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IHS Sees Opportunity For Apple TV

El Segundo, Calif. –


issued a study Monday saying Apple could be successful in the connected TV
space if it were to deliver a product that properly marries an easy-to-use interface,
high-quality display and content.

The report surfaced following rumors and speculative press
reports that Apple is working on an all-in-one Apple TV product. The company
has made no such announcement as yet, however.

IHS said it believes Apple “has the opportunity to develop a
lucrative new business model that could allow it to cut a profit despite the
weak market conditions of the TV market.”

The study, called IHS iSuppli Home & Consumer Electronics, postulates
that anything Apple develops would be “simple to utilize and functional right
out of the box, in keeping with Apple’s user-friendly approach to hardware.”

This approach would allow Apple to integrate access to pay
television right into the TV, differentiating it from competitive solutions and
enabling Apple to test the waters for subscription TV revenue.

IHS speculated that Apple could expand its existing iTunes
services, or partner with pay TV providers to deliver programming via cable,
satellite or other means.

“Such a partnering deal could be critical to the success of
Apple’s television and could serve to reshape the television business, much in
the same way the company has revolutionized the music market with iTunes,” the
report stated.

“Apple has the opportunity to do for television what has done for
PCs and tablets — offering something that’s easy to use, works right out of
the box and that delivers a compelling user interface that’s unparalleled in
the industry,” said Randy Lawson, principal analyst, display and consumer
electronics at IHS. “But even more important than that, Apple is really the
only company that can pull off partnerships with operators, allowing it to
offer a television set that’s completely ready to watch when a consumer buys
it, requiring no additional hardware like a set-top box, or a subscription for
service from a third party.”

Apple could help the TV industry pull out of a flat market that
is no longer enjoying the double-digit growth percentages seen in the mid to
late 2000s, IHS said.

Instead, the company sees global television shipment revenue
growth slowing to low single digits in 2011 and 2012, stagnating in 2013 and moving
into declines in 2014 and 2015.

Global pay television subscription revenue, on the other hand,
should continue to rise in the coming years. Although growth will slow
somewhat, revenue still is set to expand by a healthy 5 percent in 2015, IHS

The figure below contrasts the IHS forecasts of global revenue
growth for televisions and for pay-TV subscribers.

“In light of these diverging trends, if Apple does enter the
television market, it will have to make its money not on hardware, but rather
on subscriptions to content,” Lawson said. “This is a similar model to the
wireless communications market, where cellphones are sold to consumers at a
breakeven price or even at a loss, and the profits are all made on mobile
service subscriptions. Apple has achieved major success with this model with
the iPhone in the wireless market and could bring a similar business model to
the television business.”

IHS is betting that any new Apple TV will take the all-in-one
approach to integrated IPTV, distancing itself from separate displays and
set-top devices, like its underwhelming by sales standards, Apple TV set-top

“Apple TV is only a marginally successful product because it
doesn’t allow Apple to control the entire experience, as it has done in the
past with products like the iMac,” said Lee Ratliff, principal analyst,
broadband and digital home for IHS. “If Apple were to offer another set-top
box, it would have the same problems that Apple TV has with consumer being
forced to hook the box up to a television, and integrate the device into their
existing entertainment system. I think Apple might may to enter the TV market
so it can offer an integrated experience, where all the hardware, software and
content come in one easy-to-use package.”

IHS speculated the product may be at least a 50-inch set using
LCD technology. The panel represents the most expensive component of an LCD TV;
however, the large-sized LCD market is currently in a state of oversupply that
may worsen over time, making such panels increasingly affordable when the Apple
television begins shipping, which is rumored to be in late 2012, IHS said.

A critical feature of the Apple television will be the user
interface. IHS believes Apple plans to use the Siri voice-recognition software
first employed in the iPhone 4S smartphone.

“This will bring revolutionary ease of use to the set, allowing
users to eschew complex, easy-to-lose remote controls and instead employ voice
commands using natural language,” the report said.

On the content side, the market research firm expects Apple to
partner with cable operators to bring content to the platform.

“To make money in the low-margin television business, Apple’s
product is going to have to be different from every TV that’s on the market
today — and it will have to deliver more than just a whiz bang interface,”
Lawson noted. “The company likely will partner with television service
providers, allowing Apple to cash in on subscription revenue.”

IHS speculated that the sets could be sold outright or leased to
consumers through cable operators, in a fashion similar to the way the iPhone
is sold through cellphone service providers.

However, IHS television technology head Tom Morrod warned, Apple
may face major challenges in trying to sort out the technical and business
issues related to such a partnership. One challenge is the fragmented nature of
the pay TV market, with a multitude of operators with unique conditional access
systems dividing up countries and regions.

On the other hand, Apple’s move into the content side of the
television market may represent an incursion into the pay TV operators’
traditional territory, reducing their incentive to enter a partnership.

“Apple may benefit from controlling the pay TV ecosystem — but
it’s critical for cable operators to control that ecosystem,” Morrod said. “The
television market is different from the mobile handset market. In the phone
market, wireless coverage is a commodity — so Apple’s iPhone had an
opportunity to create differentiation. However, the content services operated
by the cable operators are the differentiator. There’s less need to
differentiate on the hardware, and more benefits to find innovative services
and application, like digital video recording. However, unless Apple can find
and monopolize one such service, there is little incentive to share
subscription revenue with a hardware maker like Apple.”