs through sheer force of will/brand.
3. Apple isn't set up to sell big TVs.
To paraphrase the late Douglas Adams, TVs are big. Really big. You just won't believe how vastly, hugely, mindbogglingly big they are. Okay, they're not trucks, but they're large in comparison to the phones, tablets, computers, and monitors that Apple sells. As much as TVs have gotten slim and trim over the past decade, their screens have expanded massively. The physical size of TVs today actually presents a number of sub-challenges for Apple, some of them, uh, big:
To paraphrase the late Douglas Adams, TVs are big. Really big. You just won't believe how vastly, hugely, mindbogglingly big they are. Okay, they're not trucks, but they're large in comparison to the phones, tablets, computers, and monitors that Apple sells. As much as TVs have gotten slim and trim over the past decade, their screens have expanded massively. The physical size of TVs today actually presents a number of sub-challenges for Apple, some of them, uh, big:
First, where will they go in Apple Stores? Making room for a bunch of displays will cut into a sizable portion of Apple Store real estate, and many of the major hubs—San Francisco's Market Street, New York's Soho and upcoming Grand Central stores among them—don't have room to expand. On top of that, they fly in the face of Apple Store aesthetics: an array of big screens of various sizes just feels way too Best Buy and not Apple at all.
Speaking of Apple Stores, if a customer has a problem with an Apple TV, what are they supposed to do? A 50-inch screen is a difficult thing to lug up to the Genius Bar. Apple would need to create an on-call network of service technicians or something akin to Best Buy's Geek Squad to give a TV the level of customer service that people expect from the company.
Finally, what sizes should Apple sell? Small-size screens (less than 40 inches) don't interest U.S. customers that much, but it'll need something in that range to appeal to overseas markets such as Europe and Japan. On the other side, larger sizes play well here but exacerbate issues with manufacturing, delivery, and servicing. In any case, Apple's typical "one size fits all" product strategy won't serve it well in the TV market.
4. There are supplier issues.
Over the past 10 years, the manufacturing of large-size LCD panels has slowly consolidated to just a few major players. It takes billions to build and maintain an LCD factory, and even though Apple has billions to burn, it just spent a decade getting out of the nuts-and-bolts business of manufacturing. This puts Apple in the position of making supply deals with its competitors (LG, Samsung, Sharp, etc.).
Over the past 10 years, the manufacturing of large-size LCD panels has slowly consolidated to just a few major players. It takes billions to build and maintain an LCD factory, and even though Apple has billions to burn, it just spent a decade getting out of the nuts-and-bolts business of manufacturing. This puts Apple in the position of making supply deals with its competitors (LG, Samsung, Sharp, etc.).
Of course, others (like Vizio) make those deals, too, so Apple could certainly work something out, though it's not going to be able to exert the same kind of iron-fisted control over an LG as it does over a Foxconn. The ultra-tight supply chain advantages that Tim Cook so famously worked out for Apple over the last 12 years probably won't translate so well over to the TV market.
5. Customers don't care about smart TVs
Then there's the simple, uncomfortable fact that virtually every major TV manufacturer has already brought to market connected TVs, and they've made about as much noise as a baby mouse. Yes, the so-called "smart" interfaces are almost always terrible, and there's lots of room for Apple to innovate here. But is it really an implementation problem or one of consumer habits? TV watchers have been trained to get their shows and movies from cable/satellite companies and to a lesser extent over the air. Services like Netflix and Hulu are making inroads, but it's slow going—watching directly on computer is by far the most popular way people use them.
Then there's the simple, uncomfortable fact that virtually every major TV manufacturer has already brought to market connected TVs, and they've made about as much noise as a baby mouse. Yes, the so-called "smart" interfaces are almost always terrible, and there's lots of room for Apple to innovate here. But is it really an implementation problem or one of consumer habits? TV watchers have been trained to get their shows and movies from cable/satellite companies and to a lesser extent over the air. Services like Netflix and Hulu are making inroads, but it's slow going—watching directly on computer is by far the most popular way people use them.
Despite all the issues, Apple appears to be pushing forward on making a television, and perhaps it should. Although there are many challenges, only some of which I've outlined here, the ultimate goal of taking over consumers' living rooms is probably worth the cost. One thing is certain, though: Apple can't enter the TV market with the same lackadaisical approach it had with its set-top box. Getting into the TV business is anything but a "hobby."
Apple TV (2010) : Apple TV, Remote & HDTV
The Apple TV now offers TV show rentals for just $.99, and can be streamed via Wi-Fi.
Apple TV (2010) : Full Set
The box is significantly smaller than the previous model (about a quarter of the size), and still comes with a very basic remote.
Apple TV (2010) : Apple TV
Apple TV didn't get a name change to iTV, but it did get a full overhaul inside and out and a new low $99 price.
Apple TV (2010) : Back
On the back of the device are HDMI, Ethernet, Optical Audio Out, and Micro-USB ports. And there's 802.11n inside.
Apple TV (2010) : Remote
The tiny white remote has been replaced with an also-small aluminum one with black buttons—the same remote currently shipping with iMacs.
Apple TV (2010) : Menu
We were able to smoothly stream content both from Netflix and a computer on the network—content started playing quickly, and skipping ahead was easy to do even after playing a movie for only a few seconds.
Apple TV (2010) : Netflix
The Apple TV interface looks similar, but now you can stream Netflix Watch Instantly titles.
Apple TV (2010) : TV Genres
The Apple TV has a new interface and content model that eschews built-in storage, and instead focuses on movie and TV show rentals.
Apple TV (2010) : Size Comparison (New Apple TV--Right)
Losing that hard drive means the Apple TV can be considerably smaller—about 75 percent, in fact—than its predecessor.
Apple TV (2010) : Size Comparison (New Apple TV--Top)
Measuring 0.9 by 3.9 by 3.9 inches (HWD) and weighing less-than 10 ounces, the Apple TV is basically a tiny black box with connections on the back and the Apple TV logo on its top panel.
Apple TV (2010) : Ports Compared (New Apple TV - Top)
The connections on the back are, like the box's design, minimal: an HDMI video and audio output, an Optical audio output, a micro-USB port (for "service and support"), an Ethernet port, and the cable connection for the built-in six-watt power supply.
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