We want to discuss Apple’s recent product history and what those products meant to those end markets and to consumers and then continue into a discussion on the TV market and what an iTV might be and mean.

iPod

What did Apple really do for the music and computer industries considering the conversion of music to MP3 and the acquisition of music both legally and more importantly illegally was already well underway?

Apple did 4 things: 1) made it legal and priced attractive 2) pushed the emotion of endlessly portable music (already a feature but advertised it); 3)  connected hardware and software automatically (huge for mass market); 4) made an elegant, differentiated device that was “cool.”

Was the ipod itself transformative?  No, the device was distinctly better, but nothing revolutionary.  Was selling MP3s big? Not really, selling them securely was. The big volumes came when iTunes was launched for Windows.  The transformative aspect was the seamless marriage of iTunes + iPod – digital ferrymen for the masses.

iPhone

Was the iPhone a revolution?  Yes, it changed the smartphone.  It added full touch screen capabilities and a web browser experience was similar to desktop.  The biggest changes to the iPhone vs other smartphones were 1) the design and GUI; 2) web browsing; 3) apps.  So the combination of apps and browsing took something that was “cool” and made it necessary.

iPad

Was the iPad transformative? Yes, tablets were not new, but tablets the way we use iPad was new.  A different more visceral and intuitive experience combined with Apples app and iTunes markets.  It altered our perception about what is computing vs consumption.  What do I want / need in my device.  It replaced or supplemented other content mediums.

The iPad, in addition to its role to replace traditional mouse and keyboard type operations for web surfing, light messaging etc. also opened up and entirely new, more visceral experience for gaming and multi media apps.  Lastly, form and function can be applied in the enterprise where countless custom apps are being designed to allow sales people, pilots, warehouses to utilize the mobile devices.

What will the Apple TV be? 

Lets start with what TV is…

Traditionally it is an entertainment medium for TV shows, movies and news transmitted in a broadcast fashion utilizing specified time schedules for content.  The method or setting for consumption is traditionally the family room, bedroom or other location in the home.   TV is a selected passive medium.  You are almost always seated or reclining with a method of selecting the specific broadcast (or “surfing” from one to the next), but there is zero engagement after selection.

Modern features like the DVR and VOD have altered certain behaviors.  The most important aspect is time-shifting.  Consumers are no-longer required to consume on a schedule, the DVR allows selective recording with playback at anytime, while the VoD service allows you to search a catalog  of content (catalog currently limited in size, but expanding).  The consumption still takes place in the home or living room, but is “improved” by the increased customization options.  Live TV, like sports and certain voting shows still command audiences.

Most recently, mobile and tablet devices are being used (much more than laptops ever were) for consuming both in the home and on the go.  The service to enable this is fair, but needs improvement.  Thus, TV now resembles a hybrid of models.  We are still reliant on the broadcast for live TV and for the distribution of content for the DVR service. VoD catalogs are improving but still exist within the overall broadcast service and thus have limits.  Typical consumption packages are bundles of TV + Internet (or TV + Internet + Phone).  Additional services like DVR and special VOD are extra.  Channel selection is wonderful for tail content and discovery, but is largely wasted on the masses.   Future interactivity in terms of social and potentially commercial is in the works but not yet deployed to the masses.

In addition, the conditioning of consumer by the  DVR and VOD to control viewing is sparking an emphasis on cord cutting (eliminating the broadcast bundle, opting for a la carte web video). Over-the-top (OTT) video which is online viewing like Netflix and Hulu Plu are leading the charge, and in some cases developing their own proprietary content.  These services are great and enhance the consumers expereince – but the fundamental fact is they still need the high speed data connection which is predominantly supplied by cable and telephone companies.  So by hook or by crook you still need them.  In addition, the content companies are accutely aware of this and will not give up the store like the music industry did.

What does the consumer want?

Any show or movie ever created, anytime, and we want to watch it on any device.  For new shows, we (today) want them the next day after they broadcast on any device… and soon we want to stream it live.  For current movies we want to stream it to our houses, or not negotiate the various different services for which movies are where and during which window.   Just because consumers are getting more adept at shuffling between services doesn’t mean we want to.  We also want to be able to view our own content on our TV or mobile device at anytime – and not have to connect any wires or worry if I’m on the right network or OS.

What can Apple deliver?

Apple helped reinvent the computing and media ecosystems – can they extend this to TV?  Yes, but not without cooperation from the content providers and a major improvement in the current economics of television and movie content over the web.  Sure, Apple could extend its ecosystem and smooth OS to the television (and largely has already with Apple TV) – but a true innovation for consumers only comes with the right content and pricing scheme.  This about how big the 99c individual song was at the time.  We envision apps along with voice navigation, seamless sharing and push/pull between Apple devices, multi-screen and split screen viewing…and an a la carte content menu.  ESPN for $6.99 per month.  Major networks bundle $19.99.  TNT and TBS for $5.99  – etc…

Does Apple  need hardware to do it? Not necessarily, but they traditionally make money on hardware, and the TV is a significant furnishing feature of the living room.  The retina display for smaller screens is amazing, but the technology to scale up to 40+ inches is not there yet.  Assuming it does improve, what price premium can Apple fetch?  Will high speed internet providers subsidize TVs?  The TV industry is one of the worst for CE companies.  I do think Apple is very interested in this market – as well as all extended content markets.

An Apple TV would likely look and operate a little differently but the key for consumers is how different the content experience would be.  And that is the issue.  Read into the supply chain all you want.  Without the content, Apple will not do it, and the existing content players and high production costs make it very difficult to negotiate new deals.

With that said, I don’t expect an “iTV” until late 2013 at the earliest.  Apple likely has enough on its plate with a 4G iPhone and new iPads (mini?).  The existing Apple TV product allows them to test content layouts, menus etc at a low risk.

What could change this outlook significantly?  Economics of producing and distributing content and or the development of a secondary revenue stream on the TV platform like the App Store.