Long ago, Steve Jobs coined the Apple TV as a hobby. It's not one of the major legs of Apple's business. Yet, the Apple TV has about 10 million active units, is generating over 4 billion dollars in annual revenue, and has a peak in growth nowhere in sight. Is this fabulous hobby affecting Apple's thinking about an HDTV display?
Slowly, Apple is revealing more and more information about the sales of its Apple TV. At Apple's 2013/Q1 earnings report on January 23, Tim Cook said that Apple sold two million units in the December quarter vs 1.4 million a year ago in the same quarter.
Backing out the sales for the calendar year, 2012, Apple sold an estimated 5.9 million Apple TVs which amounts to about a half billion dollars in hardware revenue.
At the same time, Apple's CFO Peter Oppenheimer stated that Apple's iTunes quarterly revenue was US$2.1 billion. From previous estimates of total Apple TVs in service (about 10 to 10.5 million) and typical purchase patterns, Apple is likely generating about $1.0 billion in movie and TV sales per quarter.
So that's a hobby generating a total of about $4.5 billion per year. Most other companies would be happy to have a hobby like that.
Apple TV Still on the Rise
Perhaps more importantly, the rate of Apple TV sales is rising at a steady rate and shows no signs of peaking. Here's my best estimate, but one that's been sanity checked, of sales per calendar year based on what Apple has told us so far*.
This has been converted to calendar year.
There are several issues worth consideration here. First, why should Apple jump into a speculative sale of expensive HDTV hardware when the Apple TV sales show no signs of leveling off? Second, is the fact that Apple has about 10 million Apple TVs in active service itself something that might be leveraged thanks to technological serendipity?
After all, why kill the golden goose in the process of looking for the platinum goose?
Apple's Real End Game
Previously, I looked at the problem Apple has with acquiring enough TV content rights that it could make a dent in the business of the cable and satellite providers. It isn't happening thanks to the content holders cleverly parcelling out rights so that no one provider can achieve domination. That could mean, in turn, that Apple would have to exercise a clever use of Internet technologies to augment the current TV watching experience, independent of content rights. Back in December, Bryan Chaffin and I wrote an analysis of that in "Breaking Down the Fundamental Issues for Apple & TV."
The question raised was: what is Apple's end game and when does it make sense to depart from the Apple TV hobby and engage in Apple's real, long term goal described in that article? With Apple TV sales still on a remarkable rise, perhaps it's a good idea to see where that leads before jumping off into a new venture, one that's still under development by Apple's engineers. After all, wih current rate of technology development, waiting a little longer can reap great rewards -- even as the Apple TV rakes in the bucks.
Apple, because of Tim Cook's statement that the TV industry remains "an area of intense interest" and that "there is a lot that Apple can contribute to this space" we believe that Apple's end game is to disrupt the TV watching experience, and a dedicated HDTV display that can fold in Apple's unique brand of software and hardware integration is required to do that.
Just when Apple decides to depart from its fantastically lucrative Apple TV hobby in order to achieve its end game will be interesting to watch.
* Total units in current service is not the same as lifetime sales for all models because of several factors: decommissioning or failure of the early generation models and upgrades/replacements from generation to generation.