Apple TV or ‘iTV’: What To Expect?

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Hear me out everyone. I have an intuition here. Never invest based on speculations like these, but it’s still fun trying to piece together what Apple Inc. (NASDAQ:AAPL) will do next.

I think Apple Inc. (NASDAQ:AAPL) may be setting us all up for a major surprise with the upcoming Apple TV launch. Everyone is expecting a mere incremental hardware upgrade to the next Apple TV and possibly the introduction of a new app store and some more content.

Basically we’re all expecting a simple refresh over the last Apple TV.

But Apple is well-known for surprises.

I think there’s a very real possibility that the next update to Apple TV is really what analysts have dubbed the “iTV” and here’s why.

If it wasn’t obvious enough already, Tim Cook announced loud and clear in a recent interview with the Wall Street Journal that Apple is working on “really great stuff” in “new product categories”.

And during investor conference calls, Tim Cook has repeatedly stated that 2014 will be a year in which Apple finally emerges from its multi-year hibernation andonce again enters exciting new product categories.

The interesting thing to note is that Cook speaks about “new product categories” rather than “a new product category” – which meansit is likely we will see more than one new innovation from Apple in 2014.

There are 3 main rumors on the Street right now regarding what these supposed product categories will be (based on leaks, patents, acquisitions, hiring data, etc.).

The consensus is that Apple will be releasing either a wearable smartwatch called the “iWatch”, or a revolutionary next-generation television set called the “iTV” or a large-screened “iPhablet” smartphone. Many analysts think Apple will release all three of these rumored products in 2014.

But for the purposes of this article, let’s take a look at the possibilities of what the “iTV” could be.

I want to take a moment to remind everyone why Apple has been as successful as it has. Apple has never truly created a new product category – but they have re-invented product categories time and time again.

When Apple enters a new product category, they look at what it is about that technology that can be made simpler and more intuitive to provide a much better customer experience.

The Macintosh’s new user interface made the personal computer accessible to non-programmers. The spin wheel of the iPod transformed MP3 players from something difficult and painstaking to use into a delightful user experience. The touch screen iPhone finally made smartphones smart. I could go on, but to summarize the core of Apple’s product focus, here’s a quote by Steve Jobs’ handpicked senior vice president of design and so-called “spiritual partner at Apple”:

“I think there is a profound and enduring beauty in simplicity, in clarity, in efficiency. True simplicity is about so much more than just the absence of clutter and ornamentation. It’s about bringing order to complexity” –JonyIve

That statement right there sums up what drives Apple’s product focus.All of Apple’s biggest hits have at least one key feature in common in that Apple “revolutionized” the product category by taking a difficult to use user interface and simplifying it to make it more accessible to consumers.

So what does all of this have to do with the new Apple TV?

First a little personal info. I spent this past Christmas with my family, and the TV remote at my folk’s place must have had at least 100 different buttons on it. My old man got into arguments with my mom over how to perform basic operations on the TV because he couldn’t figure out how to use the remote – especially at night when it can be hard to read all the tiny buttons. My mom had to show me (a millennial!) how to use some of the functions, and in general it’s just an overly-complicated and frustrating experience trying to figure out these TV remotes and out-dated TV user interfaces. The first time I used an iPod, iPhone, or iPad I somehow intuitively already knew how to use them – it should be the same for TV in the 21st century.

It seems like a (to quote Carl Icahn) “no-brainer” that Apple will move into the TV space to do what they do best: simplify. Apple is going to kill the complicated and messy remote and replace it with the simplest, most intuitive controller ever: our hand.

Apple recently acquired the Israeli 3D sensing technology firm PrimeSense for about $350 million. PrimeSense has developed a revolutionary gesture-based TV user interface where users can control the TV with smartphone-like gestures with their hands. Imagine scrolling through channels with the flick of a wrist and seamlessly navigating throughout your TV interface without issue. No more looking for the remote. No more trying to find buttons.

Furthermore, PrimeSense has miniaturized their 3D sensing chips (which power the Xbox Kinect) to the point where they can now fit inside a smartphone.

Putting two and two together, why wouldn’t Apple include PrimeSense 3D sensing in its next iteration of Apple TV to completely revamp the UI?

And with the Matcha acquisition (video programming recommendations) and numerous leaks regarding Apple Inc. (NASDAQ:AAPL)’s high level negotiations with content providers such as Time Warner to offer a new form of content delivery, it seems as though Apple potentially has all the ingredients in the bag to redefine the TV experience (revolutionary UI + transform the content delivery system via apps-based TV channels) without needing to create its own full TV set.

I think analysts are far too hung up on the revolutionary “iTV” being a full TV set that they are playing right into Apple Inc. (NASDAQ:AAPL)’s hands and assuming that the Apple TV itself can’t be revolutionary.

Would a simple and intuitive gesture-based TV user interface combined with apps-based programming where instead of paying for 50 channels to use only 4 you pay for exactly the channels you wish to use (much like how Apple transformed the music industry from purchasing entire albums to purchasing individual songs on iTunes) revolutionize the TV industry? And perhaps more interesting, wouldn’t the margins on such a device be potentially far greater than the margins on a full TV set?

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