Why Apple TV is important to Apple

Apple recently dropped the price of its Apple TV device by $70.00. The folks at Gizmodo then went to iSuppli for a teardown analysis to determine if it was the result of reduced costs. As it turns out, it isn't. Apple isn't exactly taking a bath the way Sony does pushing out PS3 game consoles (a device it loses money on with every sale), but it is earning far less than the 50% margins that are typical for Apple products.

I think its obvious why Apple is doing this. The company that finally bridges the gap between the Internet and the television stands to make a bazillion dollars, while lighting the fire under a revolution that would change completely the way consumers access media content.

As Gizmodo noted in their blog, content has traditionally been the loss leader through which Apple has sold hardware. They never made much money off iTunes, as most revenue went back to the copyright owners to pay for the right to sell their content.

That approach won't work as well in the TV space. An iPod, like a phone, is a personal device. Personal devices are more subject to branding and style considerations, and Apple has cultivated the brand and perfected the style of its devices to a fine art. There's lots of profit to be derived from the hardware alone with a personal device.

Nobody is going to care as much if you have a Gucci set-top box. The TV, however, is a vastly superior environment for media delivery. Even though growing numbers of consumers say they watch video on their PC, it's akin to the difference between sales of standard DVD and HD DVD discs. A day's sales of a popular DVD is greater than the combined sales for half a year of HD DVD discs, and in similar vein, if you added up video watching hours, TV viewing dwarfs PC viewing by a wide margin.

TVs are where people will want to watch their video content...and perhaps even more (I play most music at home through my TV using Media Center and my XBOX 360 as an extender). If someone can bridge the divide between the Internet and the television, and do it in an EASY TO USE FASHION (that's critical), that company will make stacks and stacks and stacks of money, as well as creating a market for media content that will completely change the way consumers watch TV.

Once the doorway to the Internet is opened in the living room, a distribution channel is created through which a larger group of media artists can send content. That will go a long way towards reducing the hold big production studios have on media creation (which is bad for Hollywood union members, IMO), and constitutes the critical step in the digital revolution that the world of television and film has yet to make.

Apple TV is an odd sideroad on the Apple product roadmap, but it is an incredibly important one. If they succeed, it would extend Apple beyond personal products into the living room.