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Apple Television

Despite persistent rumors that Apple will have a television on the market in 2012 it is not clear that they will have built an ecosystem favorable to Apple. We assess that there is a <50% probability that Apple will have a television product in 2012.

Positive Signs of Apple Television

According to the Steve Jobs biography by Walter Isaacson the widely quoted “I’ve finally cracked it!” was not about television but about the use of Siri to control the television. Nick Bilton, New York Times, October 27, 2011, assesses the prospect of an Apple television and is more conservative than many observers. He does conclude: “It is coming though. It’s not a matter of if – it’s a matter of when.” Certainly Siri could be the foundation for control of the television but much more is required to achieve the degree of control which is typical of Apple.

Apple has the potential of reaping significant financial rewards. For example: “A recent report issued by Barclays predicted that if Apple made a television set, excluding content deals, Apple could generate an additional $19 billion in revenue a year. This number would not be a stretch either; Barclays said in the report that Apple would only need to capture 5 percent of television buyers to reach this goal.”

Negative Signs of Apple Television

Apple was able to change the music business because of the pricing it brought to consumers and distribution via iTunes. There are a number of rumors that Apple is seeking to do the same in television content and being less successful. For example, CBS has turned down an Apple proposal to be on an Apple TV subscription. In the wireless phone business, when the iPhone emerged, the carriers were looking for a product which differentiated them, in part, as a means to lessen churn. Apple offered a solution, which was GSM based, which demanded significant concessions from the carriers, of which AT&T was the launch carrier. It worked and was exportable into worldwide markets. Those unique conditions do not exist in television content. It is highly fragmented based on local channels, cable channels, satellite channels, movies and international content. The content markets and sources worldwide vary widely. This is made all the more complex due to advertising. Bringing Apple’s degree of control to this market is impossible. It will be more narrowly focused.

The television set market is a race to the bottom. The bottom is in terms of price and margins. With large screen televisions reaching saturation in many markets Apple faces another challenge in getting consumers to reject the recent television for a new Apple television at a higher price than they may have paid for the last one. Yes, Apple has a strong draw for its products but will 2X or 4X the price of the lowest set be a block to drawing buyers. Apple has not has such premium price products and, if anything, has been going downscale in pricing. This has been very effective in blocking iPad competition. Pricing in the television market is critical to the accumulation of market share and we have doubts that either Apple will be in a race to the bottom or that a premium priced product will engender long supply line waits. Thus, margins in the television market are a critical issue for Apple.

Apple Entry Criteria

Apple’s entry into television is much more than technology. Two critical predicates are marketplace control and margins. It is not clear that today or in 2012 it has either in the television market.

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The Future of the Tablet

The tablet computer form factor is finally emerging after years of effort and many failed attempts. This is singularly the result of Apple’s iPad. With the excitement of 40m iPad units sold up to October 2011 there is a gold rush mentality in tablet activity. Yet, emulating Apple’s success has been elusive. Consider:

• HP TouchPad – lasted only 7 weeks in the market
• Rim PlayBook–Poor execution in RIMs core business resulted in a $485m write down
• Adam Tablet – Promises but no delivery
• Kindle Fire – Numerous execution issues including the User Interface but initial excellent sales
• Dell Streak 5  Android tablet – Discontinued
• Motorola Xoom – Poor sales, replaced by Xoom 2 on November 2011
• Samsung Galaxy Tab 10.1 – Delayed by Patent disputes with Apple

Given the success of Apple why has competition been so elusive?

• Android has not had a version of the OS which is effective competition against Apple.
• There are important UI issues, including consistency across applications, and performance lag.
• Price competition with Apple has proved difficult. Only Kindle Fire has taken on Apple from a pricing perspective.
• Apple apps are just superior, consistent and continually expanding
• There must be a compelling reason to buy a tablet OTHER than an iPad. With some 80% market share the only way the competition will gain share is that there must be market pull for competitive products. Only Fire with Amazon’s ecosystem has come even close.
• The lack of success of Android as a tablet OS means it has not been able to migrate to enterprises and vertical markets. The iPad is doing just that now and it will become more difficult dislodge Apple from these long term markets.

Our initial impression was that competition for the iPad would emerge at CES 2011. At this show the market was flooded with Android based tablets or soon-to-be tablets. This market has not materialized for many of the reasons cited above.

What does this mean for the future of tablets?

We seriously doubt that 2012 will be the year of the non-Apple tablet. Effective competition is both a corporate culture issue and about driving in ways which demand consumer attention and money to be spent.

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