Apple TV said to be worthy of overtaking both TiVo and Netflix
Although AppleTV has ceded the limelight to iPhone and similarly been overshadowed by the buzz preceding the launch of Leopard, it could prove to be as disruptive to legacy video purchase-and-consumption behavior as the iPod has been to traditional music business model, one Wall Street analyst says.
"We believe the potential is huge for this small device," ThinkEquity analyst Jonathan Hoopes, who maintains a bullish outlook on shares of Apple Inc., said on Monday. "Apple TV is an ideal conduit for multiple services including DVR, paid-for content, gaming, or advertising."
In a note to clients, Hoopes reiterated his Buy rating and $120 price target on shares of the Cupertino-based company, explaining that the combined value of the business opportunities presented by Apple TV could be worth $5.3 to $11.4 billion.
"In addition to sharing digital content within the home, we believe investors should understand the value of the various potential business models that Apple TV could enable," he wrote. "As a digital media content delivery vehicle positioned in users' living rooms, we think the AppleTV/iTunes combination could become as disruptive to legacy video purchase-and-consumption behavior as the iPod/iTunes combination has been to the traditional music business model."
In addition to the higher average selling prices offered by movies over music tracks, the analyst believes there is potential for Apple TV to eventually target gamers and feature TV guide-like services, presenting interesting opportunities for high-margin and recurring subscription or advertising revenue models.
Calling it a "network computer in disguise," Hoopes said AppleTV could easily see hardware and software enhancements that will allow it to do more than just stream media from the home Mac or PC.
"Apple TV can, in our opinion, be easily turned into a DVR with little or no hardware modification and a software upgrade," he wrote. "We think Apple's brand, established distribution, marketing power, over 100 million total iPod unit shipments, and 22 million active Mac users would create more than enough energy to propel an AppleTV TiVo-like service to a higher subscription base than TiVo's current 4.4 million users."
Similarly, the analyst said that Apple TV has already established itself as a direct competitor to Netflix even before the first commercial unit is connected to a TV monitor. "Whereas Netflix brought 'Blockbuster' to your mailbox, we believe AppleTV will bring Hollywood to your living room," he told clients. "Moreover, we think this device is well-positioned to quickly overtake Netflix as broadband Internet access becomes more ubiquitous and the Internet becomes the de-facto channel for content delivery."
Among the potential revenue-generating strategies said to be available to Apple under a Netflix-like model are: a movie subscription service, pay-per-view downloads, and advertising opportunities in the living room. Given time and focus for the details of such strategies to fall into place, Hoopes believes Apple TV could eventually flourish as a rental platform.
In his note to clients, the ThinkEquity analyst also spoke at length about the potential for Apple to flex its muscle in the video game market if Apple TV is able to achieve central status as a next-generation home entertainment enabler. However, he warned the company would face still competition from the likes of Sony, Microsoft and Nintendo, should it embark on such a journey.
"That said, Apple could use its AppleTV to join the gaming game given the margin-rich opportunities that reward game designers who successfully meld a solid understanding of what users want with software design skills," he wrote. "We note that Apple CEO Steve Jobs founded Pixar, a successful animation film studio. While we acknowledge that making popular cartoon movies is not the same as making video games, we do see some links in terms creativity and animation skills."
The first shipments of Apple TV are expected to begin making their way to stores sometime this week.
"We believe the potential is huge for this small device," ThinkEquity analyst Jonathan Hoopes, who maintains a bullish outlook on shares of Apple Inc., said on Monday. "Apple TV is an ideal conduit for multiple services including DVR, paid-for content, gaming, or advertising."
In a note to clients, Hoopes reiterated his Buy rating and $120 price target on shares of the Cupertino-based company, explaining that the combined value of the business opportunities presented by Apple TV could be worth $5.3 to $11.4 billion.
"In addition to sharing digital content within the home, we believe investors should understand the value of the various potential business models that Apple TV could enable," he wrote. "As a digital media content delivery vehicle positioned in users' living rooms, we think the AppleTV/iTunes combination could become as disruptive to legacy video purchase-and-consumption behavior as the iPod/iTunes combination has been to the traditional music business model."
In addition to the higher average selling prices offered by movies over music tracks, the analyst believes there is potential for Apple TV to eventually target gamers and feature TV guide-like services, presenting interesting opportunities for high-margin and recurring subscription or advertising revenue models.
Calling it a "network computer in disguise," Hoopes said AppleTV could easily see hardware and software enhancements that will allow it to do more than just stream media from the home Mac or PC.
