I don’t think I’ve ever waffled on a topic as much as this one. Back in ’07 I wrote two articles on Apple “owning” the living room and building TVs. Ever since, I’ve gone full tilt in both directions. Until about a week ago, I agreed firmly with Erik Schwartz on the topic, as he wrote today:
I am quite sure that there has been a team at Apple working on TV projects for literally the last 20 years. I am also quite confident that they are not going to release a TV in the near future. (read more)
He continued to espouse on the four issues he saw: Margins, Replacement Cycles, Logistics, and Integration. And on all four counts, I’ve agreed with him.
But now I have second thoughts. My friend and coworker Adam Burg has long been a believer of “iTelevision” as has Dijit (and TiVo and many others) investor Stewart Alsop (who was quoted today in VentureBeat’s article on the topic). For them, and many others, the rumors were way too much smoke for a lack of fire. And on that point, I tend to agree that the rumors are a little stronger than what the Apple PR team will let flow when there’s no substance whatsoever.
So first, the case against iTelevision
Generally speaking, the two strongest “con” arguments are:
1. The margins in TVs suck, and since you can’t get away from the reality check of what it takes/costs to make a TV (hint: glass), the margins will suck for Apple too, and Apple doesn’t play in the “sucky margin” business. This would force Apple to make a notably more expensive TV than anyone else, and even Apple can’t somehow get people to spend $1500 on the same sized screen they can have from Samsung for $1000.
2. The TV replacement cycle sucks, as the average family won’t replace a TV for ~7-8 years, and that’s not a world Apple typically plays in either. Unlike phones (1 year) and PCs (2-3 years), consumers won’t be up for buying a new set very frequently, and the concept of having an “outdated” television will cause more infuriated people than Apple typically likes to create. Note: this is a concern of the entire “Smart TV” industry (well, it’s probably not, but it really should be), and you can mark my words that backlash is going to hit these manufacturers in the next 6-12 months.
I’ve had a 3rd argument personally, which is Apple can’t make an iTelevision for $1000 whilst selling a “$99 upgrade” Apple TV product that brings the same functionality/services to any other manufacturer’s device. Now the counter to that would be the Apple TV is there to enable wider content consumption, etc, but it’s still generally considered a “no-no” to cannibalize your own market.
So now, why I’ve come around, and the case for iTelevision. I’ll start by refuting the arguments above.
1. Apple makes awesome margins on everything. If Apple’s building a TV, they’ve figured out their own amazing supply chain methodology to do it profitably. Very profitably. So if everyone else is selling a 50″ LCD for $999, they will too, only instead of making less per unit than the price of a really good bowl of soup, Apple will rake in the cash as they go. They are the only tablet manufacturer selling at a real profit (HP not withstanding. What, too soon?), and I see no reason why, if they enter this space, they won’t do the same thing.
2. Apple will change or solve the replacement cycle issue. Before iPhones, the US market was radically less likely to buy a new phone every year. I have a much harder time accepting that Apple can successfully convince people to lug a 50″ screen home (and correspondingly, out of their home) once a year (or every other year). This is way too painful a process, even for a fanboy.
This implies either Apple can make a TV that is easy to move/replace or the components which would require upgrade can be guaranteed upgradeable for a few years. Both are actually feasible, though the former requires some more impressive technology (flexible or roll-up displays, for example, could do it). The latter is probably more likely – after all, even the original iPhone can still run a lot of the apps that are on the market. What would matter the most here is that each generation of iTelevision is guaranteed to mostly compatible with the same content offerings as future generations (in other words, regardless of apps and whatnot, if Johnny Homeowner’s TV can only play 1/3 of the movies as his neighbor, he’s pissed – if he can play mostly the same stuff, just no Angry Birds, he’s less so).
3. They could coexist, if the other product is iTelevision and it isn’t the same thing as an Apple TV. So if the rumored iTelevision isn’t about “Apple TV inside a flatscreen” and is instead something new/different, this could be more feasible. I’ve heard and debated scenarios ranging from built-in DVRs to TV tuners to CableCard and more. Here’s all I know: whatever they do will be fully end-to-end thought out. You won’t buy an Apple TV then have to go to the mall to pick up a CableCard. You will do everything in an Apple store or online (or from your phone), and it’ll just work.
If I have to weight the pros vs cons these days, I have to say, the pros seem to have it. Will it come out in 2011 or 2012? Hard to say. Will they dominate the TV market the way they dominate tablets? Unquestionably NO, but they’ll probably profit more off the sales of TVs than anyone else, more akin to what they do in phones. Will they shock us with their offering when it comes out? Probably, though probably in the same “why isn’t everybody just doing it that way” style they do with everything else. Will they create a massive gaping wound in the side of the TV industry, and opportunity for a brand new type of ecosystem to emerge? Absolutely.
Now, back to the waffling.