When Apple Inc. (AAPL) announced its fourth-generation Apple TV last September, the outlook for Apple’s TV streaming box was rosy. The reality has proven to be a little bumpier and in the latest setback, the guy who led the effort to develop the software for the Apple TV is bailing on the project and leaving the company.
Re/Code reported that Ben Keighran is leaving Apple. After his startup was purchased by Apple, Keighran was to spend three years overseeing the software powering the new Apple TV. His departure is just the latest in a series of setbacks for the Apple TV.
Apple was once a dominant player in the video streaming market, but after several years without a product refresh, the aging Apple TV was leapfrogged by Alphabet Inc’s (GOOG) Google Chromecast and the Amazon.com Inc (AMZN) Fire TV.
With pent up demand for an Apple TV upgrade, rumors of leveraging Apple’s massive iOS video game library and Internet TV package gave the Apple TV 4 potential to be a breakout device, boosting AAPL stock along the way.
So far, that hasn’t happened.
What’s Wrong With Apple TV?
The first hurdle that Apple TV had to overcome was sticker shock: The third-generation Apple TV had been priced at $99, and Apple reduced its price to $69 last year to compete against the $39 Chromecast. When the Apple TV was revealed with a price that started at $149 (rising to $199 for a model with additional storage), there was instant backlash from consumers who felt it was too expensive.
The new box itself was criticized for being larger than the previous model — bucking the trend of streamers shrinking to the point where many have been reduced to HDMI dongles — and lacking the 4K video support offered by competitors like Roku and Amazon’s Fire TV. There were also growing pains with the new software, including incompatibility with Apple’s own Remote app for iOS.
Much of the hype around the fourth-generation Apple TV was centered around its App Store and the ability to play video games. Game developers have been a big part of the iOS App Store, making the iPhone and iPad into casual gaming powerhouses. The prospect of the new Apple TV challenging consoles like the Xbox One from Microsoft Corp (MSFT) by offering high-quality, high-definition video games for as little as 99 cents, offered another potential win for AAPL stock investors.
Unfortunately, the Apple TV isn’t yet living up to those hopes. AAPL supports the use of third-party game controllers, but forces developers to also support its Siri Remote with all apps, making for awkward gameplay mechanics.
What’s more, Apple TV 4 users have apparently been reluctant to buy games.
In December, TouchArcade reported that developers of successful Apple TV apps are seeing sales of “$100 day on a good day with revenue continuing to trail off since launch.”
Contrasted with top games on the iOS App Store that can clear hundreds of thousands of dollars per day — and game development that could run into the millions for a top-tier game like “Infinity Blade” for iOS — the new Apple TV is proving to be a tough sell for game developers.
Apple’s TV programming ambitions also seem to have hit a brick wall. The plan for selling Apple TV owners a monthly $30 to $40 TV bundle that would replace their cable TV subscription appears to be on hold after months of negotiations with networks. Recurring monthly revenue to help even out annual iPhone sales spikes and troughs would likely have had a positive effect on AAPL stock, but the service has failed to materialize.
The good news for Apple investors is that none of these problems are insurmountable.
A series of software updates has improved the new Apple TV user experience. While the Apple TV App Store hasn’t been a runaway success, it had 1,000 apps a week after launch and the numbers have continued to grow, with the Apple TV on track to hit the 10,000 apps number early in 2016.
It took a while for iOS app developers to figure out AAPL mobile devices and for consumers to embrace mobile gaming and we’re only three months into the Apple TV actually being available.
And while the TV part of Apple TV may be stalled, you can bet Apple hasn’t given up on providing television programming bundles.
The Apple TV 4 and Apple’s reinvigorated living room plans still have considerable potential to eventually impact AAPL stock. Especially if you think of the many setbacks since launch as growing pains for the company’s living room platform rather than obstacles that will prevent it from succeeding in the long term.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
