How Many TVs Could Apple Sell?

Most investors aren't even valuing the TV opportunity that Apple (NASDAQ: AAPL  ) is facing. With the Mac maker's currently depressed valuation, investors are effectively free-riding on the incremental gains the company could see in the TV market that's ripe for disruption.

How many TVs could Apple sell?

A lot
According to a recent research note from Morgan Stanley's Katy Huberty, Apple could potentially sell upwards of 13 million units. That's based on a recent survey gauging consumer interest of over 1,500 households in the U.S. Of these respondents, 18% owned a smart TV, but somehow only 13% of them knew it could connect to the Web.

That discrepancy hints that there's a lack of usability in existing offerings if consumers don't even realize that the TV they just bought is more capable than they know. That's where Apple could come in with its penchant for user friendliness. Huberty's results showed that 11% of people are "extremely interested" in buying an Apple TV set, which implies 13 million units domestically.

A larger 36% chunk said they're "somewhat interested." Combined, that's 47% of respondents that are either "extremely" or "somewhat" interested. That's pretty bullish in the context of the 23% response that the iPhone garnered before its official launch and the corresponding 21% figure for the iPad.

On the pricing side, the study showed that almost half (46%) of consumers would pay over $1,000 for the rumored device, which is higher than what the average TV costs nowadays. Huberty estimates that most people would pay approximately $1,060, but a small portion (10%) would go as high as $2,000.

In the end, Huberty figures that an "iTV" could be an incremental $13 billion opportunity for Apple that could boost its bottom line by $4.50 per share.

Wouldn't a hobby anymore
At $13 billion, the iTV business would still be smaller than the Mac business, which generated $23.2 billion sales last year. However, it would be much more meaningful than the current "hobby" Apple TV that sold 5 million units last fiscal year. Since the Apple TV only comes in one $99 model, its average selling price is probably close to that price point, so the device probably generated close to $500 million in revenue last year.

Tim Cook further stoked speculation of Apple's entry into the TV market last week when he sat down for a pair of interviews. He told NBC's Brian Williams, "When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years. It's an area of intense interest. I can't say more than that."

Decisions, decisions
Steve Jobs always said the biggest problem in the TV market was the "go-to-market strategy," since the market is inherently structured as a subsidized market. Huberty figures there are three ways to address this challenge:

  • Become a cable service provider.
  • Partner with TV carriers and provide the set-top box.
  • Bundle a TV with the current set-top box.

The first option is clearly ludicrous, although slightly less so than the notion of Apple becoming a wireless carrier primarily using Wi-Fi spectrum that Jobs had reportedly considered. The infrastructure build out and low margins make that a particularly unattractive business to pursue, particularly in order to pursue another lower-margin business (TVs).

Partnering with an existing provider is possible, much like Apple's early exclusive iPhone partnership with AT&T (NYSE: T  ) that benefited Ma Bell for several years in the form of envious subscriber growth and increased revenue per user. The challenge here is that there are far more cable operators than there are wireless carriers. That issue compounds when you move internationally, as every country has different standards and regulatory procedures.

The last option is feasible, but somewhat redundant; building a TV to hook up to its existing set-top box doesn't solve any of the industry's problems.

None of these choices are optimal, but the second is the most realistic to get Apple's foot in the door. Besides, Time Warner (NYSE: TWX  ) CEO Jeff Bewkes is already looking forward to an Apple TV set and Time Warner Cable (NYSE: TWC  ) has already hinted at working with Apple when it talked about "giving up control of the interface." That's a content creator and cable operator seemingly on board with Apple.

Another halo
An Apple TV would never be as much of a growth driver to Apple's business as the iPhone or iPad. Instead, it would be an incremental opportunity worth tapping that would further reinforce its moat and ecosystem while expanding Apple's presence in the household. The company has long talked about halo effects from selling complementary products, and the Apple TV would be no different.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (27) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2012, at 9:18 PM, dwilh51183 wrote:

    Well, Apple is in over 100 countries right now selling their products so I would think they could sell 15 million TV's per quarter

  • Report this Comment On December 11, 2012, at 10:04 PM, fool94085 wrote:

    When the stock goes down, all pessimistic articles come out, when the stock goes up, all the news is optimistic

  • Report this Comment On December 11, 2012, at 10:18 PM, applefan1 wrote:

    Would someone get off this $1000 to $2000 for an Apple HDTV? That's NOT the market they are going after if they came out with an actual HDTV. Apple is going after the more inexpensive TV markets by selling Apple TV boxes for $99 and I'm sure they will come out with other models, possibly more features at different price points.

    The Samsung, Sony, LG, etc. HD TVs that have "smart" electronics that are their top of the line models sell in the upper $2000 to $4000 price points. That's the average for a decent quality LED/LCD television set. Apple doesn't go after low price, no margin business. They can't sustain the company going after that market. There are PLENTY of people that will spend $2000 to $4000 for a high quality smart TV by Apple. They'd even sell in the 10 to 20 million units, easily. Apple could easily capture that market without too much trouble while they continue to sell $99+ boxes for the other part of the market. I can see them coming out with maybe a DVR version of the $99 Apple TV with other capabilities and selling it for less than a Tivo box.

