Apple TV: "More Than a Hobby" - Business Week

[ipedro]

BYTE OF THE APPLE February 3, 2009, 8:33PM EST

Apple TV: Time to Get Serious
As unit sales tripled in the first quarter from a year earlier, it's become clear that Apple TV is more than a hobby

By Arik Hesseldahl

Ever since Apple TV hit store shelves in early 2007, company executives have insisted on calling this curious little box-shaped gadget a "hobby."

In 2007, Apple (AAPL) CEO Steve Jobs used the label to describe this device, which lets users transfer to a TV programming that has been downloaded onto a computer. Chief Operating Officer Tim Cook, who has been running Apple while Jobs takes a six-month leave of absence, used the term as recently as Jan. 21, during a conference call discussing fiscal first-quarter results.

It's time to drop the hobby talk. First-quarter unit sales of Apple TV tripled from a year earlier, in part due to a software update introduced a year ago that lets users rent movies, including some in the ultra-crisp high-definition format. Version 1.0 of Apple TV let users watch programming purchased from iTunes or downloaded off Google's (GOOG) YouTube.

WOULD BUYING TIVO HELP?
At least for the foreseeable future, Apple is arguably unlikely to introduce a game-changing new product along the lines of the iPhone or iPod. So the company needs to make the most of its existing product line—and Apple is clearly not exploiting Apple TV to its fullest potential. It remains at hobby status when it should be considered an "A Team" product.

One idea already out there: Buy TiVo (TIVO). Under this scenario, Apple would acquire the digital video-recorder pioneer and turn Apple TV into a DVR. Apple could easily afford the $1 billion or so it would take to do the deal, but it would also end up having to provide ongoing support to an inherited customer base—not exactly Apple's bailiwick.

Sanford C. Bernstein analyst Toni Sacconaghi says Apple should turn Apple TV into a full-blown cable box. In a research note issued Jan. 6, Sacconaghi says Apple could do that via Tru2Way, a cable industry-backed effort to let consumers buy their own cable TV boxes at retail locations, rather than having to rent them directly from the service provider. Under Tru2Way, consumers could also have the set-top box's features built directly into the TV. It's not a bad idea, but it doesn't go far enough.

FLEXIBILITY IS A MUST
My take is that Apple needs to allow for the same degree of flexibility around Apple TV as it does for the iPod. Remember that while Apple has sold more than 5 billion songs on iTunes, your average iPod owner only buys about 30 songs from iTunes. The rest come from other sources—existing CD collections, files downloaded from file-sharing networks, and more recently, MP3s purchased from Amazon (AMZN) or Rhapsody (RNWK).

Contrast that with Apple TV, which is essentially your iTunes collection—music, video, podcasts, etc.—moved from the confines of your computer to your TV or home entertainment system. Aside from YouTube, there are no other authorized video services, limiting Apple TV's appeal.

The iPod succeeds not only because it has iTunes behind it, but because it works with so many other things. More flexibility for content is a must.

HACKERS OPEN UP APPLE TV
So how does Apple arrive at that flexibility? Consider what happened when Apple TV first hit the market. In a matter of days, enthusiasts cracked it open and hacked together a handful of unofficial applications to support scores of video formats that Apple had ignored. Sure, those willing to go to the technical trouble may have voided their warranty, but after a little work, they had vastly more flexible devices.

There are software hacks out there that give Apple TV owners access to such movie rental services as Jaman and HungryFlix. Other fixes let you rip the content of a DVD to the device's hard drive in much the same way you'd rip a CD to a computer.

The most promising of the hacks I've seen is one for a service called Boxee. Installed on your computer or Apple TV, Boxee gives you access to pretty much any kind of video available on the Internet—be it Hulu.com, Joost.com, CBS.com (CBS), or something else. The user base is limited since Boxee is still in an early testing phase, but I'm told even the testers are dropping cable or satellite TV connections entirely. Yes, using Boxee takes some technical acumen that's beyond abilities of the average user, but that doesn't have to remain the case.

FOLLOWING THE LEAD OF THE IPHONE
Clearly, there's pent-up demand among a core group of early-adopting consumers to push their extensive video collections out of their computers and to their TVs. There's also a desire among software developers to build interesting applications for Apple TV. Kind of like for the iPhone, where developers have cranked out some 15,000 applications—many of them free, others selling for $10 or less. In less than a year, iPhone owners have downloaded half a billion of these applications. These legions of creative developers have turned the iPhone into the most powerful threat to existing phone manufacturers like Nokia (NOK), Motorola (MOT), and Research In Motion (RIMM).

And that's how it could be with Apple TV. Apple should give programmers the software developers' kit they need to make the device more flexible and useful. Buy the box, and you can buy or rent from iTunes—and if that's not enough, there are hundreds of easy-to-install apps that will let you watch whatever you want from the Internet.