"Apple TV can, in our opinion, be easily turned into a DVR with little or no hardware modification and a software upgrade," he wrote. "We think Apple's brand, established distribution, marketing power, over 100 million total iPod unit shipments, and 22 million active Mac users would create more than enough energy to propel an AppleTV TiVo-like service to a higher subscription base than TiVo's current 4.4 million users."
Similarly, the analyst said that Apple TV has already established itself as a direct competitor to Netflix even before the first commercial unit is connected to a TV monitor. "Whereas Netflix brought 'Blockbuster' to your mailbox, we believe AppleTV will bring Hollywood to your living room," he told clients. "Moreover, we think this device is well-positioned to quickly overtake Netflix as broadband Internet access becomes more ubiquitous and the Internet becomes the de-facto channel for content delivery."
Among the potential revenue-generating strategies said to be available to Apple under a Netflix-like model are: a movie subscription service, pay-per-view downloads, and advertising opportunities in the living room. Given time and focus for the details of such strategies to fall into place, Hoopes believes Apple TV could eventually flourish as a rental platform.
In his note to clients, the ThinkEquity analyst also spoke at length about the potential for Apple to flex its muscle in the video game market if Apple TV is able to achieve central status as a next-generation home entertainment enabler. However, he warned the company would face still competition from the likes of Sony, Microsoft and Nintendo, should it embark on such a journey.
"That said, Apple could use its AppleTV to join the gaming game given the margin-rich opportunities that reward game designers who successfully meld a solid understanding of what users want with software design skills," he wrote. "We note that Apple CEO Steve Jobs founded Pixar, a successful animation film studio. While we acknowledge that making popular cartoon movies is not the same as making video games, we do see some links in terms creativity and animation skills."
The first shipments of Apple TV are expected to begin making their way to stores sometime this week.
Comments
- Jasen.
Really?
Like it's going to account for about 3% of all video purchases after 5 years of being on the market?
Less than DVD quality with no extras for nearly same price as DVD , no TV to speak of at all and this tool think its going to take over Tivo ? Get real.
For Apple to really take off enough to effect TiVo and Netflix they would have to do the following.
1) Turn the aTV into a quality DVR (not sure Apple is interested in doing this. If so, why not already?)
2) Provide a Rental and/or a subscription service. (Apple is known for being hard headed about things, and they have stated they think people want to own content. Hopefully, they know that movies are different than music, but one never knows. How long did we have to live with 1-button mice.
I don't think adding a TV Tuner and CableCARD qualifies as "little or no hardware modification" but that's just me.
"Apple TV can, in our opinion, be easily turned into a DVR with little or no hardware modification and a software upgrade"
I don't think adding a TV Tuner and CableCARD qualifies as "little or no hardware modification" but that's just me.
how about if it sat on top or below the apple tv, was the same size / shape as the apple tv and plugged into the USB port, $99. ?
Make it a USB breakout box, however... no hardware modification needed to the AppleTV unit, no? Buy the one that matches your system, plug it in.
what a tool. No way Apple TV takes off in a way that Tivo and OR Netflix have to worry.
Less than DVD quality with no extras for nearly same price as DVD , no TV to speak of at all and this tool think its going to take over Tivo ? Get real.
Hold on there billybob. This is still version 1.0 and the game has just begun. Once content distribution systems have matured, fast (>30 Meg) broadband adoption rate goes up, and more households have HDTV, you will HD quality offered on ITMS. It's about addressing the major segment of your market.
For example, I'm geeked up beyond your average home. I've got a 60" Panny 1080P plasma, a DLP 1080I capable projector, Blu-Ray, Mediacenter, 100Meg DOCSIS 3.0 cable based broadband (FTTH coming soon) etc, etc. Apple is not targeting folks like me. Most folks have standard def CRT's still with perhaps component video inputs at best. This is where Apple is targeting. Once the HD owners segment increases (along with faster broadband speeds) you bet that Apple will have AppleTV HD edition for sales. It is part of the plan.
I had a similar reaction after signing up for the Amazon Unbox trial with my TiVo. Very few recent releases were available for rent. I considered Borat, The Departed, and Casino Royale, but none of those movies had a rental option -- only the $14.99 purchase option. Screw that.
Instead, I chose Idiocracy (they were talking about it last week on TWiT for almost the entire show), which was available for rental $3.99. This was a decent movie, but not one that I would want to own or watch more than once.
Same with all of those other movies. I only want to watch them once. If I did want to own them, I would pay the $15-$18 for the DVD, which typically has 6+ hours of extras. Plus I can lend a DVD to friends; no can do with a DRM'd digital file.
Also, my Tivo only has a 40 GB hard drive (much like the Apple TV). I don't want a 2+ GB movie file taking up permanent residence on my TiVo. After I watched the rented Unbox movie, it was gone; I would have appreciated 72 hours, rather than 24 hours to view it. However, for $3.99 this was a service I would consider using again if the rental selection was better.
