Apple TV's success relies on software, not a television set

Apple TV's success relies on software, not a television set

Summary: Apple's acquisition of Matcha, a television and movie content finding service, points towards a software solution (rather than a branded television set) for the company's missing piece of the living room puzzle.

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TOPICS: Apple
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(Image: CNET)

Apple's latest reported acquisition may not necessarily point to much on the surface, but it shows the company still has the television business in its sights, in some capacity at the very least.

VentureBeat reported on Tuesday that mobile-based television and video app Matcha had been acquired for an undisclosed amount by the iPhone and iPad maker, and subsequently shut down, with all user data deleted.

The service effectively added a second screen to television sets by offering program guides for various cable and Internet providers, such as Amazon, Hulu, and Netflix. In doing so, it allows users to find content from a variety of sources, such as where a movie is available on Netflix but not iTunes, or Hulu and not Netflix.

According to the report, Matcha does not have a valuable patent portfolio or particularly large user base, suggesting the technology alone is of interest to the Cupertino, California-based technology giant.

The company all but confirmed the acquisition, albeit in not so many words, simply stating that it "buys smaller technology companies from time to time," but did not elaborate on what it may or will do with them.

Margins, margins, margins

The battle for the living room is beginning to take shape. Apple, however, has not made any plans clear for a highly anticipated television set, if it ever will. Nor has the company given any clear indication in which direction it will take its set-top box business, which remains a "hobby" to the company in the words of Apple chief executive Tim Cook.

The low-volume yet high-margin television set would become even more of a niche product than the Apple TV is now. Television sets are rarely replaced every five years, let alone every year. But the television market continues to suffer year-over-year decline. Take the three big names: Samsung, LG, and Panasonic.

Profit margin for Samsung's television building unit fell by more than half to 2.0 percent from 4.3 percent a year earlier due to weak demand, according to The Wall Street Journal. Meanwhile, LG's television business also saw its profit margins slide over the past few quarters, from 5.7 percent in the second quarter to 0.8 percent in the third quarter, and 0.3 percent in the fourth quarter. And Panasonic, according to Reuters, halted the production of its plasma televisions on a poor earnings outlook.

The variety of content remains the biggest selling point. The trouble is, as Apple found with iTunes, that not everyone wants to offer their video goods and movie wares on yet another content channel.

In spite of its strong and developed hardware business, there is little incentive to jump into the television-building business. What it has is a reasonable but devoted following in the Apple TV set-top box space, a division of the company that has yet to see a significant amount of time, energy, money, and other resources plowed into it.

Software, services key to content success

Along with other acquisitions noted by ZDNet's sister site CNET, the snapping up of Matcha follows a stream of other buyouts and deals that together point toward a mish-mash of potential products up Apple's sleeve. Some of its buys do what they say on the tin, whereas Apple's acquisition of Matcha remains unclear, at least in the long term.

What Matcha offered — before it shut down in May — was a glimpse into possible partnership deals that could see the user not just discovering where their desired content was, but potentially also a path to accessing it.

The role of Apple TV is to be a conduit for content and the middleman between the customer and the content providers, which will only provide television and movie content if there is an audience for it.

Audience participation all but depends on Apple making the first move; indeed, the company has already signed a number of content deals with major broadcasters, including Time Warner Cable, ESPN, and HBO, among others, suggesting there is interest in the platform.

Despite what the analysts and pundits are saying, the rate of return on the investment Apple could plow into its set-top box business is far higher and in the long term more stable over developing a niche television set.

The company will likely continue to hire and acquire to build up its software offering over time, and invest more as and when it sees fit through the gradual uptick in Apple TV users.

It boils down to, quite simply, what's on the display, not the display itself.

Topic: Apple

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11 comments
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  • Agreed

    Whilst Apple may at some point release an iTV (eventually how hard will it be to scale manufacturing of iMac or Apple Display to TV sizes) the LT strategy I believe will include the evolution of Apple TV inorder to be in as many rooms in as many houses as possible.
    Nihon8888
    • Chromecast has killed the possibility of an Apple HDTV.

      I believe the success of Chromecast completely caught Apple by surprised. And Google is in talks to include the tech in TV sets by manufacturers. It wouldn't add much to the overall cost of a TV of your choosing. The software can also be updated OTA by Google for continued improvements. It has the real potential to become an industry standard.
      laequis
  • A TV won't sell.