Meanwhile other Internet-to-TV boxes have come and gone. Akimbo, an early Internet video box maker, shut its doors last year. Netflix (NFLX) has teamed up with Roku on its own movie-rental box that has met with rave reviews, and the feature has been added to TiVo boxes and will soon be built directly into some TVs. Then there's the upstart Vudu, which makes its own rental device. And TiVo has teamed up with Amazon's video-on-demand service. The options are multiplying quickly, yet none have hit upon the magical formula that causes an iPod-like wave of consumer mania.

IT'S UP TO APPLE
That formula may be lurking inside the mind of an as yet unheard of software developer who's envisioned an application that will blow all our minds and make our TVs talk to the Internet in ways we can scarcely imagine. That person just needs a supportive partner to provide the hardware. There is no reason in my mind why that partner can't be Apple. It's time to get serious about this hobby.

Hesseldahl is a reporter for BusinessWeek.com.

via Business Week.

 

[NT1440]

I think to apple its more like a time release kinda thing. They KNOW thats where the market is going, so they have a product out, but consider it a hobby until it finally takes off.

 

[ipedro]

I think we'll see an tv event @ 1 Infinite Loop soon.

The market for this is getting hot. Netflix/Roku, VuDu, Amazon, TiVo, Hulu.... are all fighting for market share while Apple sits idle. It doesn't make sense. Something big is coming and it's coming this year.

 

[jaw04005]

The iPod started off as a hobby too. Even Jobs didn't immediately think it was going to be a success. It took years to finally take off.

 

[AnthonyCM]

If they could integrate the ATV and iPhone to make the iPhone a Wii like controller, playing games through the ATV, it would greatly multiply the number of people willing to lay down the cash for an ATV. Is that even possible? If you can use the iPhone as a remote there's definitely some connectivity there (through the network, anyway). It's just a matter of whether or not the accelerometer can somehow be accessed by the ATV.

 

[dmm219]

If they could integrate the ATV and iPhone to make the iPhone a Wii like controller, playing games through the ATV, it would greatly multiply the number of people willing to lay down the cash for an ATV. Is that even possible? If you can use the iPhone as a remote there's definitely some connectivity there (through the network, anyway). It's just a matter of whether or not the accelerometer can somehow be accessed by the ATV.

Its not the accelerometers of the wii remotes that enable to work as a handy point and click device for a TV...its the IR pointing system. The Iphone, Ipod touch does not have this. An accelerometer alone won't get the job done.

Soon, you will see all tvs, come with wii-like remotes...

 

[themoonisdown09]

I started a thread several months ago that talked about the AppleTV getting a DVR interface. I've been saying that if the AppleTV can connect to my satellite/cable box and also have DVR functionality, I would by it the second it came out.

Something that would also be awesome in the AppleTV, which I know will never happen, would be a Blu-Ray drive. That would make it the ultimate media center.

 

[Grasbak]

I think to apple its more like a time release kinda thing. They KNOW thats where the market is going, so they have a product out, but consider it a hobby until it finally takes off.

exactly - Apple are betting that the internet will be the place to get video. They will be there, ready and waiting to deliver it.

 

[Rich1963]

I've said it before. To make appletv take off like the ipod did, allow it to do the same thing that the ipod and itunes could do. Allow itunes to automatically rip and encode your current DVD collection, putting that media you already own at your fingertips just like your CD collection/itunes/ipod did.

A bonus would be to hook up 4 feeds from your satellite dish into your 'itunes server' and have it stream and record all of your tv shows and catalog them in a seperate sub-heading in itunes and then stream live or recorded tv programming to any appletv in your house. These suckers would fly off of the shelf faster than their korean/chinese/thai manufacturers could assemble them.

 

[hitekalex]

I've said it before. To make appletv take off like the ipod did, allow it to do the same thing that the ipod and itunes could do. Allow itunes to automatically rip and encode your current DVD collection, putting that media you already own at your fingertips just like your CD collection/itunes/ipod did.

This would require breaking DVD encryption, which is illegal under DMCA in the US. So you'll never see Apple officially support this. Ripping CDs does not require encryption circumvention, so it's allowed.

 

[dmm219]

I've said it before. To make appletv take off like the ipod did, allow it to do the same thing that the ipod and itunes could do. Allow itunes to automatically rip and encode your current DVD collection, putting that media you already own at your fingertips just like your CD collection/itunes/ipod did.

A bonus would be to hook up 4 feeds from your satellite dish into your 'itunes server' and have it stream and record all of your tv shows and catalog them in a seperate sub-heading in itunes and then stream live or recorded tv programming to any appletv in your house. These suckers would fly off of the shelf faster than their korean/chinese/thai manufacturers could assemble them.

Note that neither of these are ATV updates. Both would be Itunes updates. I agree...not sure they would do much for the sales of ATVs though.

 

[netdog]

The tv screen is the next logical battlefield for Apple. Winning it will cement iTunes/Apple's grip on the personal/home media center. That's got to be worth some serious cash.

I agree with this guy that opening up the AppleTV is the way forward for Apple.

