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		Here Comes Apple's Real TV - BusinessWeek


		
		
		
		
		
		
		

		
		
		
		
   		
		
		
		
		
		
		

		
		

	
    
    
    
    
    


		

    
    
    
    
    

    
    
    
    
    
    



    

    



    	
        

            



		

			
		


		
		





                
                

            


        

		
        



		

			
		

		
		





		



        


            


                

                    

		 

			
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                            	September 13, 2011, 8:50 PM EDT

                        


                        

								
Here Comes Apple's Real TV


									
A bold, new Apple TV set would replace today’s cable systems, game consoles, and 3D goggles—and launch a war with cable providers



				
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(Corrects 10th paragraph to show the Wii is from Nintendo, not Sony.)


			



                            
Get ready, America, because by Christmas 2012 you will have an Apple TV in your living room. I don’t mean the cute little box now called “Apple TV” that plugs into your set to stream Netflix, but the real deal—a flat-panel Apple television set tied to the company’s online ecosystem and designed as only Apple can do it.



There’s a $14 billion rationale for this prediction but first, let’s explore the rumors. This summer Piper Jaffray analyst Gene Munster dug through component suppliers and found evidence that Apple is gearing up to produce a real TV set by late 2012. Venture capitalist Stewart Alsop, a former board member at TiVo, has published rumors that Apple has a television coming. And Steve Jobs himself hinted last year that Apple might build a real television unit.


“The television industry … pretty much undermines innovation in the sector,” Jobs said at the All Things Digital Conference in July 2010. “The only way this is going to change is if you start from scratch, tear up the box, redesign, and get it to the consumer in a way that they want to buy it.”



Jobs’s quote is good advice for his successor as chief executive officer, Tim Cook, who needs a hit. The TV industry is changing more than at any time in the past 50 years, and billions of dollars are going into play for the winners. As Apple crests in the phone and tablet markets, its investors will want a new frontier.


TV is the future because it remains king of all media. While handsets get hyped, the typical U.S. consumer watches 5 hours and 9 minutes of TV a day, according to Nielsen, and even younger adults 18 to 24 years old—the supposed digital generation—view 3 hours and 30 minutes on televisions daily, vs. only 49 minutes on the Web and 20 minutes on mobile. We all love to lean back. With so much of the consumer’s time, TV has become bloated with waste. The average U.S. home receives 130 cable channels but “tunes to”—or punches in the exact channel number on the remote—just 18 channels a year. Channel surfing has died. A whopping 86% of available channels are never used by an individual viewer.


Lots of Disenchanted TV Subscribers



Consumers pay a lot for all this video waste and they don’t like it. The average cable bill is $75 per month, which means that each year 83 million households pay $74 billion to the top eight TV-subscription services. This is why so-called “cord cutting,” by which consumers drop cable to watch videos on Roku, Hulu, or the Xbox 360 from Microsoft is accelerating; Comcast, the leading U.S. cable system, lost 238,000 subscribers in the second quarter. If Apple were to offer a better service, people might pay up for it.


A second lure for Apple is TV advertising. Unlike U.S. mobile-ad spending, which EMarketer says will barely break $1 billion in 2010 despite years of hype, the TV ad spend in the U.S. totaled $70 billion in 2010 and is forecast by Forrester Research to reach $84 billion by 2015. If Apple could gain just 10% of the $74 billion in current video subscription fees and $70 billion in television ad media, it would take in more than $14 billion in additional annual, recurring revenue.



Apple faces plenty of hurdles. For one thing, TV sets are an infrequent purchase. Apple likes to sell products with built-in obsolescence that you “need” to replace every 18 months—iPhone 5, anyone?—and a flashy TV set doesn’t call for an aluminum upgrade next year. Apple also has struggled to get content providers to embrace its current Apple TV box. In August, Apple stopped renting TV shows for 99¢ on the gadget, claiming that consumers overwhelmingly prefer to buy TV shows. But it could be that Apple’s media partners considered 99¢ far too cheap. With billions of dollars at stake, media producers and cable giants will fiercely defend their video-distribution modes.





	
                            

                        


                        

                        	
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