Apple TV, the company’s lonely dud, is on the verge of something big

Here’s how Tim Cook is ensuring we’ll still buy the company’s least compelling product

 
Apple CEO Tim Cook giving a keynote
Apple CEO Tim Cook announcing the updated Apple TV in San Francisco on March 9. (Xinhua/CP)

On March 9, hundreds of journalists packed into the Yerba Buena Center for the Arts in San Francisco for Apple’s much-anticipated “Spring Forward” event. Millions more tuned in online. All were eagerly awaiting the big event: the launch of the Apple Watch. And while CEO Tim Cook is less partial to Steve Jobs’ famous “one more thing” reveals, he kept with Apple tradition and tucked in a few other announcements, including an exclusive partnership with HBO and a price cut for the Apple TV set-top box, from US$99 to US$69. Both were indications of the importance that television—and Apple TV—will play in the future of the world’s largest company.

Richard Plepler, the perma-tanned chief executive of HBO, was on hand to announce that his network would be launching a stand-alone online service, known as HBO Now, and that it would be available exclusively on Apple TVs, iPhones and iPads for three months, starting in April. The launch of HBO Now is well-timed. It coincides with the season premiere of the network’s ratings juggernaut Game of Thrones on April 12. For the first time, Americans who don’t want to pay a cable TV bill will have access to HBO’s expansive catalogue of premium shows and movies. And that, no doubt, will help sell some more Apple TVs. As Cook told audience members at the Apple event, “If you don’t have one yet, now’s the time.”

But here’s the thing: Apple’s nine-year-old digital media player isn’t very good. At least, not in comparison to its competition, and certainly not in comparison to Apple’s other famously well-designed offerings. Apple hasn’t updated the device since early 2012, and critics contend that it’s sluggish, cumbersome and built for an earlier generation of television, when people still paid for individual videos from digital storefronts like iTunes and downloading was more popular than streaming. Today, Apple TV requires users to choose an app and then a video to watch—provided the service carries it—with individual apps standing in for channels.It also lacks a way to search across apps for content. Streaming devices from competitors, such as Roku, Amazon Fire TV and Google’s Nexus Player, have been touted as far better media players: speedier, slicker and built for streaming Internet video in 2015. For instance, many devices now offer universal searches across apps. Search for The Theory of Everything on a Roku 3, and the device will tell you if it’s carried by any of the services you subscribe to or guide you to where it can be rented. Amazon Fire TV comes with a voice search, allowing users to talk into the remote to find a show, and will alert you when a show is available through a competing service before making you pay for it through Amazon. And yet, Apple TV remains the category leader,with over 25 million units sold since it was introduced in September 2006.

But Apple’s share of the market is slipping. According to data issued in September 2014 from NPD Group’s retail tracking service, based on a survey of 5,000 U.S. consumers, Apple TV’s share of the streaming device marketplace dropped from 46% in the second quarter of 2013 to 39% in same quarter of 2014. (Roku saw a slight dip from 33% to 28%, while sales of Amazon Fire TV weren’t being tracked yet.) For Apple, the exclusive HBO partnership and Apple TV price drop weren’t gifts to brand fanatics; they were bargaining chips for a clever strategic gambit to keep a less-than-stellar product on top of the market—as well as a plea to stay tuned for new developments.

On a big-picture scale, analysts don’t think the number of Apple TV units sold is very meaningful for the company. “In terms of revenues, it’s pretty small,” says Stuart Jeffrey, a New York–based analyst with the Japanese bank Nomura. “They did three times as many iPhones in the last quarter, at a price point that is almost 10 times the size.” But he thinks Apple’s decisions to drop the price and partner with HBO hint at a grander plan. “One would assume the Apple TV is out on the market either to keep people locked into the Apple ecosystem or because they’re still working on a way of somehow improving the attractiveness of it to get bigger adoption,” says Jeffrey. He’s careful to note that any discussion of Apple releasing an actual TV set remains “sort of conjectural at this point in time. And it’s been conjectural for a long, long time, and nothing’s happened.”

Some believe Apple may in fact be looking to replicate the impact it had on the music industry when it introduced the iPod and the iTunes music store in the early 2000s. “They came in and literally created an à la carte model…and in some ways democratized music distribution much to the chagrin of the music industry,” says Anil Doradla, a Chicago-based senior research analyst with William Blair & Co. “I think in the video world, they’re actually attempting to do that. They’re trying to become the de facto platform for viewing, whether it’s on the Watch, whether it’s on the iPhone, whether it’s on the Apple TV—it’s where people and the whole experience are linked to their ecosystem.” In other words, Apple can’t break the system unless it first commands a respectable portion of it, even if that means partnering with others to do so.

The first clue as to what Apple may be planning looks to have come sooner rather than later. According to a report in the Wall Street Journal, Apple plans to launch a web TV service this fall and is in talks with content programmers to offer a slimmed-down bundle of TV networks. (It should be noted that, at this point, neither Apple or HBO have announced plans to bring the streaming services to Canada.) The reports that Apple will offer a web TV service with about 25 channels is further indication that the company may be looking to update its unwieldy Apple TV.

When it comes to television, Apple is likely poised to deliver something more than just a hardware device, especially as people watch video on multiple devices. “What is unifying across these three different universes [mobile, computer and television] is their software, their operating system, their consumer experience. And that’s what Apple is trying to unify across these three worlds, while maintaining hardware sales, which is kind of their bread and butter,” says Doradla. He thinks that if Apple wants to make an actual TV set, they already have all the tools to do so. “I think it’s an issue of user experience, content experience and signing all of these deals,” he says. “They will have to have a more longer-term strategy, which may or may not entail rolling out a hardware device.” As Cook said during his keynote: “Apple TV will reinvent the way you watch television, and this is just the beginning.” Fortunately for Apple TV, the winner isn’t always the best product—it’s the best strategy.

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