“Apple TV” is a term that gets thrown around a lot these days as consumers and media speculate about the prospect of a branded television from Apple (NASDAQ:AAPL), the Cupertino (Calif.) company’s long-awaited bid for the living room.
But many people don’t realize that Apple already sells a product called Apple TV. The compact set-top video-streaming box has been available for five years and has undergone several hardware revisions, multiple software upgrades and continually improved functionality. Videos are purchased or rented from Apple’s iTunes Store from the Apple TV, or content can be wirelessly streamed from a computer. If you haven’t seen or heard of an Apple TV, that may well be why Apple CEO Tim Cook has famously referred to the device as a “hobby.”
Sales of the first-generation Apple TVs were steady, but not at blockbuster levels. The second-generation device did better (thanks in no small part to a price plunge from the original’s $329 to $99) and a much more robust iTunes video selection. In its latest earnings report, Apple reported sales of 1.4 million Apple TVs during the first fiscal quarter of 2012.
Those healthy sales numbers likely benefited from the holiday bump that many consumer gadgets enjoy, but there’s more to it than that. Now that smartphones and tablets have joined computers as established product lines, the living room has become a target for technology companies looking for new revenue streams. Google (NASDAQ:GOOG) has been pushing hard but has had limited success. While the Apple TV was selling steadily in 2011, Logitech‘s (NASDAQ:LOGI) competing Revue Google TV box was losing money. Sony (NYSE:SNE) adopted Google TV in a television set, but that also failed to generate much consumer interest.
So-called smart TVs, or television sets that incorporate similar functionality to an Apple TV or Google TV, were a big story at this year’s Consumer Electronics Show, but it seems as though every manufacturer is using its own proprietary interface and applications. So consumers are understandably wary. They’re attracted to the concept, yet concerned about buying a smart TV with software that’s half-baked or ends up being abandoned. That’s where Apple has a huge advantage — and a big opportunity.
Apple may still refer to the Apple TV as a hobby, but the company has continued to sell the product and upgrade its capabilities for a reason. The living room is a lucrative prize, not just for selling hardware but for driving customers to the iTunes Store for content. The Apple TV has been a stealthy, ongoing experiment, allowing the company to fine-tune the purchasing and rental experience while tweaking its user interface and functionality. Adding iOS app capabilities (such as casual video games) from Apple’s 500,000-title App Store would be trivial — the current Apple TV uses the A4 processor that powered the iPhone 4 — and hackers have already enabled the feature.
When Apple does make the move to incorporate Apple TV functionality into an Apple-branded television in an attempt to capture a chunk of the premium TV market, expect it to drop the hobby facade in a hurry. HDTV manufacturers and video-game console makers will be faced with the possibility that an Apple television might do to them what the iPhone did to Research in Motion (NASDAQ:RIMM) and its once-dominant BlackBerry.
As of this writing, Brad Moon did not own a position in any of the stocks named here.