  • Report this Comment On December 11, 2012, at 10:24 PM, applefan1 wrote:

    The average sized HDTV is more like 50-55 inches and that is going towards 60-65 inch as the average size sold within the next year or two.

    The cheaper sub-$1500 TVs have little or no smart electronics and their is little to no margin in that market.

  • Report this Comment On December 12, 2012, at 10:47 AM, FoolishLonghorn wrote:

    When Apple starting selling their own phone, I was dubious. Who would buy a phone from a little computer company?

    When Apple started selling the Ipad, I did not think it would sell. Why would anyone pay more money for less function than a generic laptop?

    I don't see why anyone would pay a big premium for an Apple TV versus what's out there today.

    Given my track record, Apple will clearly sell a gazillion TVs at an incredible profit margin. You should definitely go long on Apple stock. :)

  • Report this Comment On December 12, 2012, at 10:55 AM, techy46 wrote:

    Two! One to Jim Cramer and one to Tim Cook.

  • Report this Comment On December 12, 2012, at 5:36 PM, Sarse wrote:

    One thing Apple won't do is call their TV an"iTV" like you just did without settling with the company that holds the patent on that name.

  • Report this Comment On December 12, 2012, at 6:09 PM, Frenchhorse wrote:

    A TV is aTV is a TV....it's the content that matters.

  • Report this Comment On December 12, 2012, at 6:30 PM, valuegeek wrote:

    Please take a moment to learn the difference between "envious" and "enviable."

  • Report this Comment On December 12, 2012, at 6:45 PM, 48ozhalfgallons wrote:

    Unless Apple TV boasts 3D without glasses, nothing sensational will be offered other than distinguished pricing which has worked in the past attracting the foolishly affluent. 3D sans eyeglass displays have been around for years. Retina eyeglass-less iPad displays would be attractive for under $500.

  • Report this Comment On December 12, 2012, at 6:53 PM, eldetorre wrote:

    The problem with an Apple TV is that there is no opportunity for Apple to vastly improve the TV experience without thoroughly disrupting all of the other stakeholders providing content. This isn't at all like making a phone because the phone worked with existing infrastructure, and added revenues for the Phone companies. A tv that eliminates the need for cable/ Or a TV that bypasses content gatekeepers?

    Can't succeed there without serious investment. And we have to remind ourselves that the existing Apple TV box is NOT that much better than any other number of media players so there's no guarantee an all in one will be all that great either.

  • Report this Comment On December 12, 2012, at 7:06 PM, nickp91 wrote:

    As soon as Apple has created it's own TV station and filmed a few television shows

  • Report this Comment On December 12, 2012, at 7:07 PM, ecloud wrote:

    What I would do if I was a big shot at Apple is try to eliminate the set-top box to simplify life for the consumer. The cable and satellite companies have always been in the way of that (they put the kebosh on CableCard for example), but I still don't quite get why it has to be that way. A universal TV tuner could probably be created, now or in the near future, after the recent work on software-defined radio: just one tunable mixer stage and after that, all DSP, taking in a whole frequency band at once and decoding every possible form of video in software. All they have to do is convince a couple of cable or satellite companies to let them implement the decryption that way, and maybe the rest would follow suit. So you buy your Apple TV and plug it into whatever kind of signal source you have: antenna, cable, or dish, in America or Europe, and maybe plug in a smart card to authenticate the subscription, and it just works. That's got to be the future of TV, eventually I hope, as long as TV remains relevant at all. (It hasn't been very relevant to me for quite a while though, actually.) Unless of course broadband ends up displacing broadcast TV completely.

    Speaking of which... an alternative approach is try to get a multicast UDP renaissance going, so that live broadcast TV can be done over the 'net in real time and without the cost of a separate connected stream for each user. That's also just a matter of negotiation; the technology was already working fine in the 90's, just hasn't been popular, and ISPs can block it, simply because there haven't been big players telling them not to.

    The other aspect of course is what they're already doing well enough: iTunes and a browser for accessing online content, and an app store. Assuming it has bluetooth, you could use any of the existing input devices with it (keyboard, mouse, touchpad), and it should also have a simple remote, and a nice game controller. Even if they fail to get anyone's attention about the better TV experience, they could still take on Nintendo and Sony with games.

  • Report this Comment On December 12, 2012, at 7:54 PM, ryanalexanderson wrote:

    I have a brand new Samsung 55" for ~$1500 SmartTV. It's wifi, Netflix preloaded, and grabs content off my other computers on the network. Strongly recommended. I don't bother with buying cable or satellite - just do everything through the internet.

