Originally Posted by sully54
a set top box makes more sense for apple.
They normally go for the full end-to-end eco-system where the quality of the experience is almost fully in their control. Here it really depends on their goal.
The worldwide TV numbers reported are 256m in 2011, 238m in 2012, 225m in 2013. Samsung has roughly 25%, LG 16%, Sony 10%. The upgrade cycle is approximately 7 years.
What the drop in sales means is not that people are stopping buying TVs (in order to use an Apple TV, it requires you to have a TV), it means that people are slowing in buying new TVs. This is the same effect seen with the PC market and more recently with tablets and phones.
The TV box market on the other hand is a growth market because it's not saturated and has a low entry price point. Right now Apple sells around 10 million Apple TVs per year ($1b revenue).
Say that they made a $999 TV and managed to match Sony's marketshare of 10% (22m units), that would be $22b revenue per year.
They have the potential market of over 1 billion TV owners with the box but it depends on how content delivery goes.
If you have a TV that is connected online, there doesn't need to be a box with any high performance capability because the UI can be delivered over the internet like it is with a web page. TV channels would essentially become bookmarks to content streams that can be broadcast by anyone and monetized by Google ads or iAds.
The only hardware you need is a processor capable of streaming video and rendering basic web content - this capability shouldn't change much over time.
If Apple intends to be simply a conduit to other people's content that will be accessible from any box then what is it that sets the Apple TV box apart?
The margins are low for competitors in TVs but they are low for PCs and smartphones/tablets that compete with Apple too.
If we assume that Apple can monetize the content such that each user makes them $30 per year in revenue (this comes from iTunes revenue vs user count), the following are roughly equivalent:
20 million TV units per year at $999 with $30/user
160 million boxes per year at $99 with $30/user
If we assume the TV would be upgraded every 7 years and the box 3 times during the same time, the revenue from this set of buyers over 7 years would be:
(2x $999 + 7x $30) x 20m = $44b
(3x $99 + 7x $30) x 160m = $81b
So the box looks to be the bigger earner if they hit those volumes (or makes the same revenue for just over 4x the units and that's easy at 1/10th the price). There's a while to go before they hit 160m Apple TV buyers per year. If they exceed 30% growth year over year, they'd reach it in 10 years. The problem with the box is simply that eventually people will all have smart functionality inside the TV or direct over the connection so there won't be a demand for additional boxes in which case, they may as well go with a TV unit. If they add games to the TV unit then that's a slightly different story but these can be delivered over a network connection too.
If there's a compelling enough display technology that comes along, then that will create a growth market. Some kind of projection system would be ideal if they can get the quality right by allowing for varying reflectance of the surfaces being projected onto. For now, it looks as though the box would be the best strategy and is fairly non-commital. They don't have to fight to sell the units.