Why the Apple TV is still a Hobby

| Editorial

Recently, Apple's COO Tim Cook spoke at the Goldman Sachs Technology and Internet Conference. He mentioned the iPad, but also reaffirmed the irritating notion, to some, that the Apple TV remains a hobby. There may well be several good reasons to continue that apparently tiresome but useful label: a hobby.

When Apple does something odd and continues to do it, despite popular wisdom to the contrary, I always ask myself why that may be. Of course, there are pundits who believe they're smarter than Apple's Executive Team and have urged Apple to stop using that label. After all, the Apple TV has been a quietly successful product.

Tim Cook

Apple COO Tim Cook

I believe Apple continues to refer to the Apple TV as a hobby for two key reasons:

Reason #1. This term takes the wind out of the sails of Hollywood and Network executives when it comes time to discuss new services. It's a documented fact that Apple has been slow to add to its movie selection. There are about 8,000 titles available, 2,000 in HD, and that's been fairly static since Q309. The same is true for TV episodes: 50,000 since Q309.

We know that these executives are gun shy when it comes to turning as much control over to Apple as the music industry did. So when an Apple negotiator suggests to one of these executives that Apple would really like to carry about 20,000 movies, 10,000 in HD, the dialog is likely to go like this:

Exec: Of course, we have many other distribution partners. We don't want it to appear that Apple is obtaining an unfair advantage over any of them, you see... [Smiles.]

Apple: Don't worry. Steve insists that the Apple TV is just a hobby.

Poof. That takes all the tension out of the conversation and disarms the executive on the other side of the table who came into the room loaded for bear.

The same discussion happens when Apple tries the camel nose under the text approach with a subscription service. Network executives are nervous about this emerging mentality of the home owner: "Honey, let's kill the cable bill and live on Hulu. Or Apple TV."

Again, the Apple negotiator nips that thought in the bud with the comment about the Apple TV being a hobby. It's a hard concept to overcome. It's not argumentative or something that can be overturned by force of opposing reason. It just is.

Reason #2. The second reason Apple continues to refer to the Apple TV as a hobby is so that they an justify the suppression of the real sales numbers. Apple doesn't break out Apple TV sales in its 10-K report and can get away with it because of that consistent, long term argument that the product is a hobby, noise, not something that generates a lot of revenue. This has several advantages.

  • It keeps competitors in the dark
  • It denies Hollywood executives the numbers they need to calculate the viewing habits and money spent per box. That could be key information when it comes to negotiating prices. Instead, Apple sends them a pile of cash periodically and depends on their greed to overcome their curiosity.

 

Piper Jaffray analyst Gene Muster has estimated that Apple sold 6.6 million Apple TV's through the end of 2009. That's fairly impressive when one considers that Netflix only has about 10 million subscribers. Keeping this number close to the vest allows Apple great liberty to bargain with Hollywood and the Networks without also unduly alarming them.

All in all, while some wish that Apple would crow more about its accomplishments with the Apple TV, negotiations with Hollywood and the Networks are so delicate and politically driven that it's best for Apple to maintain that consistent, if irritatingly modest posture.

"Don't worry! Steve says it's just a hobby. Now can we sign that contract and all make a little money?"

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Comments

Bosco (Brad Hutchings)

It’s a shame it is a hobby. With a slightly less restrictive license, it could be a very capable digital signage appliance. For example, you can download “Tweet Your Sign” and install it as a replacement “Finder” on Apple TV then deploy Twitter based signage. Just as you can turn it into a very capable little web/mail server. Do those yourself for your own or your business’ usage, it’s legit. Do that for someone else, and you’re in violation of the SLA.

Funny part about that is that Apple TV is still running Tiger, and in appliance scenarios, poses no threat of Mac sales cannibalization. Competing net-tops are a far better value than a Mac if you’re considering an Apple TV as a custom appliance.

daemon

John…. no.

Piper Jaffray analyst Gene Muster has estimated that Apple sold 6.6 million Apple TV’s through the end of 2009.

Apple hasn’t even sold 1 million Apple TV’s yet. Do you know how I know? Because Apple always announces their 1 millionth product sold. It’s one of those milestones they like to tell everyone about, and they still haven’t announced it.

Apple is down playing Apple TV because it just doesn’t sell as well as other products from Apple. And that’s okay. Apple doesn’t have to sell millions of Apple TV’s. A few hundred thousand Apple TV’s a year is a perfectly fine model for a set top box that can’t get access to anything but iTunes.

John Martellaro

Apple doesn’t release sales numbers for Apple TV. Or celebrate milestones.

John Martellaro

Let’s be clear. Apple doesn’t celebrate sales milestones for Apple TV.

