The Apple rumor that won't die

Is Apple TV the next big thing?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What's 42 to 55 inches long, costs more than any competitive device, and will revolutionise a new industry? According to Apple (Nasdaq: AAPL) perma-bull Gene Munster, it's the long-awaited Apple TV. Sound familiar? Munster's been beating the TV drum for years, and his constant theorising's finally begun to infect the rest of us.

The source of more hype than anything in Apple's product lineup, this mythical device is all but sitting in the living rooms of fans everywhere, despite the fact that we know virtually nothing about it. As more precise predictions emerge, it becomes easier to analyse the market opportunity. Let's take a look at how big an Apple TV could really become, and whether this hype is justified or just too much.

Keeping it simple
Foolish analyst Evan Niu had his own take on Apple's TV design earlier this month. Let's add the latest Munster predictions to the mix:

  • Size: 42 to 55 inches.
  • Pricing: US$1,500 to US$2,000.
  • Components: LCD panel, aluminum casing.
  • Interface: Siri voice activation, content guide integration.
  • Replaces: Blu-ray player, cable box, game system, universal remote.

The last bullet point is perhaps the most important. Munster doesn't say precisely how Apple would replace the cable box, except that its interface would give users "a new way to search, interact [with], and record cable content." The downside is that he also says that cable companies might charge consumers a fee to use the Apple TV with their content.

Munster also apparently expects gamers to switch wholesale from their PlayStations, Wiis, and Microsoft (Nasdaq: MSFT) Xboxes to Apple's App Store games. Replacing the universal remote with Siri and an iPhone is relatively straightforward — the company's current US$99 set-top device already does this.

Crowded house
Will Apple really come to dominate TV the way it does phones and tablets? The bull case for its success is tied to tearing the current content model up by the roots and replacing it with a la carte cable pricing and on-demand video. This is pretty similar to what happened with iTunes, and cable companies must be keenly aware of the danger in losing control of their content. Music industry revenues were cut in half after iTunes made "a la carte music" mainstream.

Munster doesn't anticipate that the Apple TV will come out with such a scheme, though. Instead, he expects Apple to take three to five years to grind content providers down to the point where they agree to sell content without bundles. The TV would come with Netflix (Nasdaq: NFLX) and Hulu, but the current set-top box already works well with Netflix. So, too, it should be noted, do the Xbox 360 and Sony's (NYSE: SNE) PlayStation 3, as do many existing connected TVs. This seems a bit like selling a "flying car" that doesn't actually fly while promising to add the hoverjet engines in a few years.

Many TV watchers use only a fraction of their channels, and they may not even use the costliest. An SNL Kagan report from several years back tallied up the costs of major cable channels and found that a few make up the lion's share of costs. Sports networks were the worst offenders, with Disney's (NYSE: DIS) ESPN alone adding more than US$4 to the average cable bill. Disney's branded channel was also quite expensive, as were many Fox-branded stations. Disney and News Corp. would no doubt fight fiercely to prevent a la carte pricing, as would Viacom, as those content cartels control many of the costlier channels that consumers might willingly forsake. Cable industry revenues are much higher now than the music industry's ever were, so more is clearly at stake.

Foolish final thoughts
Nobody needs another TV that does all the same things their existing TV does for a higher price. Sony and Samsung had to force retailers to prop up their TV prices. Without the "big idea" of a la carte cable options, Apple would not only directly compete with cheaper options, but it'd also have to justify the much higher cost of a TV that does everything its little set-top box does for US$99. Content is king, and Apple has competitors aplenty, including Netflix, Microsoft, and many other tech companies in between.

TVs might be a profitable avenue, but without transforming content it's just one of many, no matter how nice the design or how valuable the brand pedigree. And let's not discount the value of game consoles, which are increasingly moving toward the same content-distribution model as Apple's iTunes while offering superior game play. Will there be motion control built into the TV? Will it be able to run games as polished as those found on major consoles? It seems unlikely, and that makes it unlikely that Apple can effectively nudge Microsoft out of gamers' living rooms.

I would love to see a new content pricing model and would have no problem justifying a hardware premium if it meant long-term content savings. But without that big shift, there just doesn't seem to be any reason for Apple to make a TV, except to satisfy the vanity of a discerning minority. Rolling out a more expensive device without reason could be a major failure for a company that the world now looks to for transformations. Don't call this an Apple win. Right now, it's just a pointless money grab.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

 More reading

The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Alex Planes, originally appeared on

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »