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Wednesday, October 22, 2014

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  • Post-CES, The Stage is Now Set for an Apple Television

    Unless you've been living under a rock for the last year or two, you've no doubt had your fill of stories about the elusive Apple television set - not the existing puck-like Apple TV device, but the actual full screen monitor. At the risk of adding to the topic's cacophony, today I'd like to articulate why, with CES now behind us, I believe Apple has a massive opportunity and that a television is 100% inevitable - with the only question being the specific timing of its introduction.

    Apple's television opportunity is not simply to one-up the competition's stable of Smart TVs, but to re-imagine the entire TV experience as an integral part of our lives. Simply put, Apple's task is to leverage all of the foundational pieces that already exist - high-speed broadband delivery, Wi-Fi, HDTV, its robust app store/developer network, and the massive installed base of touch screen iPads and iPhones - and then to create an unparalleled experience layer that allows users to do things heretofore unimaginable.

    First, at CES 2013, the big traditional TV manufacturers, Samsung, LG, Sony, Panasonic and others, in my opinion, distracted themselves with a heavy emphasis on 4K, "Ultra High-Definition TVs." No question, these displays wowed attendees, but their massive size and exorbitant cost suggest that meaningful penetration is years away, if ever (3DTV's flop is a sober reminder that TV manufacturers cannot simply force the next new thing on consumers, especially when content is lacking). As I wrote recently, by focusing on UHDTV, the incumbents are not paying enough attention to what today's consumers really care about, which is having their TVs more fully integrated with their other devices and video experiences.

    In truth, the existing manufacturers are in a bit of pickle when it comes to improving the user experience much beyond what it is today. The main challenges are that the Smart TV market is fragmented over numerous brands, each with relatively low volumes. There is no standard operating system that knits these brands together, nor plays nicely with other devices like smartphones or tablets. All of this means it's an expensive, cumbersome process for developers to create apps and generate an ROI. And this is why when you buy a Smart TV today you'll typically see a narrow set of apps from Netflix, Hulu Plus, Facebook, Pandora, MLB, etc. but not many other choices; developers and content owners simply don't have sufficient incentive yet. The result is a user experience that leaves a lot to be desired, to put it mildly.

    By analogy, today's Smart TVs are missing the equivalent of the Internet's HTTP/HTML layers or the PCs' Windows OS or even the mobile handset's Android OS - in each case the key underlying ingredient that helped each achieve the consistency and scale necessary to trigger the symbiotic relationship between developer interest and consumer demand. This is the problem that Google TV is attempting to solve, but is a long, long way from succeeding at.

    All of this creates a textbook, made-for-Apple scenario. In one sense, the TV is just another screen for Apple to extend iOS to. While it would be tweaked in order to harness the larger screen's unique capabilities, developers are already familiar with iOS through the hundreds of thousands of apps that they have created. Importantly, since Apple has sold hundreds of millions of iPhones and iPads, it has huge credibility with its developers; i.e. where Apple leads, its developers will follow. And since Apple has been taking baby steps for several years with the Apple TV puck, it starts down the television road with insights it can implement to help enhance its developers' chances of success.

    With respect to opportunities, through its AirPlay feature, Apple has been teasing consumers with the possibilities created when video can be easily moved from one screen to another. Jeremy Allaire, CEO of Brightcove, has written extensively about how strategic AirPlay, and related features, are to Apple's re-imagining what the TV's role can become. I concur with his view that today's second screen apps just barely scratch the surface of what's ahead, not to mention innovations in gaming, communications, shopping, etc. It would be foolish to hypothesize what new apps might be spawned if an Apple television were an integral part of the ecosystem. Given the App Store's vibrancy and developers' ingenuity, in my view it isn't a big leap to assume that apps optimized for an Apple television will be engaging and breakthrough.

    The one gnarly problem of Apple's television opportunity is how it plays with existing pay-TV services, the backbone of today's video experience. As we all know, Apple is about revolution, not evolution. In this spirit, it's tempting to want to think of an Apple television as cord-cutter's nirvana with Apple positioning its television to blow up the existing world order. In the sense that it would open up a vast array of new video apps, it could do that (consider for a moment what Apple putting its marketing muscle behind a troika of Netflix, Hulu Plus and Aereo would do to catch cord-cutters' attention).

    But with the more pragmatic Tim Cook now at Apple's helm, I can more easily see the company instead trying to play nice with the existing pay-TV ecosystem, at least to start with. That would likely mean CableCARD integration and a friendly request for pay-TV operators to create/expose their APIs so VOD choices can be subsumed into an Apple UI (as TiVo, for example, has succeeded in doing). This will be a tough road for Apple however; as I wrote last year, the last thing pay-TV operators want to do is pave Apple's way into the living room, in turn risking their own long-term strategic positioning. It may well be that Apple's television doesn't quite deliver an overall video experience from day one.

    As if there weren't enough offensive reasons for Apple to introduce a television (and as Jeremy also suggests, a second, lower-cost connected appliance that works with existing TVs), there are ample defensive reasons as well. At CES, Samsung was the most buzzed-about company. Its record profits, built on record sales of its Galaxy S III smartphone, underscore the company's ascendance. More troubling for Apple though is that Samsung is a huge player in TVs. Eventually Samsung will fully bake its own multi-screen experience, making it an even more formidable competitor. Apple simply cannot afford to allow Samsung to gain such an edge in the living room. Introducing an Apple television is not just an opportunity, it's a competitive must.

    No doubt as 2013 progresses, the drumbeat for an Apple television will only grow louder, the leaks more omnipresent and the hype ever-higher. Apple is all about big opportunities, and it's hard to imagine one bigger than television. Despite its longer replacement cycles, and higher costs, television is truly the final frontier for Apple. Now, for all of the reasons explained above and more, the stage has been set for its entrance. For Apple, it will be the highest-stakes product introduction yet, and fascinating to see what it has in store.

     
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