Bosco (Brad Hutchings)

daemon makes solid points about Apple touting its milestones, but John is right about Apple TV. Otherwise, Apple would have issued press releases touting each of the five I’ve purchased.

daemon

Because there haven’t been any John. The iPhone had the exact same accounting practices as the Apple TV, and the same reasons were given for both. Yet the iPhone has had it’s numbers announced, it’s sales celebrated and even it’s accounting practices have been changed.

MonkeyT

Consider this: by keeping it hobby, Apple faces far less backlash if they do something drastic to the product, say convert it to the iPhoneOS - remember: the Apple TV interface is very simple, the iPad has bluetooth, and transmitting gesture information between these paired devices might not be very much overhead.  What if the iPad could, with a single app, evolve into the world’s smartest remote control?  Perhaps that’s why Apple isn’t concerned with making the iPad output a full 1080i signal.

daemon

You want a $500 remote?

MonkeyT

You want a $500 remote?

People are already using the iPhone to control the lighting in their house and program their Tivo.  As long as it does everything else I want it to do, why wouldn’t I want it to control my AppleTV instead of having to manipulate that device directly?

Nonsuch

Apple TV is a hobby because Apple does not have the leverage to make it a transformational product, the way iTunes/iPod and the iPhone are. In the latter cases, Apple was able extract a lot of concessions (from the music and telecom industries, respectively) that allowed them to offer leapfrog products remarkably better than anything in the current landscape. Apple can’t secure the licensing deals to do that with Apple TV; hence, its importance must be downplayed, lest it be dismissed outright as a failure.

I think Apple TV only exists as a placeholder for a future integrated Apple media/data ecosystem: something that will one day help manage media for your Mac/PC, your iPhone, your iPad, and probably a few other iSomethings yet to be. If Apple TV ever does become more than a hobby, it will be a very different product from the one we know today.

Nemo

Apple TV will be a hobby, until it isn’t.  And that will be when the business, legal, particularly licensing, and infrastructure considerations are right for the hobby to be a major business.

Lancashire-Witch

Apple TV is available outside the US, whereas Hulu etc isn’t.
That sure makes a difference when it comes to making a purchasing decision; hobby or not.

dhp

I have no idea how many Apple TVs have been sold; however, claiming it can’t be over a million because that milestone has not been publicized in a press release is absurd. Apple promotes milestones that are impressive. They sold a million iPhones in 74 days. That’s press release material. You’re not going to read “Apple, Inc. announced today it sold its one millionth Apple TV, just 20 months after it went on sale.”

(Yes, the millionth iPod was announced at 18 months, but at that time that *was* impressive.)

macjeffff

Good article. I suspect the Piper Jaffray analyst has made a better guess than daemon (no offense). As noted, Apple only brags about impressive milestones.

While I wish the Apple TV did more, I have the same complaint about all the boxes living under my TV. Almost all of them are pathetically limited.

Steve understands what most of us techie-types don’t: the consumer. Fact is, ATV is a nice little box for showing people pictures and videos in the livingroom (people LOVE that), and watching some movies and TV shows.

A good barometer of the tech-saviness of the consumer is the fact that Blockbuster is still in business, and will probably remain in business for many years to come. Confession: now that I’ve bought a big new Sony LCD with a Roku box, etc., I’m seriously thinking of getting an ATV. I want to watch my old Battlestar Galactica episodes in HD.

YankInOz

I own three Apple TVs and am planning to update all of them with bigger HDs once the warranty expires.

I think it is a great product - and yes, it needs tweeking - but that usually happens at the most inconvenient times!

I think the estimate of 6 million AppleTVs is low. I perceive that it is a pretty popular product but I am not a pontificating pundit prophesying particular post-processing pay-per-view plasma/LCD panoramic performance player purchases.

xmattingly

The reasoning for Apple TV’s existence seems to be hanging by a thread - the only things it seems to have going for it are in-the-box entertainment center connections that Macs don’t have, and its cheap price point. It’s rumored that the next Mac Mini will replace its mini DVI port with HDMI, which will further marginalize the Apple TV. Right now, for an extra few hundred bucks and some adaptors, you can already run video from a Mac to an HDTV without too much hassle, and have something waaay more expansive and functional than a simple set top device. Also consider that the Mac Mini has partly been rejiggered as a home/small business server.

I think two things are happening that is keeping the “hobby” afloat:

1. Apple is in fact, making sales off the product. Nothing to toot to the shareholders about, but certainly respectable enough to keep making more. Remember that the same company did not hesitate to axe the Cube or iPod Hi-Fi (if I remember correctly, both were pet projects of Jobs); they would do the same to this little guy if its sales didn’t perform.

