Apple TV: What Analysts Are Saying

Updated on

Will Apple ever put out an actual television set to go along with its new Web TV offering? Most analysts agree that it seems likely the company will follow this path. Some say an Apple TV set is necessary to make any meaningful impact on the company’s top and bottom lines.

Apple’s bigger ambitions

In a report dated March 17, Cantor Fitzgerald analysts Brian White and Isabel Zhu said the Web TV service is simply paving the way for bigger and better things from Apple. They think the traditional cable TV model is “antiquated, expensive, over-bundled and in dire need of major changes.” Additionally, they say consumers appear to be ready for change and that they think Apple is one of the few companies that can transform the industry.

The Wall Street Journal reported this week that Apple will announce its Web TV service in June and launch it in September. The publication reported that the service will have about 25 channels, including CBS, Fox and ABC for a price of about $30 to $40 per month. Of course the offering will be available on the Apple TV set-top box and iOS devices.

Apple attracts HBO

Apple already announced a deal with HBO to bring its HBO Now video-on-demand service exclusively to the Apple TV box. The price is $14.99 per month, which is higher than Netflix. Netflix is seen by many as HBO’s main competitor even though the two streaming services are quite different and Netflix offers much greater variety than HBO Now does.

Apple also slashed the price of the Apple TV set-top box from $99 to $69. The goal of that price cut is probably increasing the installed base of the set-top box significantly for the purpose of preparing customers to sign up for the rumored Apple Web TV service.

Apple Web TV service a necessary step

Piper Jaffray analyst Gene Munster said a Web TV service makes sense as the next step toward an Apple TV set, and White aggress. Analysts have been talking about a smart TV set from Apple for years, but it has yet to materialize.

In their report also dated March 17, Bernstein analysts Toni Sacconaghi, Jr. and Eric Garfunkel also pointed out that the story about the mythical TV set and video-on-demand offering has played out numerous times before with nothing to show for it. After all, we’ve been hearing rumors about a TV service since at least 2009.

Why TV networks are worried about Apple’s Web TV

This time they suggest that it could be different, although they point out that the issues Apple faces remain the same. The company has been said to have been negotiating with cable companies for some time, but those talks have broken down repeatedly.

The Bernstein team suggests that the reason the talks have broken down is because Apple wants to offer a service that’s more a la carte rather than bundled. Such an offering would give Apple more control over customers rather than the content providers. They are probably wary of this because of how iTunes transformed the music industry.

Also cable companies are probably concerned about cannibalization, although falling ratings for traditional TV shows in favor of services like Netflix must be making it apparent to cable companies that a change is necessary in order to stay in business.

The real question is whether signing on with a service like Apple’s rumored Web TV is the right answer. Content providers must consider how much revenue they would be able to earn from a service that’s half the price of traditional cable. And then there are questions about how cable companies will respond to Web TV. Indeed, some, like Comcast, are already raising their prices for broadband-only households, making it less expensive to bundle cable TV in with broadband.

Small profit boost from Apple’s Web TV

In another report dated March 17, Nomura analyst Stuart Jeffrey and his team also weighed in on the Apple Web TV rumor. They see a 2% to 4% boost in the company’s gross profits from such an offering. Such a small amount probably won’t boost Apple stock. They add that in order for Apple to see any kind of significant increase from TV would be if it launched an actual smart TV, which they think is possible.

They analyzed what a Web TV service from Apple would look like compared to traditional cable and found that Apple might offer some savings, but not much, if any at all. For example, a similar lineup for a la carte TV stations through Apple might be priced between $104 and $114 per month. That includes $30 to $40 for Web TV, $8.99 for Netflix, $14.99 for HBO Now and $50 for 50/5 Mbps internet access.

A similar bundle from Time Warner would be between $80 and $125 per month. That includes $80 for 20 channels and HBO and 50/5 Mbps internet service. The $125 price would include 200 channels, HBO and 50/5 Mbps internet.

Can Apple set itself apart?

The key question then is whether Apple can set its Web TV service apart. The Nomura team suggested that simplicity may be the key, and this makes sense because Apple has often used simplicity to make its products different. Simplicity could be getting rid of the channels most people don’t care about. They also say that doing this could help Apple optimize the video stream delivery process if it hosts the content on its own infrastructure.

Apple could also join the “TV Everywhere” movement that cable companies are starting to adopt by offering its Web TV service across all its devices. This enables TV subscribers to watch their shows while away from home, like if they go on vacation, or sign up for only one TV service even if they have two homes. Such a differentiation could be especially important for Apple because it could significantly boost iOS device sales.

The Bernstein team made a similar observation in terms of simplicity and playing videos across devices. They also suggest that Apple might offer cloud-based DVR, thus combining mobile video-on-demand with DVR.

Leave a Comment