What's Next for Apple TV?

Apple (Nasdaq: AAPL  ) said Apple TV reached 1 million in sales this week, and the news pushed the shares of the Cupertino company to a new life-time high.

But the job doesn't end here for Apple.

What Apple needs to do next
Since Apple has cleared the first hurdle in gaining traction for its product, it needs to generate material revenue from Apple TV to justify its investment. Market analysts say that Apple needs to create a separate app store for Apple TV to attract more customers for its new set-top box.

The App Store is one of the key factors boosting sales of Apple products, including the iPhone, iPad, and iPod. The wide range of apps and features is becoming a deciding factor for the consumer to go for a particular brand. Description: http://img.ibtimes.com/www/site/us/images/1px.gifAs of Oct. 20, there were at least 300,000 third-party applications officially available on the App Store, with more than 7 billion total downloads. Recently, Apple said its Mac App Store will open for business on Jan. 6 and will be available in 90 countries at launch.

"We believe the Apple TV is now positioned to become a more material contributor and game changer in the TV space," said Shaw Wu, an analyst at Kaufman Bros., in a note to clients. "But we believe a major catalyst for the set-top box would be the addition of an App Store, allowing users to download new applications for the Apple TV."

Although it's considered a game-changing technology, Apple TV will be immaterial to Apple, at least for the time being. Wu said that if the device continues to sell 1 million units per quarter, it would amount to $400 million in annual revenue -- just a drop in the bucket for a company expected to earn $88 billion in revenue in fiscal 2011.

"While the new Apple TV has definitely generated greater consumer interest, it is still too small to really impact estimates," said Peter Misek, an analyst at Jefferies in a note to clients. "We view the Apple TV as part of AAPL's longer-term living room ambitions, of which its new North Carolina data center is also a part."

Some glitches remain
Apple also needs to overcome certain limitations of Apple TV. For example, it has no TV tuner or personal video recorder, with both capabilities available by connecting to a home computer through various third-party products.

The Front Row interface lacks some iTunes functionality, including rating items, the ability to synchronize from more than one computer, full Internet radio support, and games. The "Movies" search box looks only in the iTunes Store, not at local hard drives and networks.

In addition, movies rented on Apple TV must be watched on Apple TV, unlike iTunes rentals, which can be transferred to any video-enabled iPod, iPhone, or Apple TV. However, movies purchased on Apple TV can be moved to a video-enabled iPod or iPhone via iTunes.

Apple TV, which sells for $99, is a small-form-factor network appliance designed to play IPTV digital content originating from the iTunes Store, Netflix, YouTube, Flickr, MobileMe or any Mac OS X or Windows computer running iTunes onto an enhanced-definition or high-definition widescreen television.

Apple TV was unveiled as a work in progress called "iTV" at a press conference in San Francisco on Sept. 12, 2006, and began shipping the following March. It initially went out with a 40GB hard disk; a 160GB version was introduced two months later, and the earlier model was ultimately discontinued.

In September 2010, Apple announced a second-generation version of the Apple TV. About a quarter of the size and one-third of the price of the original Apple TV, the new device can stream rented content from iTunes and video from computers or iOS devices via AirPlay.

The new version has no hard drive; however, it does have 8 gigabytes of flash storage for caching purposes. All content is drawn from online or from locally connected sources.

Apple TV allows consumers to use an HDTV set to view photos, play music, and watch video that originates from limited Internet services or a local network. The first-generation model had iTunes, Flickr, Mobileme/.Mac, and YouTube. The second generation added Netflix. Both models supported downloading/streaming podcasts.

Notable competitors of Apple TV include Roku and Google's Google TV.

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