Pondering an Apple entry to the TV market: Do you need live TV, sports?

Apple could launch an Internet connected HDTV in the next two to four years, according to Piper Jaffray analyst Gene Munster. On paper, an Apple HDTV could be powerful. However, live television and set-top boxes would pose a big hurdle for an Apple TV.

Thoughts of an Apple TV have the tech industry buzzing a bit. Here's what Munster said in a research note:

As part of our "Internet TV White Paper" published on 8/16 we estimate that of the 220m flat panel TVs sold in 2012, 65% or 143m units will be internet-connected, of which Apple could sell 1.4m units. We believe an Apple Television could add 3% to revenue in 2012, 5% to 2012 and 7% to 2013. Recent developments in Apple's strategy bolster our confidence that the company remains serious about the connected living room, and we see 2012 as the most likely timeframe for the launch of an Apple Television.

This move would put Apple CEO Steve Jobs, who has noted previously that no one wants to buy a new set-top box, at the center of your living room. This Apple TV would naturally be integrated with iTunes, your iPad, iPhone, Mac and iPod touch. If Apple pulls off a good entry into the TV market it could be a halo effect bonanza. Munster's theory is that Apple could be a cloud-based media provider and portable content would be a key differentiator.

Munster's note sounds very interesting from a business perspective. Apple could charge for an Internet-based iTunes TV pass for $50 to $90 a month. Apple also has the content to make a connected TV work:

I could almost be interested in this Apple TV if I could get past all the key acronyms that get me to watch television: NFL, MLB, NHL and every-once-in-a-while, the NBA. Any connected Apple TV will have to get me live sporting events. Local news and live television is a must too, but its importance is diminishing. On-demand TV is nice, but there's no way a consumer is going to forgo the live stuff. Meanwhile, if the consumer still has to pay the cable company it's highly unlikely that you'll pay for an iTunes TV pass. Munster seems to imply that Apple could find away to boot your cable provider.

As an aside, I'd love to see Apple try the live TV thing to usurp cable just as a spectator sport. The main event: Apple and the NFL negotiating over broadcast rights.

Munster argues that Apple could hurdle the set-top box and live TV conundrum by offering Apps. Munster said:

(The cable, live TV) hurdle could be solved with the addition of an App Store for the TV, offering apps like games, Netflix, and Hulu Plus (currently available for iPhone and iPad) with current TV content through Hulu for $10/month.

You'd be foolish to discount Apple's potential in the TV market, but the company will have to change the discussion. Munster said:

History shows that Apple can succeed by redefining mature markets (portable music, mobile phone). Home entertainment systems are typically combinations of an expensive HDTV, complicated A/V components, and a monthly service fee often with a total sticker price of $2,000+. CE manufacturers, service providers, and digital content distributors have loosely combined disparate parts that are too confusing and costly for consumers. But as connected TVs proliferate and IPTV content becomes available the integration of hardware, software and content will become a key selling point for TVs. We believe Apple is uniquely positioned to combine these elements and charge a premium ($1,800 to $2,000) for an Apple-branded television at a sticker price that would be competitive with most home entertainment systems.

Here's the ROI case in a graphic:

The issue: That graphic assumes you won't have to pay for cable. Apple has the ecosystem to make a run at the TV market, but it's going to be extremely difficult to be the one-stop entertainment shop unless it gets live TV going. You just don't watch the Super Bowl on demand.