How Did Apple Get iTV So Wrong?

23 Comments

Forbes has a long story on how Apple (NSDQ: AAPL) got its iTV player wrong, and what led to the flop. Pertinent in light of, among other things, Sling Media’s buyout by Echostar (NSDQ: DISH). Sling operates in a similar market. This explanation is good: “Revered for sleek and snazzy products, the company and its man-in-black patriarch made a string of dubious choices about what features to include. And what to leave out. Apple TV comes with a hard drive and a link to the TV set, same as TiVo (NSDQ: TIVO) (now in 4.3 million homes). Yet Jobs decided against offering the ability to record shows. Worse, Jobs chose to shut out millions of Web downloads on YouTube and elsewhere and confined Apple TV to handling only the content you could get through Apple’s own iTunes. This parochial and proprietary approach, in an increasingly open, Internet-infused world, had relegated the company’s Macintosh line to a narrow slice of sales. Yet it also had let the iPod dominate online music, which may be why Jobs believed he could pull off the same thing in video. Wrong.”

On the costs. Apple struggled. It wanted to keep the price low at $300, but that resulted in cheaping out on components. The first box had 40 GB drive to store fewer than 50 hours at standard-def, and an older, slower Intel (NSDQ: INTC) chip. Even then the box’s insides cost a total $237, says research firm Isuppli. That left a scant $62 in gross profit, or 20 percent, to be split by Apple and retailers (half Apple’s typical 37 percent gross margin). The stores went along, but when Apple TV faltered, they had even less incentive to push the new product, the story says.

Staci adds: So the comments — accusing us and Forbes of being unfairly negative — already are starting to pile up. For those of you quick to pull out the “hater” language and assume the worst, hope Rafat doesn’t mind my mentioning that the post was written on a Macbook Pro by someone who also owns an iPhone and multiple iPods.

On the sales figures, Apple needs to sell beyond its own retail chain in order for the Apple TV to be a real success. On a purely anecdotal basis, I’ve been tracking the sales at some non-Apple outlets and they haven’t been moving. In fact, I was surprised to see the same units sitting on a shelf in one high-traffic store for weeks. Part of the problem is that the non-Apple stores may not know how to sell the units, or, as Forbes notes, have little incentive.

The other issue is how narrow the niche is for Apple TV as currently configured. Open it up even a little and sales probably will pick up. When Apple enthusiasts don’t rush out in mass, it’s missing something.

23 Comments

MegaZone

Is the Apple TV objectively a solid, well-designed product? Yes, I believe it is.

But it is just a fancy Apple media center extender when you get down to it – and for what it is and does, it is very over-priced. There are other media center extenders that support more formats and cost less money. The only lock Apple has is supporting their proprietary ITMS DRM. So if you're big on ITMS video and want to get it on your TV, Apple TV is about your only real choice.

But for music and photos – you have a lot of options. Third party media center extenders will do music and photos (and other most video formats). Even TiVo can stream digital audio and video digital photos across a network, and you can copy video from a PC or Mac to a TiVo for playback on a TV. Video isn't as elegant as a real MCE, but it works – and if you own

An Apple TV with a 160GB drive sells for around $400. A TiVo HD, which also has a 160GB drive, sells for under $300. The TiVo can stream your music and photos, and in November will accept network video transfers – and it is a dual-tuner high-def DVR which supports video up to 1080i. It also supports video rentals and downloads from Amazon Unbox, access to online content via Home Media Engine, music from Live365 (and soon Rhapsody), and more. Yes, TiVo has a subscription fee which Apple TV doesn't have, but you can start out with a lower HW cost and you get a lot more functionality. (And if you don't need HD support, you can always go for an SD Series2DT, which you can get for $50 right now – that and three years of service is still less than the cost of the Apple TV. All the same software features, just no HD support.)

Personally I own an iPod and use iTunes, and have over 14,000 tracks in my collection (all legal). I purchase music from ITMS – then I strip the DRM so I can play the AAC files on non-Apple gear, like my TiVo. I do not pirate or trade music, it is for my own use.

The Apple TV is a nice product – but it isn't a good value when you consider the other options on the market.

Mike

This is a great product. The writer needs to do some real research before putting out stories like this.

Michael Wolf

I never understood what all the negative talk about Apple TV was about. I have three. It's the greatest slide show presenter of all time – among other things. It's also cheap. I certainly don't see any problem with it. Pretty easy to understand.

Doug Petrosky

I'm going to chime in with I love my Apple TV too. I was going to wait for Apple to start delivering HD content before buying but am not unhappy that I already did. People who bash on this product just want a different product and should go look for it. People who love their AppleTV are not looking for a DVR they are looking for a way to easily get all of the rich video content that is filling up iTunes over to our big TV's.

