Why Apple Will Deliver BOTH an HDTV and a Set-top Box

For a long time now, we've heard rumors that say Apple's new TV product will be a conventional HDTV with a 50 to 60-inch display. Other sources insist that it will be a next generation Apple TV set-top box and that competing in the cut-throat HDTV business makes no sense. However, there is an argument that Apple could ship both.

One of the things that Apple does better than just about any other company is diagnose the current trends in the marketplace. So, for example, Apple is keenly attuned to the buying habits, finances, and interests of young people. The motivation there is that those young people grow up to become life-long, loyal Apple customers.

As I was reading this article, "Younger Consumers Avoid Pay-TV," it reminded me that Apple products are almost always successful because it builds products for the customer, not for themselves or for the press. When you design a product for yourself or to fulfill an agenda, you end up with something like the Microsoft Surface tablet, a complete failure in the marketplace.

And so when I think about designing a new Apple TV product, aside from its software, I think about how the product physically fits into the customer's life. In that respect, Apple is and always has been in a quandary in its TV adventure.

The Basic Problem

If Apple were to build a conventional HDTV, the company would be faced with the fact that a lot of consumers have, over the past few years, taken advantage of plummeting prices of HDTVs. You can buy a 50-inch Plasma with Wi-Fi these days for less than US$1,000. Many believe that it's very unlikely that Apple is going to make serious money selling an expensive HDTV into that global market, no matter how it changes the TV experience.

On the other hand, Apple has sold over 13 million Apple TVs, with "About half" sold in 2013, according to Tim Cook. While that may suggest some upgrade resistance, the fact is that this $99 device is very popular, but easy and inexpensive to replace. Young people, without the finances to invest in an expensive 60-inch HDTV will flock to it. As the article linked above reports, increasingly, young people are losing interest in traditional broadcast pay-tv.

But despite all this, we hear persistent, tasty rumors about a full-blown 60-inch HDTV from Apple coming in late 2013.

A Resolution

This back and forth rumor mill means only one thing to me. Apple will eventualy release both products.

Even so, a new problem arises. How do you convince potential customers that they should buy the 60-inch HDTV for ~$2,000 when they could spend, say, $129 for a very cool, 4th generation Apple TV set-top box and just plug it into their brand new 60-inch LED/LCD TV they bought in January for the Super Bowl?

I think the answer has to be that the 60-inch HDTV will offer something that the set-top box cannot, and that's electronic control over the video feed, within the TV, that offers features that an external set-top box, connected via an HDMI link cannot. I've written about these enhanced features before, in which there's something to gain if Apple could control the final video signal. This is what will allow for product differentiation with the 4th generation Apple TV set-top box.

For those people who are ready to replace an older HDTV, this makes the prospect of buying an Apple replacement very attractive. After all, some clever customers may decide that a bargain basement "stupid" HDTV from Amazon combined with the new, 4th generation Apple TV set-top box might be all they need. Or afford. Apple needs to do something to whet people's appetite, capture their imagination, and nudge them towards its integrated HDTV solution.

So some kind of feature differentiation between these two new products is a must. The features made possible by control over the final display could push many customers away from the the half-hearted, so-called Smart TVs.

A dual product line, an HDTV with enhanced features and a 4th generation Apple TV to capture the rest of the customer base, both with an exciting, new TV viewing experience makes a lot of sense. And it nicely explains why we're hearing rumors, back and forth, about one or the other. The answer could very well be both.


Apple TV & HDTV image via Apple.