Apple (AAPL) will update its Apple TV set-top box to make it less crappy.
That’s the gist of what Piper Jaffray analyst Gene Munster predicts in a note today. Munster thinks Apple will update its Apple TV software and potentially its hardware in the near-term, possibly including:
- An iTunes TV subscription service around $30-40 per month, which would permit all-you-can-eat access to Apple’s TV show library.
- New hardware with a live TV signal and DVR.
It’s interesting to suppose that Apple might someday try to compete with cable TV via a subscription service. But here, Apple can’t go it alone. The iTunes library of day-old shows do not make a compelling TV replacement by themselves, just like Hulu or Netflix don’t make compelling TV replacements by themselves. (That’s if Apple’s content partners — which still get much more revenue from cable providers than the Internet — even let Apple sell their shows that way.)
We do think there is a market for a device that someone can connect to their TV to watch all the video on the Web — or at least as much as possible — even for a monthly fee. But for Apple TV to become a real cable replacement, Apple will also need to integrate as much third-party Web video as possible, such as live CNN.com streaming, ESPN 360, Major League Baseball’s MLB.TV, etc.
This is technically possible, either if Apple creates an App Store for Apple TV the same way as it has for the iPhone and iPod touch, or if Apple negotiates to pay the content companies per-subscriber monthly fees the way cable companies do. But is Apple ready to do that? (And will the TV content business — not yet in too much trouble — trust Apple with anything, given what it did to the music industry?)
What’s the point of all this?
This is obviously a small market now, but in theory, it could grow larger as people watch more Internet video in general and want to watch more on their living room TVs. The good news is that Apple can take its time to get it right, the way it did with the iPhone in the smartphone market. This is a tiny, niche field for now, and the existing competition — Roku boxes, Xboxes, etc. — don’t have a giant lead.
Longer term, Munster thinks Apple could even sell actual TVs that run awesome Apple software, instead of forcing people to find room for another set-top box. Yes, that is a terrible business right now, he admits, but only “if you don’t change the rules of the game.” With high-end hardware and software, he argues that Apple could offer enough of a premium product to justify a very high price (and likely better margins).
Meanwhile, Munster predicts Apple will sell 6.6 million Apple TV set-top boxes this year, up from an estimated 2.1 million last year, with each additional 1 million units generating $0.03 in EPS for the company.
But that seems like a stretch. We have a very hard time believing that Apple will really sell 6.6 million Apple TVs this year — half as many Macs as Munster thinks Apple will sell — unless the company unveils significant new features or pricing at its iTunes event next month.
The two Apple TV units — at $229 and $329 — are currently the nos. 711 and 791 best-selling electronics at Amazon.com. Pathetic. And in our experience, the Apple TV displays in Apple retail stores are always tucked away in the corner, as if they’re only there because they have to be.
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