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

  • 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.


    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.