Apple Inc. (AAPL) never made much of a fuss about its Apple TV set-top streaming box. Since its introduction in 2007, if it was mentioned at all, the Apple TV was referred to as a hobby. That all changed early this year when Apple CEO Tim Cook revealed the Apple TV had grown to being a billion-dollar business.
But while AAPL stubbornly refused to update the Apple TV’s dated hardware in 2014, rivals Google Inc (GOOG) and Amazon.com, Inc. (AMZN) released their own video streamers and now we have proof that they’ve dealt Apple a serious blow.
A report released by Parks Associates shows that Google’s Chromecast –not even a blip on the sales charts in 2013– has now surpassed the Apple TV in sales. Amazon’s Fire TV has sold well enough since its April debut that it’s already threatening to catch the Apple TV.
The report also suggests streaming online video is beginning to take off with consumers. About 10% of U.S. homes with broadband bought a streaming device so far in 2014, with projections that will reach 25% in 2015. Video streamers are also expected to be a hot seller this holiday season.
Apple TV is Outdated, But a Fix Should be Easy
The Apple TV that AAPL is currently selling for $99 is a two-year old video streaming box going up against devices in the same price range that outperform it and offer new features, including video games and voice interaction. HDMI sticks offer the same streaming functionality for less than half the cost.
As solid as the Apple TV is as a video streamer, it’s outclassed.
Revamping the Apple TV shouldn’t be a big challenge. It runs iOS, the same operating system that powers iPads and iPhones and uses the same Apple CPUs. That means more powerful mobile processors like the new A8X could be used, iOS features like Siri could be made available and the Apple TV could have access to Apple’s massive App Store game library (iOS also supports game controllers).
Apple has done three generations of Apple TV hardware so it’s not like it would be starting from scratch, as Amazon did.
Apple TV is Taking a Beating
The numbers from the Parks Associates report were 29% for Roku (the long-time streaming video champ also took a big hit from previous years), 20% for Google Chromecast, 17% for Apple TV (down from over 25% in 2013) and 10% for the Fire TV.
What should make these stats even more disconcerting for AAPL is the fact that they cover only the first three quarters of 2014. Since then, Google has launched the Nexus Player set-top streamer while Amazon released the $39 Fire TV Stick and has been discounting the Fire TV in hopes of driving holiday sales.
Other than offering a $25 iTunes gift card with the $99 Apple TV on Black Friday, Apple hasn’t discounted the Apple TV. That leaves the AAPL streamer going into crucial holiday sales against identically-priced boxes from Google and Amazon that also play video games and offer features like voice search. Both those companies (plus Roku) also offer streaming sticks that get online video onto a TV for less than half the price of an Apple TV.
Apple TV Would be Big Business For Anyone Else
Apple’s Cook reported AAPL generated over $1 billion in revenue from Apple TV in 2013, making it the company’s fastest-growing line of business.
That’s chicken feed to Apple, representing less than 1% of its annual revenue for the year. However, to put the figure in some perspective, That $1 billion+ would put Apple TV alone in the same league or better than some other well-known high tech companies. For example:
- GoPro Inc (GPRO), $985.7 million in total revenue for 2013
- OtterBox with $923.6 million in revenue for 2013
- Dropbox reportedly generated $200 million in sales for 2013
That’s a lot of money to leave lying on the table, especially after investing in building a strong position over eight years. Even more so when demand for the product seems primed to finally go mainstream.
For AAPL, the AppleTV isn’t just hardware sales, it’s also a crucial point of access to its iTunes store, where consumers can buy or rent TV shows and movies. In its last quarterly report, iTunes/Software and Services represented $4.6 billion in revenue, the company’s fourth-largest source of revenue and not far behind the iPad’s numbers.
Even if Apple TV activity accounts for just a fraction of that iTunes total, you’d think AAPL would make a move to protect it rather than leaving it to wither.
Slash the Apple TV Price, Already
It’s possible that AAPL has every engineer on its campus hard at work on the Apple Watch and can’t spare anyone to update the Apple TV. Maybe that great white whale of the high tech rumor mills –the Apple television– is poised to make a dramatic entrance in 2015. Maybe the Apple TV has reverted to hobby status after its brief time in the limelight.
Whatever the reason for neglecting to upgrade the Apple TV, AAPL should seriously consider discounting its little black box over the next few weeks. Otherwise, eight years of hard-won gains are liable to be wiped out in a flood of Chromecasts and Fire TVs, reducing Apple to a living room bit player just as streaming video is beginning to take off.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.