October 25, 2011

Apple TV - A Pony or Just More Junk


There is an old joke about a kid that goes into a room fool of horse manure with a big grin and a shovel. When asked why he is smiling he says, with all of this horse crap there must be a pony in here someplace.   That has been the promise of third party set top boxes and Smart TVs.   We can see the promise but after Google TV crapped on the market it was much tougher to find the pony.  

Well apparently one of Steve Jobs last conversations was that he had actually figured out how to get Apple TV to work and that has fueled speculation that Apple has a TV killer product coming to market. Given they have turned the MP3 player market, the Smartphone market and the Tablet market betting against them in this effort would see foolish so I’m not going to do that, I am going to share what I think will be needed for it to be successful though.   

The Problem with TVs

Steve Jobs wasn’t a TV fan and the licensing effort for video programming makes what is required to license music seem trivial.   This is why the protections on video are much higher and why we still can’t easily rip the DVDs, even though we clearly have been ripping music from CDs for over a decade now.   Windows 8 is supposed to be the first product to allow DVD ripping and I’m still convinced that this feature will be pulled before it ships.  

Most of us use cable or satellite services that are now blended with our internet service and often our phone services, making them difficult to decouple.   In addition, typically these providers will send out a technician to hook everything up and give you the cable box for “free” in exchange for signing up for a multi-year contract, adding to that difficulty.  

This means that even if people want to move, the penalties and problems may keep them from moving for up to two years.   Thanks to the advent and rapid fall of flat screen prices, the market is awash with cheap TVs and most have recently bought one.   This means you have to convince them to buy a new one early (likely the primary set) and set top boxes for the rest if they are going to make this work and with two to three TVs per middle income house, that’s a big unplanned purchase in a tight year.  

Finally, pricing is generally free (over the air) or flat rate.   Even Netflix is flat rate and pay-per-view (Apple’s preferred model) hasn’t been very successful.   With children in the house there is now very little risk to channel surfing, but at a $1 a pop per kid could run up a $100 bill in an hour just by watching parts of lots of programs.   Even the potential for this could scare the heck out of a parent.  

Competitors: Apple Rules by Default

Of the standalone set top boxes there was only one streaming product, ironically from Microsoft, that was arguably better than Apple TV (initial products were anemic) but I never actually saw one on a store shelf.    I’m a big TIVO user but while TIVO is far better as a DVR it lags behind Apple TV significantly in terms of streamed content which is arguably the future.   TIVO has found profits illusive (though I just picked up their new 4 tuner TiVo Premier Elite today because you can never have enough tuners), even though they have pretty much dominated this small aftermarket space.  

In the end this has been a marginal market and Apple TV has been both the most successful streaming product in it while being Apple’s least successful current offering.

What Apple TV Needs

This is all about content and providing an Apple-like experience in a product that, while premium priced, isn’t priced out of the market.   Table stakes are access to the TV content that covers at least 95 percent of viewers.   This is mostly network TV and pricing here has to be equal to or less than what folks think they are currently paying.   This will be difficult because this content is virtually all subscription right now and to convert them to pay-per-view will be incredibly difficult even if Apple can do it more cheaply (which is possible given we pay for a lot of stuff we currently don’t watch).   But people aren’t likely to give up their favorite shows and sports events nor are they likely to want to run the risk their kid will run up a $1,200 video bill, so Apple will have to address both adequately or they won’t move out of the niche they are currently in.  

Apple will need a Geek Squad-like service for the Apple stores to ensure the user experience.   TVs and set top boxes are typically set up in most homes by others and users can screw this up.   Retailers like Best Buy and Sears have services to take care of this, but Apple stores currently don’t and this is where buyers likely will go for a premium service.   If the Apple stores don’t provide it, the experience won’t meet expectations and the product likely won’t break out of its niche. And this is just table stakes; they’ll need something special to get folks to move.

The example of this working before for TVs was the Wonderful World of Disney, which moved color TVs into the market. Steve Jobs used to be Disney’s biggest shareholder and he used to own Pixar as well.   If Apple can translate this or some other partnership into a content deal that is both compelling and unique to Apple, they could have an engine that will work similarly to how color TVs were driven into the market.    But without unique content, we don’t really like change that much, and would be unlikely to pull the plug on our existing services and if we don’t, are less likely to layer on Apple TV and incur the additional cost.  

Wrapping Up: If Apple Can’t Do It, No One Can

In the end, while I’d be the first to admit cable and satellite services are generally marginal at best, they are also “good enough” for most and people generally don’t migrate from “good enough”. At least they don’t in large volumes.    Apple will also have to do what they have done successfully in the past and make people feel their current service is inadequate and that will require some of Apple’s most aggressive marketing.   I think this is where Steve Jobs’ loss will be most deeply felt initially because few are willing to take the risks he took with advertising and the current team is likely to be risk averse.  

This will be the first major test of whether the new Apple can step into the old Apple’s shoes and, as such, the world will be watching closely.  



Rob Enderle is President and Principal Analyst for the Enderle Group. To read more of his articles on TechZone360, please visit his columnist page.

Edited by Jennifer Russell



Related Tags

Cloud    Google    Microsoft
Apple    Tablet    Smartphone

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