The ongoing agonies of Apple TV

Rumors of Apple TV’s arrival in 2012 turned out once again to be exaggerated, and if analysts are to be believed, 2013 will also pass without it turning up despite persistent innuendos from the company’s executives. Of course, Apple TV is already with us, but only in the form of a box for connecting smart TVs from other vendors. This has done modestly well — generating sales of 4 million units for the year ending June 2012.

This box is really keeping the seat warm for Apple while it agonizes over whether and when to enter the smart-TV field, complete with a game-changing ecosystem that fully disrupts the whole broadcasting field. Anything less would be considered almost a failure alongside the impact made by the iPod, iPad and to an extent the iPhone. Apple made its first splash in the mid 1980s with the original Mac introducing the GUI (Graphical User Interface) to the then nascent PC world in which IBM, running with Microsoft’s MS DOS operating system, was cleaning up at that stage. Of course, in that case, Apple never achieved market dominance and in fact nearly expired in the late 1990s. But it was the Mac that created the iconic brand and paved the way for future success of iOS after its Steve Jobs-inspired reincarnation in the '90s. In none of the cases did Apple pioneer the products, but in all cases made them sexy and brought them to a mass market.

The recent question has been whether Apple can pull off the same trick with the smart TV, combining a chic product with an ecosystem that will provide compelling, high-quality services that pull large numbers of consumers away not just from smart TV rivals such as Samsung but also the established pay TV companies.

By tradition, Apple would move first in the U.S., but it is there it faces the most intractable difficulties around content rights. In the U.S., more than almost anywhere else in the world, premium content is ruled by a handful of big media companies that stand to lose big time if they make their assets available to Apple. But unless that happens, Apple would be consigned to fiddling around at the margins of the TV market along with other smart-TV makers and probably making less impact than OTT providers such as Netflix. Such a move could actually dent Apple’s brand and even hurt sales of its other products.

For this reason, two analysts at research firm Sanford C Bernstein have suggested that an Apple TV set could be more successful in markets outside the U.S., especially Europe. In a recent investor briefing reported on, analyst Todd Juenger suggested that Apple was “largely stymied” in the U.S. to do anything truly disruptive in the TV ecosystem because of the content stranglehold imposed by the big media companies.

Juenger identified the “absent middle ground in the U.S. TV ecosystem” between the expensive multichannel pay-TV packages most viewers take and the free-to-air TV coupled with OTT services watched by most of the rest, as Apple’s realistic target. But, Apple is unlikely to want to settle for that. Europe, though, is a different matter, and analysts are right to highlight the more favorable content scene with many Telcos having gained significant rights and competing in rather fragmented markets that give Apple the space to gain a significant foothold. This is not the case, say, in the UK, where BSkyB is dominant. But, there are a number of countries such as Spain, France and Germany where pay TV is in a state of flux, and Apple TV could score more heavily. Of course, the same factors could also favor Google, Amazon and, for that matter, Netflix.

But even in Europe, Apple faces the same issue relating to raw numbers. There are far more iPads out there than there will be Apple TVs for the foreseeable future, and it will also start well behind the smart-TV leaders. Surveys indicate consumers would be interested in an Apple TV and would be prepared to pay some premium over other smart TVs for one, but even the most optimistic projections give Apple just 20 percent of the smart-TV market within a year of a putative Apple TV launch, with most estimates around 14 percent. This would put Apple in joint second-place level with LG, but with only half the share of market leader Samsung's 28.5 percent, according to data from DisplaySearch. Other key players are Sony (7 percent), Sharp (6.5 percent), and Panasonic (6.2 percent).

Apple would also need to get moving on apps. An issue here is that Apple iOS apps do not scale well between different screen sizes. This was an advantage for the iPad and helped achieve its rapid growth because it forced app developers to build new apps tailored to the device rather than just scaling up existing iPhone apps. But, it also gives Android an edge as screen sizes continue to fragment, because a given app can cover a wide range of target platforms. Android apps scale gracefully to bigger screen sizes, so that thousands of apps that were originally designed for phones are now available on tablets as well, and also TVs. Apple would begin with a much smaller number of apps, and stand where Android tablets are today.

Apple would not contemplate being in such a position and so is waiting to gain more indications of how the wind is blowing in connected TV before making the move. It knows that if it gets this one wrong, it could lose its position as the world’s favorite brand in consumer electronics. But, if it waits too long, it will have lost this position anyway. Meanwhile, its executives are reduced to expressing continued vows of “intense interest in TV."