Key Benefits of AppleTV for me:
1) Watch DVD's without having to deal with the DVD media. (handbrake works great)
2) Watch TV shows that I want to own anyway at DVD quality immediately after they air.
3) Purchasing Movies that I can easily watch on my TV, iPod or any computer in my house.
4) Video pod casts. There is a ton of content being created that is distributed on the web.
5) YouTube. As with podcasts this is just another example of content that I could not enjoy easily on my TV without AppleTV.
6) TV without commercials. Sure I've been a Tivo user for 5 or 6 years now and I perfected the timing for the fast forward jump back system to skip commercials but even that does not compare to just not having them there.

Just some math for those that thing paying $2.00 per episode is not viable as a way to replace your cable bill.
DirectTV wth HD DVR costs $70/month for a single TV. That's $840/year without premium channels.

My wife and I determined that we watch 24 new series each year or 600 shows. Before you do the simple math and talk about the $360 difference, remember that season passes cut between 10 and 20% off the cost of shows. iTunes gift card can be purchased at 10% discount so for me the actual cost would have been $930.

Now this is not an apples to apples comparison. I can't channel surf when I have nothing new downloaded. There are not great options for sports. And until I've been doing this for a few years my re-runs will be week, and I may loose that overwhelming desire for a Big Mac.

I do get the ability to watch my shows on any computer (up to 5), or any iPod/iPhone that I have. I also get much better quality than standard def but less than my HD channels. Over all it is a trade off I was going to make until NBC pulled the plug this year.

Mike Kaufmann

I like my little 40 Gig Apple TV! But, you have to admit the sparse choices from the iTunes Store for downloads is pretty limiting. I haven't filled the Hard Disk yet, but I am not very interested on what is offered by iTunes. It should be more Universal and less in-house.

Peter Merchant

Personally, here's a suggestion for "saving" the AppleTV:

Add a DVD player. Blu-Ray, HD-DVD, or just plain ol' DVD.

I could easily move content from CDs to my computer to my iPod when the iPod first came out. I can't move DVD content to my computer with iTunes and I have to use third-party software to do rip the DVD to use it in iTunes, which is a nuisance.

Stick a DVD player in it so I can watch content which is not part of the iTunes Store.

David

I think Marc Perton has the right idea. The basic stumbling block is that US consumers–in general–perceive the computer and the TV to be fundamentally different platforms for consuming media. We've run studies in which we've found that the overwhelming majority of the population cannot even conceive of why anyone would want to connect them. The fact is that there aren't very many People like Steven B above (and myself for what it's worth) out there.

If the product didn't have so many restrictions and limitations and was positioned as a box that would allow you to cancel your cable service forever (people really do hate their cable/satellite operators), then maybe there would be a reasonably sized market, but for the time being there are just too many factors working against products like these.

Don

Great comparison with Tivo.

Let's see, Apple''s product has added more new users since it was introduced than Tivo. And Tivo loses millions while Apple makes hundreds of millions.

So a company that gets fewer customers and loses money is doing better than a company that makes money and gets more users.

Only in Bizarro PC world…

Bill

I too love my Apple TV. I've owned a couple of these devices, one from Buffalo before the Apple TV. The problem they both share is that neither of them can play all formats. Buffalo could do some .avi and .mpg, but no .mov. Apple TV is the opposite. But, even though Buffalo was attached to the exact same network as Apple TV is now, it sputtered and stalled constantly, and forget fast forward or back. With the Apple TV, these are not problems. Also with the Buffalo, directory listings (that's what they looked like) were extremely slow and file it could show were still listed. Again, not a problem with the Apple TV. My wish list for Apple TV enhancments would include more format compatiblilty and 1080P. I'm not holding my breath.

pwb

Talking about recording video and the size of the hard drive totally misses the point. AppleTV is all about streaming content from anywhere to your TV using a spiff UI.

The pieces are coming together to make AppleTV look like a brilliant pice of hardware. First, it could always stream movie trailers. Second, it now supports YouTube. Third, now that iPhone/iPod has a Wi-Fi store, it's clear that will come to AppleTV. The key there will be the need to offer rentals.

Jay Small

I'll say this much, remembering my days in consumer electronics: a bill of materials at $237 for a product with an MSRP of $300 is way too high to feed the bulldog.

Electronics companies that don't happen to be Apple often have to pay hefty subsidies into retail channels to get good shelf space and coop marketing for their wares from the Best Buys of the world. I know of cases where the subsidies alone would be more than the gross margin on AppleTV with that BOM cost.

So even Apple isn't going to get any love from retailers who are used to higher margins just to make the products look good on the shelf. That's why general consumer electronics has become such a crappy business, and dragged on everyone from Sony to Matsushita to Philips to, in this case, Apple. The electronics company I used to work for has all but exited the business.

William D

I think; for once, Microsoft has done a better job with Media Center, now on most Windows Vista systems sold. It's never really been fanfare’d about like most Apple products do; but they’ve got the option to record TV (analog and cable etc) etc, but also let third party providers provide rental services etc. It's actually remarkably 'open' compared with Apple's approach.

I wouldn’t go so far as classifying the iTV a flop though – Jobs did say it was a "hobby". They’ve had enough on their minds with Intel transition and then the iPhone and of course the delayed release of the latest OS revision. As long as they have a foot hole into the '10ft' experience, they are learning and getting talked about.

