Will Apple TV be bigger than iPhone?

Industry observers divided over the immediate success of Apple TV

Not surprisingly, then, some industry experts say Apple TV, due to be released in the U.S. this month, will be a huge iPod-like success, doing for digital video what the iPod did for audio. Some even think Apple TV could be bigger than Apple's much-ballyhooed iPhone, which will be released in June.

"Long term, strategically, Apple TV as a revenue-generating platform is much bigger than iPhone," said Jeff Heynen, directing analyst for broadband and IPTV for Infonetics Research. "It's a US$300 device that multimillions of people will put in their homes vs. a US$500 device [an iPhone] in a market that's saturated with BlackBerries and similar things."

On the other hand, some industry observers will tell you that while Apple TV may be successful some day, it has significant hurdles to overcome.

"The reality is that this class of device faces challenges," said Ross Rubin, director of industry analysis at The NPD Group. "None has been successful so far."

What nobody disputes, however, is that Apple TV heralds a new age in which we obtain and manage our media in significantly different ways than we once did.

Potential gain

While vendors such as Netgear and D-Link, not to mention Microsoft with its Windows Media Center, have offered similar devices and technologies as Apple TV, not one has yet succeeded. But Apple can succeed if the quality of its previous products is any indication, said Martin Olausson, director of digital media strategies at Strategy Analytics.

"You need to be able to bridge that gap from the PC to the TV set, and today there aren't many technologies that do that very well," Olausson said. "What Apple is trying to do, obviously, is to use their user-friendly technology and bridge that gap."

Another difference with similar products, according to Heynen, is that Apple is entering a market that has been prepared by cable and satellite providers in the last couple of years.

"The cable companies have had a great deal of success with subscription video-on-demand for premium channels," Heynen said. "A lot of subscribers see [on-demand programming] as better than having a DVR because it begs the question: Why do I need a TiVo if my service provider will offer content on-demand?"

Olausson added that products such as Apple TV are even better than on-demand programming because they don't require users to pay for expensive cable TV or satellite subscriptions. "If I'm into Desperate Housewives or 24, I can just buy that. I don't have to pay for anything else but a broadband connection."

In other words, users are becoming accustomed to watching their programming whenever they want, and Apple TV will make it that much simpler. In addition, there are millions of video iPods already in circulation, which will boost the chances of success for Apple TV, Heynen said. Video iPod users can load their devices with videos downloaded to Apple TV.

"The fact that there are so many video iPods out there, and the mere fact that Apple sees the video on-demand market as a low-hanging fruit means that they can go get subscribers who want both to take video with them and have the ability to watch the same video on their television," he added.

The result will not only be significant sales of Apple TV, but also dramatically increased sales for the iTunes store to the detriment of cable and satellite providers.

"It's already working somewhat," Heynen said. "Disney has said that iTunes downloads of its movie Cars have reached $25 million. Given the still-low penetration of digital video recorders at this point and the fact that on-demand is starting to take shape, the potential [for Apple TV] is huge."

Another potential benefit to Apple is that success for Apple TV could lead to increased sales of its Mac computers. Market share of those computers has increased significantly in the last couple of years -- it now has about 7.2 percent of overall market share -- and many observers give credit to the glow created by the iPod. Apple TV could even lead to increased sales of iPods, Heynen added.

"Apple TV will have a bigger effect on video iPod sales, but it also will have an impact on Macs, too," he said. "Mac minis are priced for that pull-through effect. Mac market share is still very small. There's a lot of room to grow."

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