Agree that there will be an Apple TV event soon in Cupertino. Apple will soon get that their mission is to allow us to use our media wherever and whenever we want to use it, on whatever device, all done in a way that their network and movie studio vendors can stomach. That last bit is what makes this an extended process in my opinion. If not for the content creators/providers, this all would have unfolded long ago in my opinion, just as it took the music industry years to go from all physical media, to accepting online download sales, to finally removing DRM restrictions.

 

[arnette]

This would require breaking DVD encryption, which is illegal under DMCA in the US. So you'll never see Apple officially support this. Ripping CDs does not require encryption circumvention, so it's allowed.

Allowing DVD ripped WOULD throw Apple TV into high gear... alas..

I think that's why Apple is banking on downloadable content. Now if they would just either buy or develop a Boxee competitor and slap it in the box I would get one!

 

[Rich1963]

I'm well aware it would involve violating the DMCA as well as basic, established copyright laws, but that could easily be negated with an exemption from the MPAA. And just remember-what drove ipod hardware sales was itunes and the ease with which your already legally purchased content could be transferred to your media player.

I didn't say it would happen tomorrow, but this would make apple the dominate audio and visual media company out there.

As far as the satellite thing goes, just look at how the iphone is being single-handedly credited by analysts for keeping AT&T showing an increase in profit and growth during this economy while the other cellular players are in decline right now. Think if Apple went to Directv and offered them a content partnership like they did with AT&T in order to use the raw feeds from the dishes....

 

[Scarpad]

The only way this would be allow is it it wrapped the ripped and converted DVD into some sore of copy protection warapper, and then there is that matter of it cannabalizing Itunes Movie sales. It's not so Hard to convert DVD's now so where is the issue, plus the new kid in time is Blu ray not DVD.

 

[Mike Teezie]

Allowing DVD ripped WOULD throw Apple TV into high gear... alas..

I think that's why Apple is banking on downloadable content. Now if they would just either buy or develop a Boxee competitor and slap it in the box I would get one!

It wouldn't be hard for Apple from a coding standpoint to add support for more codecs into the TV OS - mkv, avi, etc etc - and give them access to the gpu acceleration that the iTunes files have now. That way, it could realistically play 720p files. Maybe more support is coming in the new version of Quicktime? Then Boxee would almost be irrelevant.

Boxee can't play 720p files to a watchable standard right now. It's my single complaint with the software, but I understand because there is no API for the TV gpu because its closed source.

Then Apple could try to push to get the silly DVD encryption laws looked at so people could rip DVDs they own legally - sort of the same thing Steve did with his public letters about DRM. If it's legal, Apple of course would have an elegant ripping/encoding/metadata fetching solution (though I'm sure people would bi*** about the codecs supported).

I don't think Apple will ever do Boxee style streaming content, because that obviously cannibalizes store sales.

Right now, the TV is a great, great box - if you are willing to put the work in to get your content on it. It's unfortunate Apple's hands are tied in several ways, otherwise I'm sure getting your content to the thing would be as easy and pretty as it is for an iPod.

 

[Rich1963]

Keep something else in mind too. Apple could easily have itunes rip and encode your DVD and place some content protection back on there, just like purchasing a movie from them. That way Hollywood is satisfied that youj are still going to use these movies only for your personnal use.

And as far as Blu-Ray, the same thing would apply. People wantr to own a movie and do what they want with it. Until Hollywood realizes this, their sales will just continue to decline.

 

[kiranmk2]

I think it's a hobby because Apple know the hardware isn't there yet. So far even a day 1 ATV can be software upgraded to the newest software and the drivers for the gpu have improved, but I think we're very near the point where a hardware refresh is imminent that will render current units as 2nd tier. An nVidia Ion platform with an Atom would be able to play 1080p sing less power than the current box and I can't see a higher resolution coming into mainstream media for a good 5-10 years so the next gen AppleTV will be supported for a long time. The second thing is hard drive space. There are two solutions : either allow bigger internal drives which would need a SATA interface and maybe room for a 3.5" drive. The other, more backwards compatible way is to get a home media server out together with a server edition of iTunes and allow apps like iPhoto to sync with it too, essentially using the ATV drive as "temporary" storage. The advantage of this direction would be to gain control of the home's media hub and also introduce the idea of Slingbox-esque streaming of media to iphones/ipods.

Apple will already have their non-hobby plans drawn out and once the hardware is in place to support them, we;ll see them shift up to high gear, especially after hearing how hard Steve was with the record labels.

 

[Grasbak]

Last time I heard Steve Jobs talk DRM on music v films he said: when people buy CDs, they dont come with protection - so why should downloaded music? He then went on to say that: it is not the case with films - DVDs etc are encrypted, so its a different situation.

 

[gvegastiger]

While at first hear, providing a way for people to rip their DVDs and then slap some DRM on it sounds good. But how do you guard against people renting a movie and then ripping it with this new iTunes capability? You can't, which is why the studios would never go for it.