According to an analyst, if Apple had launched its own smart television, referred to by some as iTV (despite the TV company of the same name) it would have generated an extra $2.5 billion in sales in the December quarter. But it would appear that the company may have bitten off more than it can chew when it comes to finalising deals with the content providers.  

Jefferies & Co analyst Peter Misek (who believes that a gesture control Apple TV is in production) claimed that an Apple television costing $1,250 would have generated $2.5 billion in sales in the December quarter, according to a Bloomberg report.

A survey by Quixel Research seems to back this theory up. That survey found that 88% of Apple customers, and 80% of all current flat-panel TV owners, in the US would be interested in buying an Apple television. That survey didn’t take into consideration how much people would be willing to pay, however.

The demand appears to be for a device with the following features: wireless web connectivity (80%); access to cloud storage features (73%); and synching with other devices (67%). The least important features to this group were: 3D; voice and gesture command; touch screens and portability.

There is no doubt that there is a huge market for television sets: a TV is one of the most widely owned and used devices. The question is, can Apple really do for the television market what it did for the music industry with the iPod?

Can Apple really transform the way we consumer media on our television sets?

Can Apple reinvent the TV?

Some think that Apple can do for TV what it did for music. Before Apple introduced the iTunes music store, the music industry was suffering. Music fans had stopped purchasing music and were instead downloading pirated copies of tracks. Apple took on the pirates by offering a user-friendly way to download high-quality music via iTunes. Few would deny that Apple saved the troubled music industry.

The television industry is not in decline in the way that the music industry was, but there areas of it that are ripe for improvement.

Quixel Research found that while about 30% of those surveyed own internet-enabled smart TVs, but they rarely use this web connection. “Despite thousands of available apps, digital content is only being streamed by 50% of these owners, on a daily or weekly basis, and more than 80% said that this content was being used just for playing movies,” according to the company.

Can Apple, with its tradition of advanced design, innovative features, simple interface, convenient usability and easy connectivity, encourage consumers to take the next steps in accessing media from their televisions? Quixel Research seems to think so: “Our research also shows that this scenario would dramatically change if Apple introduces its anticipated iTV. In fact, it could ultimately disrupt the home entertainment industry in the same way the company forever changed the computer, music, mobile phone, tablet, publishing and retail industries.”

However, one reason why consumers are not using their televisions to their full potential may be the state of their broadband connection.

A Wall Street Journal report suggests that “lagging investment in fixed broadband, rather than the failure of Steve Jobs to ‘solve’ TV, is the real thing propping up the existing TV model.” In other words, the current model for television delivery hasn’t changed because the infrastructure doesn’t exist to support it, not because Apple hasn’t launched its own smart television.

Once broadband is sorted, “expect the TV and broadband businesses both to reorganize themselves almost overnight, writes the Wall Street Journal.

However, according to that WSJ report, Apple may be out of the equation when the TV and broadcast business reorganizes itself.

“Television is about to demonstrate the inadequacy of Apple's own business model,” writes Wall Street Journal.

“This battle is nothing like Apple’s previous forays into the music and mobile phone spheres”, writes Bloomberg in a similar report.

Sanford C. Bernstein analyst Craig Moffett told Bloomberg that any notion that Apple could soon unveil its TV system: “Ignores the business realities that make this such a complicated industry.”

Why Apple will struggle to get support to take on TV

The mistake appears to be looking at Apple as the best placed company to create the solution that delivers content to our living rooms, while ignoring Apple’s penchant for delivering solutions that are closed, proprietary, only working with their own hardware and software.

“Video-content owners aren't looking for a savior and ultimately won't be satisfied with anything less than an open ecosystem accessible by any device” writes Wall Street Journal. That report notes that “Content owners already see their business being upended by Netflix and Amazon Instant Video, with an approach adapted to digital ubiquity from the get-go.”

Bloomberg observes that to win the television market, Apple, and anyone else looking to reinvent the delivery of content to television: “Must first strike deals with media companies or cable providers who have little incentive to cede valuable revenue streams”.

