Apple TV: Is Apple’s ‘hobby’ finally ready for prime time?

Apple TV (feature)

Most speculation about Apple entering the television market swirls around the still-fabled “iTV” — an Apple-branded flat-screen television presaged in last year’s authorized biography of Steve Jobs in which he commented he’d “finally cracked” the issues surrounding an Apple television.

However, in the meantime, the diminutive Apple TV has quietly risen to dominate the market for set-top video streaming devices. At what point does the existing Apple TV stop being a “hobby” and start being a market-leading product? Could the iTV faithful one day wake up to find they’ve already been looking into Apple’s television universe for some time?

Hulu Plus

Apple TV Hulu Plus

Apple showed some progress on the Apple TV front on Tuesday by adding Hulu Plus to the box in an update. Hulu Plus remains a paid subscription service on the Apple TV — $8 per month, with a one-week trial available for free — but billing is handled through users’ iTunes account rather than directly with Hulu. That arrangement mirror’s Apple TV’s Netflix integration, and anyone who has used Netflix on the Apple TV will notice other similarities: The app offers menu access to Hulu’s most popular and recommended selections, along with the usual video categories, lists of recently-watched titles, and a search function. Users will also be able to pick up programming where they left off on another device. Start watching a show on the iPhone, for instance, and you can resume watching at the same place later on the Apple TV.

Of course, Hulu Plus on the Apple TV doesn’t magically work around all issues with the service. Despite the monthly charge, Hulu Plus videos are still peppered with advertisements. Various licensing restrictions also hinder the service — Apple TV subscribers will still find access to some material is delayed as much as a month after broadcast to prevent Hulu Plus from siphoning audience away from networks’ first-run broadcast and cable offerings. Other Hulu Plus content is flat out missing on Apple TV: If users want to watch it, they’ll have to fire up a Mac or PC.

…plus Netflix, iTunes, and Airplay

Apple TV (hand)

Besides Hulu Plus, Apple TV offers access to staples like YouTube, Vimeo, and Flickr — not to mention one of the best Netflix clients. Sports fans enjoy access to NBA basketball, baseball via MLB.TV, and NHL hockey. Business folk can tap into WSJ Live. Users can also watch television shows and movies they’ve purchased or rented from iTunes on the Apple TV. That includes content tucked away in local iTunes libraries or (via AirPlay) on nearby iOS devices. Same thing goes for users’ local music libraries (stream the to the television audio system) or and photo libraries.

Apple’s first forays with the Apple TV were marred a bit bit a high price tag, lackluster high-definition support, and dependency on an iTunes application. Back when the first Apple TV debuted in 2007 it was priced at $300, only handled high-definition video up to 720p, and was essentially an accessory to a local iTunes-equipped Mac or PC. With the second-generation version, Apple shrunk down the unit, rebuilt it on top of iOS, removed its dependency on a separate computer, and dropped the price tag to $99, but the units were still stuck at 720p. The third-generation models, revealed along with the third-generation iPad back in March of this year, finally added support for 1080p content, including video from iTunes and Netflix.

AirPlay support — which is now also in OX S Mountain Lion — can’t be underestimated. iOS and now OS X users can seamlessly send their screens to their Apple TV-equipped HDTVs. It’s not always perfect — content optimized for one format doesn’t always work on the other, and some video technologies can’t be easily shared with AirPlay. But the ability to play games on an iPod touch while viewing a big screen, view and edit photos, or share video wirelessly and transparently via Apple TV is probably a glimpse at the direction Apple has in mind for its television offerings.

A not-so-little hobby

apple tv sales hulu plus competition airplay apples living room play tim cook sq

Despite these strides, Apple still describes Apple TV as a “hobby.” Apple first showed Apple TV technology in 2006 — back then, believe it or not, Apple was using the name “iTV” — which incidentally is the trademark of a major UK broadcaster so don’t expect Apple to return to it. The first iteration of the Apple TV lingered on the market for over two years, leading many to wonder if Apple had simply abandoned the living room. It was only when the second generation appeared (with its much lower price tag) that the Apple TV started to be a serious option for consumers, with 1080p support finally putting it in a category high-definition fans would consider. Yet Apple barely markets the Apple TV, and it’s very unusual even to see a demo unit at Apple’s highly-trafficked retail stores. Most of the interest in Apple TV is generated by word-of-mouth, much of it online.

