Apple TV approaching critical mass with "Take 3" - next month?

Posted by Christian Zibreg

Chicago (IL) - After three free software updates, Apple TV remains a "hobby
project" that fails to capture attention of the mainstream market. But
Apple stands a chance of turning the tide with the content card. As
revealed by Apple's executives, HD movie rentals via iTunes helped
triple the gadget's unit sales this past year. Although the company
still treats Apple TV as a side-project, the funding continues for long run benefits. Take 3, a software update that might arrive as early
as next month, could bring more "TV" to the Apple TV in addition to
the hardware refresh that could be in the works as well.

Apple's media set-top box - dubbed Apple TV (ATV) - has had a bumpy
ride in its nearly two years of existence. Unveiled in March 2007, Apple
TV was hailed as the "DVD player for the 21st century". In reality, all
it did was wirelessly stream content from an iTunes library on some computer
to a widescreen TV. Even die-hard Apple fans ignored the device, citing
limited usefulness. Move forward one software update later, and YouTube was enabled on the
gadget. But still no-one paid notice. In addition, ATV battles for your living room with Microsoft's Xbox 360 in a fragmented set-top box market with no clear leader.


Apple TV sales triple in 2008

Analysts estimated the first full year of ATV sales would be somewhere in the hundreds of
thousands of units at best - a far cry from millions Apple usually
enjoys. Take 2, a software update released last January, enabled online movie
rentals and purchases from the device - but a limited choice library of titles became
a real deal-breaker. Apple continued to persuade Hollywood studios to join the iTS
bandwagon throughout 2008, however, and ATV again became interesting. Premium
entertainment paired with cunning decision to limit HD rentals just to
ATV (excluding computers) eventually paid off. According to Wednesday's
quarterly earnings, sales of ATV tripled over past year.

As revealed by Apple's COO, Tim Cook, during the earnings
call, "unit sales were up over three times versus the year-ago
quarter." Readers should note that Apple does not provide ATV unit
sales data in their financial disclosures - for now. Nevertheless, this uptick in sales was attributed exclusivity to HD rentals. "It is clear the movie rental business is
working and there are more customers who want to try it," Cook told
investors.


Still a "hobby"?

Encouraged by the results,
Apple will continue funding the project for its long run benefits. "We
will continue to invest there, because we believe there is something
there for us in the future," he said - though added that ATV remains a
side-project for now. "Let me be clear, we still consider this a
hobby," Cook said. Still, if a "hobby" is to become the fourth leg of
Apple's business, ATV needs new features and premium TV programming in
order to appeal to mainstream market.

A hardware revision is an important component of ATV, but features
enabled through software are also key. Of course, only Apple knows what new
features the next software update (billed as Take 3) will enable, but that
doesn't preclude bloggers from speculating. One thing is clear: ATV
needs more "TV" if it is to succeed. The upcoming FCC-mandated analogue
switch off for TV stations in the U.S. scheduled for February 17 gives Apple the perfect
timing to unveil an updated ATV hardware and Take 3 software update.
Here's our top five list of features that we think this hardware + software combo (referred to as ATV3) might deliver.


Continued on next page: Top 5 features of Apple TV "Take 3" and Final thoughts


 

5: Full HD and DVR capabilities
- Current ATV decodes 720p video, but better graphics may bring full HD
video decoding and DVR functionality. Think "TiVo on steroids" - live
video pausing and rewinding, in addition to remote record scheduling
via iPhone.

4: Built-in digital TV (ATSC) tuner - This might be the
easiest way to bring more "TV" to ATV. Simply plug an aerial or cable signal into ATV3 and
voila! You get free DTV channels and its electronic programming guide. We bet Apple
won't add satellite or CableCARD support because you will get your paid
TV programming via - you guessed - the iTS. A built-in Blu-ray/DVD/CD
reader is very unlikely for the same reason. On a sidenote, consumers won't be able to cash in the $40 subsidy coupon authorized by the
Congressional bill toward an ATV3 purchase. This is because the coupon doesn't apply to
devices which have features beyond digital TV.

3: Built-in Time Capsule and AirPort Extreme
- Time Capsule inside ATV3 would turn the set-top box into a home media
server as well, making it a wireless base station,
printer sharing along with 500GB of storage for DVR recordings, iTS purchases and
Time Machine backups. The best possibility of this would be to make ATV3 an app store for the home, one which manages and shares
the iTunes libraries between all our computers, enabling direct
iPhone/iPod syncing, but without the need for a computer.

2: Premium TV channels via iTS - TV
shows and movies are okay, but ATV3 really needs paid TV programming - like the bulk
channels you can purchase from your cable or satellite provider. Apple
is strong enough in Hollywood to bring channels like Fox, CNN,
Discovery, HBO and others to ATV3 via iTS on a subscription basis. Add
iPhone into the picture and you got live TV on the go anywhere in your home (or office?).

1: The App Store - Why not? Games are
already big in the App Store, and ATV would be the perfect system for
casual gaming. And if Apple opens up ATV3 to 3rd party developers,
programmers could enhance built-in features (like with the iPhone) while
Apple would create an entirely new platform. The hackers which installed
everything from RSS readers to Safari browsers to email clients and Divx
codecs into the current ATV shows that it is doable from a technology point of view, and also that the demand certainly
exists.

Conclusion

These five
features would greatly expand usefulness of ATV. The ability to pause
live DTV and go back in time, schedule and transfer recordings via/to the iPhone for on-the-go control and viewing, playing casual games and managing iTunes
libraries on the device would help put "TV" into ATV - and add home media
server functionality. Apple could really take all of aforementioned ideas even one step
further by enabling iChat video conferencing, IM, email and web surfing,
all while watching live TV with notifications unobtrusively overlaid as the evening news shows story-related pop-ups, over-the-shoulder and paint messages. MobileMe could also easily push contacts, calendars and
email to ATV3, while the iPhone might double as a Wi-Fi ATV3 remote via an upgraded Remote application.

Paired with App Store, ATV3 has all pre-requisites to become an useful
entertainment platform for your living room, and even a perfect traveling
companion. If priced at no more than $300, ATV3 would give other
set-top boxes a serious run for their money. Apple might even make a
42"-56" HDTV with iSight camera and ATV3 built-in. The Cupertino-based Mac
maker already has tons of credibility in the consumer electronics segment, and could really bring such a product to the market.