To illustrate how difficult this negation process is, Bloomberg notes that Apple hasn’t been successful at striking such deals in the past: CBS chairman Les Moonves has revealed that he rejected different Apple TV proposals, and talks with Comcast, prior to the launch of the Apple TV, fell apart because the cable company wouldn’t let Apple control the entire experience, according to a Bloomberg source.

Apple is apparently looking for a way round this, and in its most recent negotiations it has focused on cable companies that would give it access to live broadcasting without needing new content agreements, claims Bloomberg. The strategy would be for Apple to release a product that would let customers access a set of channels, paid for via a cable subscription, instead of leasing a set-top box from pay-TV operators for a monthly fee, a person familiar with the discussions told Bloomberg.  

RCM Capital Management’s Walter Price, who met with Apple executives recently to discuss their television efforts, told Bloomberg that cable and media companies are concerned that a better-designed Apple product will undermine their business model.

BTIG analyst Rich Greenfield told Bloomberg that cable companies are also concerned about losing their link to customers in the same way Apple overhauled the relationship between wireless carriers and their customers after the iPhone debuted.

Comcast’s Charlie Herrin told Bloomberg that while cable companies have released applications for the iPhone and iPad, there’s a reluctance to go further because: “Giving a third party too much control may lessen the value of the bundles of TV, Internet and phone services that cable companies sell.”

And yet, as the Apple Maps mess demonstrates, content is king, and having access to the best content is crucial.

“To maintain its position, the company [Apple] will have to focus more on giving its devices superb access to content it doesn't control and hasn't approved,” writes the Wall Street Journal.

According to the Bloomberg report, Apple also would like to integrate more on-demand content for viewers to watch when they want, including older episodes of television shows, people familiar with the plans said. For that content, Apple needs to strike deals with media companies such as Time Warner, Viacom, and News Corp, writes Bloomberg.

Apple TV in the UK, and on a global scale…

And that’s just the US: Apple would have to strike up deals with media companies around the globe, just as it did with the record labels and movie studios on iTunes.

But Apple is used to dealing with record labels and movie studios, as iTunes proves. Can it not use that experience when talking to the broadcasters, cable and satellite companies around the world?

There is an alternative to dealing with all the satellite and cable companies around the world, who are unlikely to want to relinquish control to Apple. We’ve previously speculated that Apple could offer an App based solution that would see people buy content directly from the production companies, rather than, for example, paying for a Sky channel with content that doesn’t interest them just because they want to watch one programme.

In such a scenario the production company would be able to sell it’s own programming through Apple in the form of an App that would always have the latest content.

That pitches Apple as a competitor to the cable and satellite companies, rather working with them.

Apple has too much competition in television market

Whichever solution Apple ends up adopting, Steve Jobs was confident that he has “cracked TV”. But can Apple really see the success it has seen with the iPod, iPhone and now iPad.

Now the stakes are even higher and the competition tougher, writes Bloomberg.

Apple isn’t the only company working in maing TV more interactive. Insider Monkey notes that Microsoft, while having no plans to manufacture an actual TV, they are positioning the Xbox console as a way to make TV more interactive. “Xbox so far has introduced motion control and partnerships with streaming video providers Netflix and Hulu,” notes that report. Xbox 720 is said to be gearing up for launch in Christmas 2013.

And, even before the competition is taken into consideration, it should be noted that where the iPhone sees gross profit margins of 49% and the iPad 40%, TV manufacturers’ gross margins average at around 20%, notes Insider Monkey. One reason that analysts are excited about the prospect of Apple launching a TV is that the company has so much riding on its iPhone brand from which it derives the most revenue.

But, with such small profit margins, does it make sense for Apple to build a smart TV?

Perhaps a better option is to stick to the Apple TV set top box that Apple first launched in 2007. Patents suggest that Apple is still at work developing this device, which is always referred to as a “hobby product”.

A patent filing uncovered by Patently Apple, described as “Advancing Apple TV: Accessing Contextual Information” that would allow a future Apple TV set-top-box to access additional information about a TV show or movie. The Apple TV would sync up with your ‘receiving device’ (an iPad, iPhone, or your Mac) and deliver information about the actors. “The additional information helps to enhance the user's enjoyment of the media content,” writes Apple in the patent filing.

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