Apple should enter the TV business, Sterne Agee analyst Shaw Wu told clients on Wednesday. The analyst said that not only do all the usual signs point to Apple working on a TV, it’s the only major consumer “end market” in which Apple doesn’t have a major presence. At the same time, however, he argued that it’s the content that is key, and that content offers the company the opportunity to be disruptive.
New rumors that Apple is preparing a TV set for release early in 2012, including reports out of Asia that Foxconn and TSMC have been named as manufacturers, prompted Mr. Wu to add his thoughts on the issue.
In a research note obtained by The Mac Observer, Mr. Wu wrote that, “Frankly, we are not surprised and believe AAPL should enter the TV space as this is arguably the only major end market the company is not currently participating in a bigger way.”
He added that his firm has picked up “several data points” that indicate Apple is working with component makers in the TV industry, and he pointed out that Apple began filing patents related to TV starting in 2005. Unmentioned were the late Steve Jobs’s own words about having “finally cracked the code” for making great TV user interfaces, as included in Walter Isaacson’s biography, Steve Jobs.
Content is Key
The analyst believes that the best opportunity for Apple’s entry into the TV space to be disruptive is for the company to be able to offer content in a new way.
“From our understanding,” Mr. Wu wrote, “the technology including hardware and software isn’t the issue holding back a real Apple TV from shipping. What is are content partnerships and licensing terms that still need to be ironed out.”
This is another area that has been talked about by analysts such as Mr. Wu and mainstream reporting, including a recent Wall Street Journal report. The Journal spoke to several unnamed media executives who said that Apple had approached them to discuss its plans for the TV market.
“What’s missing is live broadcast television,” he wrote. “One obvious way to offer this is via the traditional way where a user subscribes to cable or satellite. But a more revolutionary, disruptive and differentiated way, is via the internet or IPTV which would be more in-line with its iTunes and iCloud model. Because of the high dependence on content providers, we believe exact timing is difficult to pinpoint.”
He added, “We continue to hear what AAPL would love to do is offer users the ability to choose their own customized programming, i.e., whichever channels/shows they want for a monthly subscription fee. This is obviously much more complicated from a licensing standpoint. And in our view, would change the game for television and give AAPL a big leg-up against the competition.”
This is the kind of service that Apple has reportedly wanted to offer for some time, but the problem has supposedly been the very strength of the idea, its disruptiveness. Studios and networks are scared of angering the cable (and to a lesser extent the satellite) gods, and the TV industry as a whole has a much stronger track record of resisting change than it does in embracing it.
If Apple could close the deals necessary to deliver such live broadcast TV, the company would be in a great position to make a dent in the TV industry, both on the content and hardware side.
TV Sets & Settop Boxes
Speaking of hardware, Mr. Wu’s research note also included a bit of advice for Apple. The analyst suggested that Apple’s best course of action would be to offer its own TV set with the content offerings mentioned above, but to also offer the same kinds of services and content through its Apple TV settop box.
He said that an integrated TV would offer a, “complete easy-to-use solution similar to an iMac, iPad, and iPhone,” but that a settop box would allow users to leverage their own TV sets while still buying in to Apple’s content ecosystem.
Mr. Wu maintained his “Buy” rating on AAPL, as well as his US$500 price target on the stock.
Shares of AAPL moved lower on Wednesday, ending the day at $402.64 per share, down $3.89 (-0.96%), on light volume of 8.1 million shares trading hands.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.