2. Apple likely has hopes of entrenching themselves in the living room through hardware and content, and they’re waiting for demand to get there as well as finding a reasonable resolution with the studios. I could see where from their position, the Apple TV may be less of the trojan horse and more of a stopgap device until things open up in this market segment.

xmattingly

A good barometer of the tech-saviness of the consumer is the fact that Blockbuster is still in business, and will probably remain in business for many years to come.

I’m not so sure about that: Blockbuster is closing stores about as fast as I move my bowels. Their market value has severely shrunk in the past half decade, and their best efforts to stay relevant have amounted to wild reaction to market trends. Many analysts did not expect them to survive the recession—it remains to be seen, but I personally doubt they’ll make it another decade.

Neil Anderson

Apple TV is a very nice hobby item. I love mine and have dropped cable and satellite services. smile

Yorgus

I have eight Apple TVs in a school environment. I have two complaints about them:

1. The heat. One of my older ATVs recently fried itself. All but the newest run VERY hot; even the new ones are somewhat hot.

2. The DRM restrictions. As an admin, I would like to manage all of my ATVs from a single instance of iTunes. iTunes can manage only five ATVs. Similarly, I would like to be able to have several teachers stream from their iTunes library to a nearby ATV. The limit is also five. I understand these restrictions in terms of protected content, but I don’t have protected content on these ATVs.

Sounds like just the small bunch on this forum have bought nearly a million!

daemon

Guys, the bottom line is that even selling 100,000 Apple TVs a quarter would be impressive.

There is no reason for Apple not to announce sales that exceed that amount. It’s not like it’s being sold at a loss.

John Martellaro

Xmattingly said:

It?s rumored that the next Mac Mini will replace its mini DVI port with HDMI, which will further marginalize the Apple TV.

The rumor suggests Apple is threatening content providers—who like the closed and secure system of the Apple TV ... and iPad. That is to say, the leak suggests that if Apple can’t secure more movie and TV show agreements, they’ll ship a Mac mini with HDMI and let the home users roll their own easy solutions. The frenzy over the iPad may well cover Apple’s bets on such a calculated bluff.  I’m reaching…

aardman

There is the problem of bandwidth.  Steve would not want to grow the AppleTV business only to be held hostage by the ISPs.  Imagine how much leverage Comcast et al would have if they wait for the AppleTV installed base to reach up to the tens of millions then start applying the squeeze.

Until the bandwidth problem is solved, the AppleTV business will always be at the mercy of the ISPs.

macbones

Apple TV and the Mac Mini will converge - as component costs decline. Love the Apple TV, but it irks me that I still need a separate dvd player- really just a software update away from having a mini be able to do the same thing- with similar ease of use. IE I could use a mac mini for the task now but it would confuse my parents- once the mini, the Apple TV and the iPadOS converge it will be a killer device. Think about that - what you really need on the ATV is the iPad OS. . .

gopher

If the copyright of video wasn’t such a hot issue, and the movie people weren’t such stingy owners that only allow you to rent certain videos, AppleTV would be a much better device.  The fact that one has to rip to get any content onto the AppleTV that is not found in the Apple Store means there will be people who skirt the DMCA just to use their AppleTV.  It would help if Apple provided Netflix & Blockbuster streaming as well as their own, and made all the TV shows rentable, or at least made it easier to determine what’s available for rent.  Right now you have to dig into each video to find out if there is a rental option available.

gopher

As for the bandwidth issue, 7 Mbps is plenty to stream video. You don’t need FIOS.  Now if you have devices sharing the same wireless network with AppleTV, no wonder you have bandwidth issues.

dhp

As for the bandwidth issue, 7 Mbps is plenty to stream video. You don?t need FIOS.? Now if you have devices sharing the same wireless network with AppleTV, no wonder you have bandwidth issues.

I think you missed the bandwidth point entirely (it was about bandwidth at the ISP level, not on the home network), but regardless, do you really think people have separate networks just for Apple TV? Maybe a tenth of a percent.

toke

Reason #3. Cost of internet traffic.
If you consider the price of movie download compared to song download, movie takes somewhere over 1000 to 10,000 times more data to carry.
Home users accustomed to flat rate connections just don’t notice this.
But fat pipes and terabytes of traffic per month really cost a lot of money.
I guess that Apple keeps low profile so long that price of the traffic goes so low, that really good profits can be made. Before that thay just get consumers familiar with aTv.
They propably made lot of losses when aTv was launched and they still might do some, but after couple of years, if they get major part of the business, profits will be gigantic.

Caragh

I also have an apple TV and LOVE it! It has encouraged my purchase of music videos and unhealthy obsession with downloading TV series’ and renting movies off the box.

In reply to Yorgus, for the heat - I have just discovered the Standby function within the settings menu and using this when not in use helps a lot with overheating.

I wish you could access the internet properly from it. YouTube is good, but I want to access more, such as the TV network pages, so i could watch more shows from there…

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