    People willing to pay a premium for living room technology won't want Apple choosing their display. Apple also won't be able to compete on model range. Not everyone wants a 37" or 42" TV monitor. Most want 50" or higher. All rumors point to Apple's TV being around 40". Lastly, people will want to upgrade hardware as the tech gets better. They won't want to replace their entire TV monitor just to get a few new hardware features.

    This absolutely needs to be a set top box. It's the only way it will sell to the people willing to spend the extra on cool home theater equipment. Even then, it will need to run iOS apps to have any hope whatsoever at succeeding. Otherwise, it's simply going to duplicate functionality already found in nearly every other TV, Blu-ray player, or DVD player out there. In that case, it will be too little, too late.
    BillDem
    • You nailed it, Bill

      Like you, I doubt that there will ever be a tv - and for the reasons that you state. To me, it seems for better for Apple to concentrate on plug-in boxes as that allows far more adaptability.
      Wakemewhentrollsgone
    • You didn't mention the potential elephant in the room.

      That's Chromecast. I believe the success of Chromecast completely caught Apple by surprised. And Google is in talks to include the tech in TV sets by manufacturers. It wouldn't add much to the overall cost of a TV of your choosing. The software can also be updated OTA by Google for continued improvements. It has the real potential to become an industry standard.
      laequis
  • Agreed!

    Apple won't create an actual TV product. That would be insane. They can't possibly do it any better than anyone else. There's no margin in it. Their secret sauce is the software and ecosystem and licencing agreements. This is all in the Apple TV box.
    rossdav
    • Chromecast is the answer

      I believe the success of Chromecast completely caught Apple by surprised. And Google is in talks to include the tech in TV sets by manufacturers. It wouldn't add much to the overall cost of a TV of your choosing. The software can also be updated OTA by Google for continued improvements. It has the real potential to become an industry standard.
      laequis
  • I would be more tha just a tv

    I think Apple would make a TV with a very premium price but it would likely be more than a TV. Think about the touchscreen devices. Apple didn't invent the concept since we'd been using Palm and WinCE devices for years before. They had the popular iPod player (screenless) so they spent some time developing the internals for a touchscreen device - and they packaged the same guts into 3 separate products ipod-Touch, iPhone, and later iPad. All are essentially the same internals with some minor varients. The app store actually came months later (the 1st itouch and iphones iOS didn't have "apps") and was a financial windfall that resorted their priorities. They would likely do the same with a TV device since it is now all about pulling you into the itunes market. It would likely be a Tv in assorted sizes, but with an internal content agent (ie ATV) and likely an OSX PC or some other merger that pulled in the App store to make you buy buy buy. Or at least a higher degree of connectivity to Ipads and OSX computers. Look about and what is it that Apple could "invent" (that people are already using now but in some unideal or ad-hoc form)? Cable Tv, PPV, and IP streaming and web content for sure are fragmented. Mash those together better. Music and web browsing, Facebooking, and the other things most people use ipads and phones for.
    rehabeng
  • Apple won't build the iTV, because, we've entered the "post-TV" era,

    as indicated by this sentence: "But the television market continues to suffer year-over-year decline."

    Hmmm....

    Sounds pretty much like the same kind of clues tech bloggers use to conclude that, we're in the post-PC era.

    Yet, people haven't gotten rid of their TV sets, and they haven't gotten rid of their PCs. They just didn't need to get new ones, since, what they had was already good enough.

    As far as Apple's entry into the TV market, no matter what type of device they use or what type of software they use, would not be big on revenue, since, everybody and their grandmother are also entering that market/sector. The set-top boxes will slowly be replaced by more intelligent devices which connect to the HDMI in TV sets, for wireless connections to smarter devices, such as smartphones and tablets and PCs, where the content will be coming through.
    adornoe
    • You're talking about Chromecast

      "The set-top boxes will slowly be replaced by more intelligent devices which connect to the HDMI in TV sets, for wireless connections to smarter devices, such as smartphones and tablets and PCs, where the content will be coming through."

      You just described Google's Chromecast.
      laequis
      • I'm aware of Chromecast, and that device, and Miracast enabled devices...

        will also be used to transmit content via the HDMI port on TVs.

        Miracast will be enabled on Windows 8.1 devices, like the Surface Pro, and others.

        Look here: http://www.youtube.com/watch?v=lhB72kIfLQY
        adornoe