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

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.
Written by Zack Whittaker, Contributor
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.

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