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Monday, November 11, 2013
Apple's TV Ambitions on Hold

It appears that Apple's long-rumored TV plans have been put on hold again, possibly to be replaced by a rollout of wearable devices.

Although many financial and industry analysts have been speculating about Apple's entrance into the TV business via an actual TV for years, during the last year the rumor-mill has shifted into high gear about a 2014 introduction. According to information obtained by Paul Gagnon, North American TV Research for DisplaySearch, Apple initially appeared to be lining up resources for a product introduction in the second half of 2014, likely with 2-3 large screen sizes and 4K resolution.

However, the hangup has always been the content.

For Apple, selling hardware is partly a way to sell more software and content. If the iPod and iTunes system had never been successfully leveraged as a way to drive customers to buy songs and albums, it likely would never have been the massive success for Apple that it has become. Similarly, iPhones and iPads drive both content and app purchases, which deliver very high margins for Apple. Granted, these hardware devices also generate healthy profits for Apple, but only because they are sold in the tens of millions of units, and are replaced and upgraded relatively frequently.

Paul Gagnon says tha in order to have a successful television product for the living room, Apple needs to achieve three goals:

- Sell enough units to generate sufficient content purchasing points, especially among households who do not yet own Apple TV set-top boxes.

- Offer a unique point of differentiation to capture market share from leading TV manufacturers such as Samsung and Vizio, while at the same time being able to sell the products for a high enough price to deliver typically high Apple margins.

- Create follow-on replacement purchases to keep hardware sales from flat-lining once household penetration peaks.

The last point is particularly difficult to achieve. According to a DisplaySearch study, the average TV replacement cycle is 7-8 years, as opposed to replacement cycle purchases for mobile devices Apple currently sells, which is 2-3 years. In addition, consumers are likely to only purchase one Apple TV per household, as opposed to multiple phones or tablets. Even laptop PCs have a much shorter replacement cycle than TVs. In the end, Apple would have a difficult time keeping products updated with the latest hardware and software, unless it took a modular approach to upgrading components, such as what Samsung has done with their Evolution Kit for TVs.

To offer unique product differentiation that would allow Apple to capture market share from existing smart TV brands, they would need to either deliver some exclusive source of content that the other brands cannot, such as a la carte pay-TV channels, or proprietary content not available on other devices. Neither of these is easy to achieve, and Paul Gagnon's sources indicate this is one of the principle reasons for the delay in the project. Consumers already access services like Netflix, Hulu, YouTube and more on a plethora of cheap devices that can be connected to their existing TV, such as the Apple TV and Roku media players, and more recently Google's Chromecast. Indeed, the existing Apple TV box may be an impediment to Apple's success with a smart TV product, which as a category, is not growing in the US as many had hoped for. They will only account for about a quarter of TV shipments in 2013, and grow very slowly from there, with the focus on low-premium models.

For the current smart TV brands, this will be a big relief. While Apple may not have sold very many units, it would have had significant impact on the upper-tier product ranges from most of the top brands, which is the primary source of what meager profits they can earn in the TV category.

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