Until Apple offers a rental option for movies on the iTMS, I can't see it becoming much of a threat to NetFlix, etc.
Agreed.
I'd pay up to $5 for the convenience of renting movies via download-on-demand, but I have zero inclination to start stockpiling 1GB+ movies (that I can't burn to DVD). Don't have the HD space, and don't particularly to want to keep most movies I see.
Oh, and that analyst doesn't know what he's talking about. I don't see Apple adding DVR to the Apple TV anytime soon. For good or bad, it just doesn't fit in with their strategy to replace scheduled programming with content that's ad-free and download-on-demand. Providing DVR would only decrease iTS sales.
The analyst puts too much faith in Apple being able to do what it takes.
For Apple to really take off enough to effect TiVo and Netflix they would have to do the following.
1) Turn the aTV into a quality DVR (not sure Apple is interested in doing this. If so, why not already?)
2) Provide a Rental and/or a subscription service. (Apple is known for being hard headed about things, and they have stated they think people want to own content. Hopefully, they know that movies are different than music, but one never knows. How long did we have to live with 1-button mice.
The old Apple was certainly hard-headed... but the new Apple? Intel chips, Windows running on Apple hardware, iPods with video, iTunes on PCs. These are things the old Apple wouldn't have considered, but Apple is a new company these days. They like marketshare and making lots and lots of money, while producing really great products. With this said, I believe you make some good points... and I believe Apple will incorporate both your ideas into the Apple TV... it just might take awhile.
"As a digital media content delivery vehicle positioned in users' living rooms, we think the AppleTV/iTunes combination could become as disruptive to legacy video purchase-and-consumption behavior as the iPod/iTunes combination has been to the traditional music business model."
Really?
Like it's going to account for about 3% of all video purchases after 5 years of being on the market?
That was my thought exactly when I read that line. The only reason that Apple has climbed the list of music distributors is because they are the practically the only source for digital downloads for the iPod whereas there is a huge number of distributors of CD's.
And the AppleTV is a no-go for me until it go do something other than act as an expensive iPod video cable.
A DVR add-on would be nice and might make me consider ditching Tivo. At $1.99 an episode, if I watch just 7 episodes of TV a month (a VERY safe bet), Tivo is more cost effective.
A networked 300-disc CD/DVD changer would be nice too. At $9.99 for movies you can probably find for less on the bargain shelves of Wal-mart, iTunes isn't very attractive.
And there's the problem of storing all the files. If the solution is to back it up to DVD and clear it off, that begs the question why I didn't just buy it on disc to start with. Buying an Airport Extreme and USB hard drives seems an expensive solution. It may be cheaper in the long run, but the up-front costs are a bit prohibitive.
As soon as the iTunes Store takes over as the majority distributor of music, then I'll believe the AppleTV can directly compete with Tivo and DVD.
re: Feynman
Hold on there billybob. This is still version 1.0 and the game has just begun. Once content distribution systems have matured, fast (>30 Meg) broadband adoption rate goes up, and more households have HDTV, you will HD quality offered on ITMS. It's about addressing the major segment of your market.
For example, I'm geeked up beyond your average home. I've got a 60" Panny 1080P plasma, a DLP 1080I capable projector, Blu-Ray, Mediacenter, 100Meg DOCSIS 3.0 cable based broadband (FTTH coming soon) etc, etc. Apple is not targeting folks like me. Most folks have standard def CRT's still with perhaps component video inputs at best. This is where Apple is targeting. Once the HD owners segment increases (along with faster broadband speeds) you bet that Apple will have AppleTV HD edition for sales. It is part of the plan.
Totally agree. All the naysayers out there think that everyone's a tech geek. They also talk as if the AppleTV, once released, will never ever be upgraded. Those of you who are tinkering with your TIVO, cable card, Windows MCE or what have you --the AppleTV right now is not for you. The AppleTV is meant for the large segment of consumers who were intimidated by the complexity of all those gadgets but found the iPod/iTunes quite manageable and so they passed on the former and bought the latter.
Slightly off-topic: The value of the Apple Store as a venue for teaching customers how to use their Apple products is being severely overlooked. No other consumer tech company offers this much handholding for its customers. I mean they don't just teach you how to install and set up your iPod or Mac. They'll even teach you how to make Home DVDs using iLife, or how to tweak your photos with iPhoto. For free! When was the last time you can walk into some store somewhere and get someone to explain to you how to edit Home DVDs on Windows? This type of handholding is a crucial advantage for Apple's living room invasion plans.