How much interest? During the quarter ending June 2012, Apple disclosed sales of 1.3 million Apple TV units — up 170 percent from the same quarter a year before — but only after being prompted about it during the question-and-answers section of the results call. The figures brings Apple TV sales for the fiscal year to 4 million devices — roughly corresponding to the introduction of the 1080p version. Since introducing the $99 compact version of the Apple TV, the company has sold 6.8 million units.

Those numbers may not compare significantly to Apple’s other hardware businesses — during the same period, Apple sold more than 44 million iPads, over 416 million iPhones, and more than 13 million Macs. But that’s comparing (ahem) apples to oranges. How did Apple TV fare against other set-top streaming solutions?

Roku Streaming Stick

Pretty darn well. Roku is arguably one of the most successful video streaming solutions: and at $50, it’s even cheaper than the Apple TV. Roku does not disclose sales figures, but in March 2012 Roku’s CEO claimed the company was experiencing 132 percent year-on-year growth, and reports had put total sales at the time at around 2.5 million units. About 1.5 million of those sales were reportedly during 2011. Roku still seems very happy with its progress — and the company just announced it’s locked in another $45 million to fund development and marketing.

What about game consoles, which also offer streaming video? During the quarter ending in June, and Microsoft sold 1.1 million Xbox 360s, and Nintendo managed to sell about 710,000 Wii consoles. Sony’s PlayStation 3 did better, selling 1.9 million units during its final fiscal quarter of 2011 (which ran into March 2012).

So the Apple TV outsold the Xbox 360 and the Wii — although, it’s worth noting the Wii is at the end of its life (with the Wii U already lined up to replace it) and the Xbox 360 has been on the market since 2005.

Vizio debuts $99 Google TV-enabled Co-Star box

What about Google TV? No official sales figures are available from Google or third parties supporting the platform, but industry estimates still put total sales of Google TV below a million units. That may be changing — Google’s Eric Schmidt famously forecast that by the middle of 2012 (e.g. right about now) about half of new TVs would sport the Google TV platform. Although that hasn’t come to pass, Vizio says it can’t keep up with pre-orders for its new Co-Star set-top box based on Google TV. The company sold out of its first batch in 12 hours and had to shut down pre-ordering again later. The Co-Star is due to ship August 14.

Looking to the big screen

So why is the Apple TV a hobby? Because sales of the Apple TV pale in comparison to purchases of HDTVs, cable set-top boxes, and even Blu-ray players — which have never taken off the way the industry hoped they would. Market analysis firm NPD estimates that a total of 245 million HDTV units will ship in 2012 — and that’ll be a decline of 1.4 percent compared to 2011. Even if Apple has a blow-out year with Apple TV, unit sales are unlikely to total even five percent of the global HDTV market for the year. Similarly, Apple TV’s sales will represent just a fraction of other accessories folks tend to get with HDTVs: namely, set-top boxes from cable and satellite operators, and perhaps even Blu-ray players.

Apple TV (rumored)

These numbers highlight why, if Apple wants to be serious about Apple TV, it will probably look at making its own televisions. For Apple, it won’t be about trying to dominate the television market — it will be about offering a complete end-to-end experience. Although it’s logical enough to think of televisions simply as a large monitor, most consumers use a television as a television first and foremost — a way to watch live video content from broadcasters, cable, or satellite providers. Anything else users want to do with their “monitor” is a peripheral function, whether that’s streaming video from Netflix, watching a DVD, playing games, or engaging with so-called “smart TV” functions like Skype video chat.

With Apple TV, Apple is likely (at best) a second or third peripheral in a chain of devices outside of Apple’s control. Apple’s vision of a television will likely be something that operates much more like an iOS device. That’ll include messages, social networking, calendars, reminders, apps (think about what Retina-enabled apps will look like on an HDTV) and all the services that are rolled into iCloud. And don’t be surprised if Siri or at least voice recognition makes an appearance. After all, why hunt for a remote control if you can just tell your television to pause or mute? An Apple TV will have to tightly integrate with users’ iOS devices, digital content libraries, and iCloud services — and, perhaps most importantly for Apple, it will likely attempt to turn cable and satellite providers into just another peripheral device.

If Apple can’t do that in a way it believes is compelling, Apple TV will go away. Ultimately, Apple is not a company that indulges hobbies.

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