Apple’s goal is to disrupt the TV market not so much with a killer TV, but with a killer ecosystem, according to Barclay’s analyst Ben Reitzes. The analyst told clients that Apple is uniquely positioned to combine content on iTunes, hardware in the form of a settop box, iPad, and iPhone, and a great interface to marry it all together.
In a research note obtained by The Mac Observer, Mr. Reitzes argued that younger consumers have been fleeing the large living room TV in favor of watching video content on smaller screens such as iPads and laptops.
“Apple seems to be the only company that can redirect that content back to the big screen,” he wrote. He believes that many consumers would welcome an integrated TV experience that could become a digital hub for the living room.
There are challenges, for Apple, including the reality that few to no cable operators are keen on the idea of Apple taking control of the customer experience. Mr. Reitzes cited research from another Barclays analyst that said that cable operators are not losing subscribers at a rate that would make them want to turn to Apple for help.
In comparison, the music companies turned the keys over to Apple because they were losing revenue and mind share to piracy and no one besides Apple was able to figure out how to offer digital music for sale. The cable operators, and to a lesser extent content owners, are all petrified that the same is true for the traditional TV market.
On the other hand, “The risk of not partnering with Apple is that as young people may ‘cut the cord’ given the cost of cable and that a screen connected to an Apple TV with AirPlay can provide a substantial array of content, with the exception of in-market sports and recent TV content (unless purchased on a per episode basis through iTunes). “
That said, yet another Barclays analyst recently noted he has, “found little evidence to date to suggest there is significant cord cutting.”
Come the day that Apple can put the pieces into place, Mr. Reitzes believes that, “There is an already a defined interface to bring an Apple TV ecosystem to life with a more in-depth and involved user experience as consumers should theoretically be able to use iPads and iPhones as remotes.”
He didn’t specify why he thinks so in the note, but there have been rumors that Apple had this particular problem solved since the release of Walter Isaacson’s Steve Jobs biography. In that book, Steve Jobs is quoted as saying that he had “finally cracked [the code]” for making such an interface.
To summarize, Apple believes that its rich ecosystem of hardware, software, and content will combine to allow the company to disrupt the TV market, but challenges remain. These challenges include the current gatekeepers in the industry, cable operators and content owners.
Shares of AAPL retreated from the record high set on Monday to end the day at US$656.062, down $9.088 (-1.37 percent), on heavy volume of 29 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.