Citing checks in Asia, Morgan Stanley analyst Katy Huberty wrote not too long ago that Apple is currently working on a number of HDTV prototypes. While Huberty, not surprisingly, isn’t able to supply more substantial information, she theorizes that an Apple Smart TV, as she dubbed it, could mesh together “TV/Video content, gaming, DVR, as well as other features like apps and FaceTime into one product.”
With all those features in tow, Huberty claims that an HDTV from Apple would be a new category unto itself, with the potential to add an extra $4 billion to Apple’s bottom line for every 1% of the TV market it captures.
This of course isn’t the first instance we’ve heard of Apple supposedly exploring an Apple branded television. Gene Munster has been touting this rumor for some time. Back in February 2009 Munster predicted an Apple HDTV with built-in DVR functionality coupled with the ability to wirelessly sync content from Macs, iPhones, and iPods – the iPad, in case you were wondering, was nothing more than a rumor at that point.
“With its iTunes ecosystem,” Munster wrote, “Apple could develop a unique TV without any set-top-boxes or devices attached.”
Steve Jobs, if you recall, has previously addressed the problems Apple and other companies face in their attempts to infiltrate the digital living room. During the D8 conference held this past June, Hillcrest Labs CEO directly asked Jobs about the difficulties involved in innovating in the television space.
Jobs’ answer was long, but is well worth repeating:
The problem with the television market— the problem with innovation in the television industry is the go to market strategy. The television industry fundamentally has a subsidized business model that gives everybody a set top box for free—or for $10 a month—and that pretty much squashes any opportunity for innovation because nobody’s willing to buy a set top box. Ask Tivo, ask Replay TV, you know, ask Roku, ask VooDoo, ask us, ask Google in a few months.
“So, all you can do—Sony’s tried as well, Panasonic’s tried, a lot of people have tried, they’ve all failed—so all you can do is add a box onto the TV system. You can say, well, gosh, I noticed my HDTV has a bunch of HDMI ports on it, one of them is coming from the set top box, so I’ll just add another little box with another one. Well, you just end up with a table full of remotes, cluster full of boxes, bunch of different UIs, and that’s the situation we have today. The only way that’s ever gonna change is if you can really go back to square one, and tear up the set top box, and re-design it from scratch, with a consistent UI across all these different functions, and get it to the consumer in a way that they’re willing to pay for it. And right now there’s no way to do that.
“So that’s the problem with the TV market. You know, we decided what product do we want the most, a better TV or a better phone? Well, the phone won out, but there was no chance to do a better TV ‘cause there’s no way to get it to market. What do we want more, a tablet or a better TV? Well, probably a tablet, but it doesn’t matter because if we wanted a better TV there’s no way to get it to market. The TV’s gonna lose until there’s a better—until there is a viable—go to market strategy. Otherwise you’re just making another Tivo. Does that make sense to you?
“That’s the fundamental problem. It’s not a problem of technology, it’s not a problem of vision, it’s a fundamental go to market problem.”
So make no mistake about it – an Apple branded HDTV would have to be remarkably compelling to really make an impact in the marketplace. Indeed, and as intimated by Jobs, the very idea of what an Apple HDTV would encompass would have to be so far beyond what is available now for Apple to even seriously consider developing it.
It’s important to remember that the HDTV market is exceedingly competitive ,with razor thin margins to boot. Moreover, and in stark contrast to its success with the iPhone and iPod, Apple would be entering a market where high-quality products, like premium LEDs from Samsung and Sony, are already plentiful.
Apple might be able to squeeze out higher margins on high-def TVs on account of the long-term component deals it likes to make, but again, the software would have to be completely game-changing to have a discernible impact on the marketplace.
But assuming Apple is working on the hardware, what kind of user experience would this as-of-yet vaporware Apple HDTV offer?
Looking at technologies currently deployed by Apple, imagine an Apple HD TV set with built-in AirPlay support along with iTunes integration offering users the ability to rent movies from iTunes and services like Netflix, all without having to purchase a separate set top box. Now that smorgasbord of features is certainly compelling but is it enough to attract consumer interest in a discernable way? An Apple HDTV with built-in Apple TV functionality is certainly interesting, but is it really enough?
Practically, one has to wonder what an Apple branded HDTV would have on Apple’s bottom line. As opposed to other electronics, Television Sets have extremely long shelf lives and users don’t upgrade them nearly as often as they do computers, phones, and other electronic gadgets. If an Apple HDTV is truly in the works, don’t expect long iPad 2 styles lines on launch day.
The fight for living room dominance hasn’t even started. Indeed, all efforts thus far have resulted in failure. With a strong iTunes ecosystem at its disposal, Apple is advanteged in ways that many companies aren’t and can leverage the success and ubiquity of the iPhone, iPod Touch, and iPad to sneak into the living room through the back door.
And now back to Huberty.
Financially, Huberty anticipates Apple shares to reach $410 by November 2011. In a bull case scenario, Huberty writes that Apple could potentially soar as high as $540 – assuming, of course, 55% iPhone growth and 74% iPad growth. In Huberty’s bear case scenario – assuming drops in revenue and notable issues concerning Steve Jobs health – she sees Apple shares perhaps falling as low as $270.