A connected Apple TV could make hay where Google TV, others made mistakes

Jim O'NeillAnalyst Gene Munster, of Piper Jaffrey, last week brought up the subject of an Apple TV (Nasdaq: AAPL) in a note to clients--not the Apple TV device that the computer giant refers to as a "hobby"--but an honest-to-goodness connected TV. It is, to the best of my recollection, at least the third time Munster has talked about Apple getting into the Internet TV business, but he has a little more to offer this time around.

Last month, when Apple announced its quarterly results, COO Tim Cook told analysts during Apple's earnings call that it had put together extended supply agreements for a "strategic" component, committing $3.9 billion over the next two years for inventory component prepayments and capital expenditures." He declined to give much more detail, but Munster, and other analysts, have deduced that the component in question is likely a display, and he's speculating that while it's likely tied to iPad, iPhones and Mac screens, it also could be for flat-panel TV sets up to 50 inches.

The Australian edition of Macworld also mentioned the Apple television project recently, offering this tidbit last month:

"An industry source (who wished to remain anonymous) revealed that major third-party manufacturers had consulted Apple about developing a TV, and considered the move into home entertainment the next big strategic direction for the company."

A year ago, Cook told an audience at the Goldman Sachs tech conference in San Francisco that its Apple TV set-top box device, was "still a hobby," that occupied a small space in the market. At the time, he also pooh-poohed speculation that an Apple connected TV would be coming anytime soon.

"Today, the go-to-market model for Apple TV is very difficult," Cook said. "Because it would seem that that go-to-market model would lead to the TV. And we have no interest in being in the TV market."

That was before its re-engineered Apple TV device sold a million units in three months this past quarter. But is that sales spurt enough to spur Apple into that CE market?

Business Insider's Dan Frommer says he believes the investment likely will focus on existing devices, but adds that the advanced displays in play, LCDs that rely on IPS (in-plane switching) technology, are favorites of Apple, which says on its website that they "look great from almost any angle," a point, Frommer says, that would make a great selling feature for a TV.

Of note, is that Apple isn't just guaranteeing its supply of the panels, it's likely building the plants in which to make them.

A connected Apple TV holds a lot of promise for the company, which is doggedly continuing its push into the entertainment business.

First, its user interface is legendary, and that's a big selling point for consumers who still are more comfortable watching TV in a lean-back mode, something a lot of the other connected devices, especially Google TV, have struggled with. While early adopters and technophiles have gleefully experimented with over-the-top devices, many users have been less enthralled, looking for devices that simply feed them content.

Apple, arguably, holds a unique position in the consumer electronics market. While it's not known to the general public as a TV manufacturer, it is acknowledged as a "people-friendly" computer company, and the iPhone, iPod and iPad have done a lot to make it even more approachable.

Connected TVs are queuing up at the starters' gate, perhaps the most logical next step for OTT delivery and the revolution in television viewing that everyone has been promising but no one has been able to deliver. Does a connected Apple TV have a place in line?

Before the reintroduction of Apple TV last October, there was a lot of speculation that the device would be rechristened the iTV, and there was a fair amount of surprise when it wasn't. Perhaps Apple's "hobbyists" had other ideas for its use. iTV HD, anyone? - Jim

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