Without making an announcement, Apple slashed the price of its larger-capacity Apple TV set-top box on Monday and discontinued a lesser model. Even with the price cut, the product is unlikely to survive if it does not adapt to consumer demands in the entertainment market, analysts agree.
The price reduction brings the 160-GB Apple TV from $330 down to $230 — the price of the previous 40-GB model, which is no longer for sale.
“In its current form, the Apple TV is not a product that has very much life in it,” said James McQuivey, a Forrester analyst. “I think that’s reinforced now that they’ve cut one of the [models] and they’ve reduced the price.”
Apple executives, including Steve Jobs, have repeatedly referred to Apple TV — a digital media box that plays content from a user’s iTunes library on a television — as a “hobby.” In earnings calls, the company has carefully avoided revealing sales numbers of the product.
When speaking about his skepticism in Amazon’s Kindle e-book reader, Jobs has said that avoiding disclosure of product sales is a sign of weakness, because “Usually, if they sell a lot of something, you want to tell everybody.” Clearly, Apple does not have much to brag about with the Apple TV.
Apple won’t even have an Apple TV to talk about in the near future if the company does not make major revisions to the product and its business model, McQuivey said.
Apple has dismissed the idea of an Apple TV featuring a TiVo-like digital video recorder, but McQuivey speculates that a hybrid device would be compelling. He suggests, for example, a device capable of recording HDTV programs while providing the additional option to subscribe to receive a fixed number of movie downloads each month via iTunes.
“It’s a product they need to morph into something bigger or take it out completely,” McQuivey said. “It doesn’t have a market-shaping role, and Apple is a market shaper.”
It’s unlikely the underwhelming performance of the Apple TV is Apple’s fault, said John Barrett, an analyst and director of research at Parks Associates. That’s because the set-top–box segment of the market is a particularly tough environment, packed with various options for consumers to purchase and watch video.
Other than the obvious competitors such as the Netflix Roku set-top box, which streams movies from Netflix.com, Apple is competing with several other players that serve video to consumers in different ways. Cable providers offer movies for purchase through video-on-demand services on their digital cable boxes. Many cable boxes even include a DVR for recording TV programs.
Apple even has to worry about videogame consoles: Sony offers an online movie rental and purchase system through its PlayStation 3, and Microsoft’s Xbox 360 features a Netflix streaming application.
And then there are the do-it-yourself workarounds to account for: Consumers install entertainment software such as Boxee onto their computers and connect them to their TVs. And of course, digital pirates sail the internet seas.
On top of this, the entire set-top–box category (which Barrett calls “media adapters”) might not survive the next three to five years. Set-top–box revenues declined 2 percent in the second quarter of 2009, according to Del O’ro Group, a market research firm. The cost of internet-enabled TVs are dropping “like a rock,” Barrett said, and once they become widely adopted and technologically refined, they’ll be able to stream and download media without the help of a companion device, rendering the set-top box irrelevant.
“You’re in a tough market that by nature is kind of temporary,” Barrett said.
The shift to widespread consumer adoption of internet-connected TVs will take some time since the replacement cycle for TVs is longer than most other electronics, Barrett said.
“It’s going to take time,” he said. “But it’s probably going to be a year when people realize, ‘I can get this connected TV, and I can get whatever kind of content I want on it.’”
Perhaps rather than killing its set-top box, Apple will morph its Apple TV into an actual TV, McQuivey speculated.
“Apple has always said they don’t want DVR in the Apple TV,” McQuivey said. “Does that mean they won’t, in the future, take the guts of the Apple TV and put it in a television made from Apple? Add some DVR or put in a Blu-ray player? That’d be a new animal.”
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