Next Up: Apple TV

Robert Hof argues that the time is ripe for Steve Jobs’ corporate legacy to reinvent the TV. Apple transformed the personal computer industry, the mobile phone market and the music business. Clearly the company has all the components in place to assemble another innovation.

From Technology Review:

Steve Jobs couldn’t hide his frustration. Asked at a technology conference in 2010 whether Apple might finally turn its attention to television, he launched into an exasperated critique of TV. Cable and satellite TV companies make cheap, primitive set-top boxes that “squash any opportunity for innovation,” he fumed. Viewers are stuck with “a table full of remotes, a cluster full of boxes, a bunch of different [interfaces].” It was the kind of technological mess that cried out for Apple to clean it up with an elegant product. But Jobs professed to have no idea how his company could transform the TV.

Scarcely a year later, however, he sounded far more confident. Before he died on October 5, 2011, he told his biographer, ­Walter Isaacson, that Apple wanted to create an “integrated television set that is completely easy to use.” It would sync with other devices and Apple’s iCloud online storage service and provide “the simplest user interface you could imagine.” He added, tantalizingly, “I finally cracked it.”

Precisely what he cracked remains hidden behind Apple’s shroud of secrecy. Apple has had only one television-related product—the black, hockey-puck-size Apple TV device, which streams shows and movies to a TV. For years, Jobs and Tim Cook, his successor as CEO, called that device a “hobby.” But under the guise of this hobby, Apple has been steadily building hardware, software, and services that make it easier for people to watch shows and movies in whatever way they wish. Already, the company has more of the pieces for a compelling next-generation TV experience than people might realize.

And as Apple showed with the iPad and iPhone, it doesn’t have to invent every aspect of a product in order for it to be disruptive. Instead, it has become the leader in consumer electronics by combining existing technologies with some of its own and packaging them into products that are simple to use. TV seems to be at that moment now. People crave something better than the fusty, rigidly controlled cable TV experience, and indeed, the technologies exist for something better to come along. Speedier broadband connections, mobile TV apps, and the availability of some shows and movies on demand from Netflix and Hulu have made it easier to watch TV anytime, anywhere. The number of U.S. cable and satellite subscribers has been flat since 2010.

Apple would not comment. But it’s clear from two dozen interviews with people close to Apple suppliers and partners, and with people Apple has spoken to in the TV industry, that television—the medium and the device—is indeed its next target.

The biggest question is not whether Apple will take on TV, but when. The company must eventually come up with another breakthrough product; with annual revenue already topping $156 billion, it needs something very big to keep growth humming after the next year or two of the iPad boom. Walter Price, managing director of Allianz Global Investors, which holds nearly $1 billion in Apple shares, met with Apple executives in September and came away convinced that it would be years before Apple could get a significant share of the $345 billion worldwide market for televisions. But at $1,000, the bare minimum most analysts expect an Apple television to cost, such a product would eventually be a significant revenue generator. “You sell 10 million of those, it can move the needle,” he says.

Cook, who replaced Jobs as CEO in August 2011, could use a boost, too. He has presided over missteps such as a flawed iPhone mapping app that led to a rare apology and a major management departure. Seen as a peerless operations whiz, Cook still needs a revolutionary product of his own to cement his place next to Saint Steve. Corey Ferengul, a principal at the digital media investment firm Apace Equities and a former executive at Rovi, which provided TV programming guide services to Apple and other companies, says an Apple TV will be that product: “This will be Tim Cook’s first ‘holy shit’ innovation.”

What Apple Already Has

Rapt attention would be paid to whatever round-edged piece of brushed-aluminum hardware Apple produced, but a television set itself would probably be the least important piece of its television strategy. In fact, many well-connected people in technology and television, from TV and online video maven Mark Cuban to venture capitalist and former Apple executive Jean-Louis Gassée, can’t figure out why Apple would even bother with the machines.

For one thing, selling televisions is a low-margin business. No one subsidizes the purchase of a TV the way your wireless carrier does with the iPhone (an iPhone might cost you $200, but Apple’s revenue from it is much higher than that). TVs are also huge and difficult to stock in stores, let alone ship to homes. Most of all, the upgrade cycle that powers Apple’s iPhone and iPad profit engine doesn’t apply to television sets—no one replaces them every year or two.

But even though TVs don’t line up neatly with the way Apple makes money on other hardware, they are likely to remain central to people’s ever-increasing consumption of video, games, and other forms of media. Apple at least initially could sell the screens as a kind of Trojan horse—a way of entering or expanding its role in lines of business that are more profitable, such as selling movies, shows, games, and other Apple hardware.

Read the entire article following the jump.

Image courtesy of Apple, Inc.