Apple 2.0

Covering the business that Steve Jobs built

Analysts weigh in on the new Apple TV

September 2, 2010: 12:49 PM ET

Steve Jobs' latest iteration of the set-top box gets mixed-positive reviews on Wall Street

Photo: Apple Inc.

Piper Jaffray's Gene Munster:

We see the new Apple TV as a meaningful change in Apple's efforts in the digital living room. The addition of new content, such as Netflix, in combination with the $99 price (down from $229), will drive higher unit volumes compared to the the previous version of Apple TV. We estimate Apple has been selling about 400k Apple TVs/yr, which we expect will increase to about 1.5m Apple TVs in FY11. We estimate the incremental Apple TV units would add ~$50m in revenue to FY11. The negative on Apple TV is that, with the exception of Netflix streaming, the device is still relatively light on content. We see the Apple TV as an important step toward an all-in-one Apple television. We continue to expect Apple to launch an all-in-one Apple television in CY12. As consumers gain comfort with connected TVs and apps on their TVs, we believe Apple will eventually take its all-in-one philosophy to the digital living room like it has with the iMac and the iTunes ecosystem.

Kaufman Bros.' Shaw Wu:

A new Apple TV was unveiled but the limited feature set make it feel like a work in progress. The main capability many were hoping for was the ability to run apps from the iTunes App Store and it looks like AAPL decided to leave this out for now. The ability to rent TV shows and movies is great as well as having access to Netflix's streaming video service. We believe the new product is positioned to sell better than its predecessor helped by a lower $99 price point but is likely remain a "hobby" where volumes will likely be modest. The good news is that consistent with our supply chain checks, it now uses an ARM processor architecture (away from INTC x86), similar to that for the iPhone, iPad, and iPod touch meaning it should be fairly easy to add App Store capability in the future.

Oppenheimer's Yair Reiner:

The new Apple TV, while unlikely to move Apple's bottom line much, is poised to provide iOS a growing foothold in the family room, a development that could open the door to further long-term opportunities while also boxing out would-be rivals such as Google. ... The core use model has also shifted from buying to renting content, reducing the need for storage and helping shrink the size by 75%. [Its] price was slashed to $99 from $229, removing any umbrella Google TV might have hoped to hide beneath.

Altimeter's Michael Gartenberg:

Overall, I like Apple's approach. By not attempting to include DVR functionality Apple sidesteps the battle for input one on the TV set. It's a very different approach that Google is taking and I suspect Apple's approach will likely have more appeal to mainstream consumers. [Twitter version: "Apple and Google taking two different approaches. Google wants input one. Will never get it. Apple wants input two and might."] I also expect there's going to be some questions of a TV device with no apps. While I think an app ecosystem for TVs can make sense, like the iPhone before it, Apple needs to educate the market on on a paradigm shift. This Apple TV is a reset in many ways and the TV a device with very entrenched habits and behaviors. Before consumers can make a shift to that model, Apple needs to establish a position in the living room. There's also a lot of issues in terms of user experience, command and control and content rights that need to be figured out. I expect over time we'll see more here as this product evolves.

Cowan's Matthew Hoffman:

We are less sanguine about the Apple TV update. Though the new hardware is smaller (1/4 the size) and cheaper ($99) with content from major players (e.g. Netflix, FOX, ABC ), it does not include iOS; that would have opened the device up to more revolutionary use cases given the extensive iOS app and developer support. Though improved, the new Apple TV still seems best suited for people who forget to set their DVR and/or really want to watch TV shows where wireless and/or place-shifting options (e.g. Slingbox) are not available.

Forrester's James McQuivey:

Today's announcements from Apple show just how hard it is to get into the TV business. Just 12% of online adults in the US are familiar with the original Apple TV. To get the rest of the market to pay attention, Apple has to offer more of what people want in the living room: more TV shows. Yet only ABC and Fox have agreed to let Apple rent their TV shows; meanwhile the Apple TV becomes merely one of dozens of devices – some even cheaper than $99 – that can stream Netflix videos to the living room. The most important hint of Apple's real ambitions in the living room come from AirPlay, which puts iPhones and iPads in the driver's seat and makes the TV just an output device for the Apple ecosystem. Expect Apple to gradually push more and more in that direction, but as of this moment in 2010, Apple has not yet made a significant play for control of the TV.

Gleacher's Brian Marshall:

Apple TV is Slowly Evolving: While the updated Apple TV represents a dramatic improvement from its 2006 origins, we are still waiting for the device to be iOS-based and offer the ability to run Apps in the living room (i.e. on the TV). We concur the successful model of content viewing in the future will be rental based (vs. "old school" ownership).

Susquehanna's Jeff Fidacaro:

Disney's ABC and News Corp's Fox networks will be the initial content providers... Other studios and networks may follow suit, yet we believe this will depend on the success of the device, pricing, and velocity of content sales. Our supply chain checks showed that production levels for Apple TV still remain conservative with build estimates of "a few hundred thousand" in 3QCY10, and ramping up in 4QCY10 to about 1 mln units.

Stifel Nicolaus's Doug Reid:

The new Apple TV delivers on all fronts...except content. The second generation Apple TV gives Apple its first credible shot at becoming a leading player in living room media delivery. Specifically, Apple's move away from expensive buy-and-store movies and TV (was $2.99 for many HD TV shows) toward streaming movies and TV (at $0.99) appears to be well-mapped to consumer preferences. The $99 pricing, which is 57% lower than the "hobby" device it replaces, brings the buying decision for fiercely loyal core Apple customers and marginal consumers alike into the high-volume continuum between impulse purchase and popular gift idea. We estimate units sales could reach 4.5mn in first 12 months, but at gross margin well below corporate average we expect an immaterial $0.00-$0.02 impact on EPS.

RBC's Mike Abramsky:

Apple TV's changes (smaller, lower cost, iOS architecture, Netflix streaming) may stimulate sales in the near term, but may not alter its status as a 'hobby'. Despite the addition of TV show rentals, Apple TV's limited content (only ABC, Fox and Disney – with limited shows) restrains appeal to mainstream as some studios resist Apple's $0.99 rental pricing model. Despite these challenges, Apple TV may in time become a more significant appliance in Apple's assault of the living room. Apple needs to sell 2.3x Apple TV units to offset the price cut, still immaterial to results (<1% of rev).

Needham's Charlie Wolf:

In an effort to jump-start Apple TV sales, the company cut its price to $99 from $229, reduced the cost of TV rentals from $1.99 to $0.99 and added a feature that allows Netflix subscribers to manage their queues and watch movies. Users can rent over 7,000 movies from Apple's library on a day-and-date basis. In our opinion, however, Apple TV will continue to play second fiddle to the iPod, iPhone and iPad.

Deutsche Bank's Chris Whitmore:

The event was largely in-line with expectation and consistent with our preview.... Apple TV was refreshed and attractively priced at $99 with streamed Netflix movies (i.e. rented not purchases) and HD TV rentals from ABC and Fox (thus far). Content is priced at $0.99 per episode for TV (commercial free) and $4.99 for HD movies.

Morgan Stanley's Katy Huberty:

More affordable Apple TV device ($99 vs. $299) + content (cheaper TV and movie rentals + Netflix integration) could move this category from early adopter to more mainstream uptake.

For Apple's (AAPL) press release, click here. For a more detailed sales pitch, with pictures, see here.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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