Apple Inc. (AAPL) With Others Preparing For Smart TVs’ Battleground

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A report from Goldman Sachs (NYSE:GS) believes that future models of televisions will the ‘next potential catalyst for disrupting current market dynamics’. The television will enjoy a similar popularity as enjoyed by smartphones presently. The future televisions will disrupt the market mechanics in the same way, as has been done by smartphones and tablets, creating new category leaders and putting the likes of Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC)’s relevance at risk.

Apple Inc. (AAPL) With Others Preparing For Smart TVs' Battleground

The report says, “Given consumer cloud platforms largely center around media consumption, in our view, the television is a natural extension of these platforms giving another device on which to deliver their services”.

The report from Goldman, lists out a few reasons, highlighting why television is an attractive target. First, a television carries a higher purchase price than a smartphone, with an average 46-inch set costing 3 times the average wholesale price of a smartphone. Second, the replacement cycle for televisions is four times more than that of a smartphone. Though this cuts in on the revenue, it also “creates the potential for competitive disruption, as we believe consumers will match the platform of their more frequently purchased smartphones and tablets to the television they already own”, report says. Third, since television is a shared device, it has the potential to impact the platform choice of an entire household, rather than a single individual.

With such a huge opportunity, the report expect, Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Samsung should be gearing up to take on the connected viewing experience, while Facebook Inc (NASDAQ:FB), given its massive user base, will continue to serve as the ultimate compliment. The $110 billion worldwide television market is already witnessing the action, through set-top box-like devices, such as Apple TV, Google TV, Roku boxes, and through streaming video services on Microsoft’s Xbox gaming console. In the second half of 2013, the report expects the launch of Xbox720, which will take gaming and streaming content to another level. Also, online communications will receive a boost from assets acquired by Skype.

The television hardware industry, like others, is not without challenges, with issues ranging from low-single-digit margins, heavy inventory risk, and rapidly changing technology.  On the content side, the report says the “cable bundle is deeply entrenched, given how its economics highly favor the networks, making it difficult to offer consumers attractive a la carte pricing”.

The attractiveness that the industry offers in term of consumer lock-in will surely drive platform companies to continue exploring the space. The battle that we are currently witnessing in the smartphone market is just getting started in the television hardware space, “we see it as having the potential to either further entrench current winners, such as Apple Inc. (NASDAQ:AAPL), or completely disrupt the market once again”.

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