Apple Inc. (NASDAQ:AAPL) has had a rollercoaster of a ride with its Apple TV set-top streamer. It went from pioneering device to “hobby” status, then became a billion dollar business with the potential to have a real impact on AAPL stock.
The device was virtually abandoned for several years, made a brief comeback in 2015, and had once again fallen seriously behind the competition. But now, an AAPL slip in iTunes video tags is pointing to the release of a 4K Apple TV with high dynamic range (HDR) support.
If so, will AAPL nail it with the new Apple TV and climb out of the set-top streamer basement? Doing so could not only make the device relevant to the company’s bottom line, it would also help to drive iTunes video revenue.
iTunes Rentals Tag Tips Apple’s Hand
AAPL is known for its secrecy, particularly when it comes to new products. Just look at the rumors surrounding the iPhone 8. This is the company’s most important release in years — a product that’s guaranteed to have an immediate impact on AAPL stock when it launches — and just six weeks before its expected unveiling, Apple has said nothing about it. All we really have to go on are spy shots of components reportedly smuggled from iPhone suppliers and some early release protective cases…
With the 4K Apple TV, it appears that AAPL itself has accidentally tipped its hand. MacRumors is reporting multiple instances of readers finding iTunes video rentals with a “4K, HDR” tag showing up in their purchase history. This happened in the U.K. and Canadian iTunes stores.
Those tags point to one thing: a new 4K Apple TV with HDR support is coming. There is no other reason for AAPL to be experimenting with those tags (the current version maxes out at 1080p and doesn’t support HDR).
Dropped the Ball
It’s difficult to picture now, but back in 2012, AAPL owned 56% of the market for video streamers. Even though the Apple TV became a billion dollar business for AAPL in 2013, the company soon fell behind. Roku, Inc. expanded its inexpensive offerings, and both Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google aggressively entered the media streamer market.
AAPL finally released a new Apple TV in 2015. It gained an App Store, the ability to play video games and a Siri voice control remote, but with a starting price of $149, it was more expensive than its predecessor and far more expensive than the competition. And, it lacked 4K video support — something offered by rivals. With 4K TVs going mainstream and both Amazon and Netflix, Inc. (NASDAQ:NFLX) rapidly increasing their 4K video content, the new Apple TV never really caught on.
The company doesn’t call out Apple TV numbers, but acknowledged sales of its set-top streamer actually declined year-over-year in 2016, despite that new Apple TV. Stats released earlier this year showed that in the U.S. market, just 5% of homes with Wi-Fi used an Apple TV, compared to 21% for Amazon’s FireTV and 18% for Roku.
How New TV Could Move AAPL Stock Needle
With streaming video continuing to grow in importance, a 4K Apple TV takes on increased significance.
Besides the revenue from increased Apple TV device sales (in a market where sales of media streamers are expected to grow at 10% annually until 2021), the device is a platform. It’s the key to Apple’s subscription TV ambitions. A new 4K Apple TV would also help to boost iTunes video sales and rentals, in turn driving the Services division revenue that is becoming an increasingly important factor in AAPL stock value.
Ultimately, the success of the 4K Apple TV (when it arrives) may not lie in its support for Ultra HD video, or HDR content. Price is going to be a big part of the equation. Consumers are accustomed to paying $89.99 for a 4K Amazon Fire TV that also plays games and offers Alexa voice control. Other 4K streamers are even cheaper. If AAPL keeps the starting price of the new Apple TV at $149 — or worse, raises it — the company may lose the living room altogether. Release a 4K Apple TV at $99, and AAPL stock could benefit from a holiday hit.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.