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So far, Apple TV is just a set top box that set-top box that can wirelessly stream or download iTunes videos, podcasts and music from a computer to a television. But speculation swirls that the company might build an integrated HDTV with an easy user interface. (PAUL SAKUMA/Paul Sakuma/AP)
So far, Apple TV is just a set top box that set-top box that can wirelessly stream or download iTunes videos, podcasts and music from a computer to a television. But speculation swirls that the company might build an integrated HDTV with an easy user interface. (PAUL SAKUMA/Paul Sakuma/AP)

TheStreet

Why Apple is probably already building an 'iTelevision' Add to ...

Steve Jobs, the late co-founder and former CEO of Apple , told a biographer Walter Isaacson he “finally cracked” the difficulty of creating an integrated television set. In his new book Steve Jobs, Mr. Isaacson says Mr. Jobs, who died on Oct. 5 from complications related to pancreatic cancer, wanted to do for television sets what he had done for computers and phones.

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“ ‘I'd like to create an integrated television set that is completely easy to use,’ ” Mr. Isaacson says Mr. Jobs told him. “ ‘It would be seamlessly synced with all of your devices and with iCloud.’ No longer would users have to fiddle with complex remotes for DVD players and cable channels. ‘It will have the simplest user interface you could imagine. I finally cracked it.’ ”

That revelation supports rumors that have circulated for years about Apple further penetrating the living room. In particular, it vindicates Piper Jaffray analyst Gene Munster, who was calling for an Apple integrated television more than a year and a half ago.

“We believe Apple could combine an all-in-one home-entertainment system built around the Apple TV software,” Mr. Munster wrote in a March 23, 2010, research note. “We believe the addressable market is a meaningful one, and one that represents a strategic opportunity for Apple.”

As is typical of Apple, the company long denied the viability of an Apple television set. While he played around with the Apple TV set-top box as a “hobby,” Mr. Jobs was vocal about his view of the future of television. At the All Things Digital conference last year, MR. Jobs candidly said that “television is very balkanized” and that “subsidized set-top boxes have squashed innovation because no one wants to pay for separate boxes.”

Mr. Munster, in March 2010, acknowledged that “TV hardware is a challenging, low-margin business if you don't change the rules of the game. But we see potential for Apple to offer best-in-class hardware, software and content and charge a premium.”

An Apple-made, high-definition TV set doesn't require a lot of imagination. Apple already offers a 27-inch LED Cinema HD monitor for $999. An Apple HDTV could be competitively priced at $1,800 for a model, Mr. Munster speculates. He also noted last year that Apple could modify an iTunes subscription service for television shows, charging anywhere from $50 to $90 per month.

Mr. Munster took a victory lap on Monday by pointing out the passage on an Apple TV in the Mr. Jobs biography. Additionally, Mt. Munster says meetings with contacts close to Asian component suppliers, industry insiders, Apple's patent portfolio for television technology, and recent product launches like iCloud and Siri point to an Apple TV launch next year.

“If Apple was going to launch a TV in late 2012, we believe it would add about 3% to our 2013 revenue and only be slightly dilutive to [gross margins]” Mr. Munster writes.

Mr. Munster also reveals that last month, his team met with a contact close to an Asian component supplier “who indicated that prototypes of an Apple television are in the works.”

But exactly how profitable an Apple HDTV could be remains to be seen. For his part, Mr. Munster estimates that 220 million flat-panel TVs will be sold next year, with nearly half of those sets supporting Internet connectivity. Apple could sell 1.4 million units, Mr. Munster says, and it could add $2.5-billion to 2012 revenue, or roughly 2% of the company's total.

The reason Apple could be a differentiator in the television market is the iOS platform. Apple has already sold over 200 million iOS-capable devices. Munster speculates the company could include that type of software on an Apple television and could open up the software to third-party developers. This has been a boon for game and application developers on the iPhone and iPad, as there are more than 425,000 apps offered in the Apple App Store.

That news helped boost Apple shares, which climbed nearly 3% to cross $400.



 
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