You Take the High Road and I’ll Take the Low Road
The big iPhone 8 announcement is happening this week. Lost in the shuffle (as usual), Apple is also expected to announce a fairly major update to its long-suffering Apple TV product.
What can we expect and what does it mean for the future of TV?
A few thoughts….
1. Apple Always Tries To Take The High Road, At Least With Respect To Price And Performance
Apple has never done well on the low end. What was the last truly low-end Apple product? The iMac? The Apple IIc? Cheap and cheerful is just not in its playbook.
Witness the June launch of the Apple HomePod, in which the folks in Cupertino responded to the $179 Amazon Echo (and $49 Echo Dot) with a $349 home speaker packed with enough gee-whiz audio technology to power an Ibiza nightclub. Do consumers care? Doubtful, quite honestly, but Apple is nothing if not consistent.
So what should you expect from the new Apple TV? I have three guesses.
First, the device will come with a faster chip and (finally) 4K support, including HDR. But let’s be honest. The primary roadblock to 4K diffusion has not been the lack of devices but the lack of 4K content. Yes, 4K Netflix is nice but, given the lack of titles, it is not (yet) a differentiator. We also expect Apple to announce a raft of 4K movie content via iTunes. While this makes for an awesome demo, it is unlikely to move the needle as much as you’d think. People are mainly watching subscription (not transactional) content. How many times a month are viewers going to pony up to rent a new release movie title in 4K? Once? Twice? Compared to the total amount of TV viewing, transactional streaming is (and will remain) a drop in the bucket. As necessary as 4K is, it’s clearly an up-market move.
Second, the new Apple TV is bound to feature more Siri, better Siri, nicer Siri, cooler Siri, you name it. This is all but inevitable given the pitched battle emerging between Alexa and her AI frenemies at the other three Big-4 companies — Google, Siri, and Cortana. Once again, however, this is a move towards a differentiated (i.e., premium) experience.
Third, Apple will not offer the new Apple TV at a lower cost than its predecessor (retailing at $149 for 32GB and $199 for 64GB). This may please those fixated on gross margins, but it leaves Apple stuck with products that are overkill for most customers’ needs. As we discussed last week in the context of the Roku IPO, Roku is slashing device prices in order to gain market share, with most sales now happening at $49 or below. Why? Read on.
2. Consumers Just Want Their Favorite TV Apps. They Don’t Really Care How They Get Them.
TV has always been a thin client. Yes, picture quality is nice, but the reality is that viewers have always cared more about content, not the device. When a traveler walks into a hotel room do they care whether the TV is an LG or a Samsung? Of course not. They just turn it on and start watching CNN like everyone else.
TV app platforms suffer from the same problem. Do viewers care whether they use Netflix via their native TV app platform (which is perceived as free), a cheap Roku box (or stick), or an Apple TV? Not really. The value resides in Netflix, not the underlying platform. In other words, both Roku (with its low-end strategy) and Apple (with its high-end strategy) will face genuine difficulties trying to sell iSTBs going forward. The best positioned company may (don’t laugh) still be Google, which can and does give away Android TV for free in order to capture data and generate search traffic in the living room.
Last week we explained why Roku’s ‘low road’ strategy of selling cheap iSTBs at little or no margin is a tough way to make money. Apple TV’s ‘high road’ strategy is equally challenged. There use cases are not yet sufficiently varied to justify a high-end device. Unlike PCs, tablets, and smartphones, TV-as-an-app viewers just need a few apps (e.g., Netflix and HBO), and those apps are the primary vehicles for accessing original content. The platform (and box it comes in) matters less and less.
Stick with TDG and stay ahead of the curve.
Joel is a Senior Advisor for TDG and serves as an advisor and Board Member to the video ecosystem and technology companies. He lives near Seattle, WA.