Apple won’t let go to something that's increasingly going to be important to their revenue steams (especially with video remerging as Music was in iTunes in the early days) That said; the iPod woofer thingy has gone so they ditch what doesn’t sell.

EdJones

I was surprised when Apple announced they would be entering the Digital Media Adapter (DMA) market, but I'm not surprised to see that they are now struggling. DMAs have been around for years. When broadband, home networking and wi-fi were taking off in 2002/3, D-Link, Linksys, HP and others rushed to market with standalone devices that allowed consumers to stream their music, photos and videos from their PCs to their TVs and stereos. Market research firms breathlessly predicted sales into the 10s of millions of units anually by the end of the decade. While these devices provide a cool way to move media from the PC to the optimal environment for viewing and listening, complexity of setup and poor user interface made them difficult to use. But perhaps the biggest problem is the requirement for the consumer to purchase a completely new box to make this work. In it's current form, the DMA, including AppleTV, is a niche product that appeals mostly to media and technology buffs. The story may have been quite different had Apple chosen to make AppleTV more closely resemble a DVR as Forbes suggests, or better, forget the hardware and integrate it's software into an existing set top box.

PV

My family owns five Macs along with some iPods. My first reaction to AppleTV was "huh?" Not too sophisticated a response, but I couldn't make sense of it. After reading the pro AppleTV responses on this page, my response is "huh?" If apple starts a movie rental through iTunes, I'll upgrade that to "oh." That's still a long way from "WoW!" which is what is my usual reaction to Apple products.
PS. Please stop the "Apple Hater" nonsense. Forbes' analysis is just common sense. Apple hasn't put out sales figures because they're dismal. If they had sold a million in the first six months, we would have heard about it.

engrish

Appe's gross margin in the two latest quarters was at an all time high, over 35 percent. The typical gross margin is nowhere near 37 percent, though, it's hovering between 28-30 percent. Apple's gross margin is the overall company average, the ratio of gross profit to sales revenue. That doesn't mean that every Apple product has the same gross margin, each product is above or below the company average.

Marc Perton

The main problem with AppleTV isn't the product, it's the market. The market for PC-to-TV media streamers is really an early adopter market right now, and that's reflected in the sales figures. Just as consumers were slow to buy DVRs when they first hit the market, uptake for dedicated media streamers is going to be slow at first. And just as the cable companies, rather than TiVO, came to dominate the DVR market, the PC-to-TV market may end up being controlled by someone other than Apple (though it won't be the cable cos; I'm betting on the TV-makers). In the meantime, AppleTV does what it sets out to do, and does it very well, at a reasonable price.

Bob Eller

I'm with Steven and Debbie. I love my AppleTV and so has anyone who has come to my house and seen it in action. I have a lot of iTune Store products and the AppleTV lets me watch it on my widescreen….and I can save money by buying the content without all the packaging (hmm, greener way to go too).

AppleTV is the iPod for your HDTV….what's not to love?

Steven Birch

Well I was mostly referring to the original Forbes story on this, but the bottom line is comparing AppleTV to a Tivo or another video recording technologies is still missing the point. This was designed as a bridge device between Windows and MacOS systems and a persons home theater. I get iTunes season passes, I store and/or stream my own home movies, and DVDs that I have saved as h.264 video files. Our primary system in the house is used as a media server as well. So streaming video/pictures and music to our main home theater, or to my laptop while I enjoy the evening air outside, or while cooking I can watch something streamed to iTunes to my laptop. But the simple fact is AppleTV is a product to allow me to quickly and easily browser and view my digital content already stored somewhere on my home network. It was not advertised as a digital recorder, was not advertised as anything but what it is, a great product for people that are using iTunes already and want a great, seamless connection to their possibly 10's of thousands of dollars in home theater equipment. If there are AppleTV sales figures do they take into account the added sales of content from iTunes because of the increased usability? In a world where companies sell gaming systems at a loss at times to make up for it in actual content sales (video games) can we not assume that there are residual effects on other sales because of someone purchasing an AppleTV for their home? Look at the much talked about iPod "halo effect" on MacOS system sales (which is out performing the sales growth of other pc makers), and of course content sales…

Thanks!

Debbie Boone

Rafat,

So what are the sales numbers? Right, you don't know. No one knows because they haven't and wont be released. Apple doesn't break those numbers down my friend. You're just a hater. I agree with Steven, I love my AppleTV. It does what I need it to do, and does it well.

Rafat Ali

Steven
What you perceive it to be versus what the sales numbers say are two different things…I'll go with the sales numbers, rather the lack of it, which in Apple's case means not that great.

Steven Birch

Wow its so amazing when places can write a story but don't even understand what the product was for or the people it was targeted to. I love my AppleTV, and I know quite a few people who do as well. It is a way for you to get your movies, images, music and such from a central computer in the house to your home theater system without having to do much of anything beyond plugging it in. It did not need huge amounts of internal storage as it was in part designed to stream video content for your already existing Mac/PC in the house. Wow, amazing piece of lack luster research and writing in this story.

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