    I believe there is a sliver of a niche for Apple to improve the experience of such tv's. The Samsung system doesn't have news, and can take a while to boot up. But they are pretty well established in this marketplace, with a television 1" thick. Apple started off with a hardware advantage on the phones, and basically invented the tablet. In tv's...it's pretty well-trodden ground, I'd say.

  • Report this Comment On December 12, 2012, at 8:28 PM, sharpx2 wrote:

    I firmly believe that the last thing Apple will do is enter the commodity market of TV selling. What they might do is something along the lines of an above post that describes a universal decoder. There is no reason for Apple to marry themselves to rapidly changing and obsolescent technology, which is what incorporating those features into a TV would be. Instead, a universal "set top box" that handles all forms of media would be more like it. Most important, the Holy Grail of a new product would be to resolve the fragmented mess that now exists - - some of the stuff you want is on HBO; some is freely available via internet; some is at Hulu Plus; and so on. Nobody wants to have 15 subscriptions to different services - - they just want to turn on their darned TV and watch what they want, when they want.

    When Apple or any other company has a product that addresses this gaping demand and need in the market, I will sit up and take notice. I don't believe this involves making TV's, just making them do what people want them to do.

  • Report this Comment On December 12, 2012, at 9:46 PM, LotAhype wrote:

    I called an Apple store the other day. Just have an app to control the TV audio/video instead of the bandoliers full of remote devices I have now. How about a usb dongle plugged into an audiovideo set that would make the ipad good as the remote?

  • Report this Comment On December 13, 2012, at 12:57 AM, chris293 wrote:

    I waste more time in full of the TV, just like in the book '1984'. How about a computer TV that projects the information or picture on the nearest flat surface with a good sound system. I'm still waiting to be wowed. All talk?

  • Report this Comment On December 13, 2012, at 9:39 AM, stanton17 wrote:

    Thank you for a nice, introductory article to Apple TV. I'm not up-to-speed on the concept of Apple TV, so this is a good launching-point for my research.

  • Report this Comment On December 13, 2012, at 1:20 PM, Rolin4ward wrote:

    Apple left a lot of people behind when they switched to the new operating system and the new macs in regards to being compatible with the television features. It made a lot of people that had bought late previous OS version and model computers. I'm sure that didn't help.

  • Report this Comment On December 13, 2012, at 2:19 PM, Shabookie wrote:

    Nice article illuminating a possible audience for a new Apple product. I doubt Apple would get into the business of marketing & selling a physical TV. As mentioned previously, the iTV product will most likely be a smart set-top box which would present abetter user interface to your multimedia; iTunes, Netflix, cable over the air channels and new content market available through a iTunes. Apple challenges will be to convince Cable companies and consumers there box is better than what already exists. Apple also likes to innovate, so I would expect to see iTunes as a delivery vehicle for on-line content.

  • Report this Comment On December 14, 2012, at 12:45 PM, ModuRon117 wrote:

    Apple does a pretty good job pricing its products the same (given fluctuating exchange rates) in the US and Canada. The Apple TV, however, is 10% higher in The Great White North, suggesting that it is indeed selling around its cost so cannot absorb the cost structure differences.

    Speaking of 1984, the commercial for the new Samsung smart TV absolutely creeps me out...

    Apple should have a significant edge over Samsung and LG in my experience because they do not make their products upgradeable (imagine a GPS without the ability to get new maps!!), forcing you to buy new hardware to get features. As OS X and iOS show, Apple already has this business model figured out to a fine degree.

  • Report this Comment On December 14, 2012, at 2:40 PM, CluckChicken wrote:

    "A TV is aTV is a TV....it's the content that matters."

    - Smartest thing said in this whole post.

  • Report this Comment On December 14, 2012, at 3:08 PM, 0gre wrote:

    "A TV is aTV is a TV....it's the content that matters."

    A phone is a phone is a phone, it's who you talk to on the other end that matters.

  • Report this Comment On December 14, 2012, at 4:25 PM, talan123 wrote:

    Yes Apple will sell a lot.

    One of the dark dirty secrets of the displays out there is that none of them are actually calibrated properly. The red that the broadcaster is sending out and the red that you see on your TV can be worlds apart.

    Apple's iPhone is the best LCD display right now, hands down. Because they actually take the time to do so. It adds to the cost of the device but it is well worth the price of it. Look at the GS3 vs. an iPhone 5 and you will see a big difference.

    Imagine having an accurate color TV, imagine apple being able to sell time to advertisers when people are going through their movies.

  • Report this Comment On December 14, 2012, at 9:44 PM, WineHouse wrote:

    I hold Apple shares. But I wouldn't touch Sony shares (nowadays) with a ten foot pole. If I were as actively thinking about my investments a decade or two ago, when Sony was in its ascendancy, I would probably have snarfed up Sony shares and giggled at the thought of buying Apple shares.

    And look at Sony now. It had a moat, a fabulous moat -- it even had its own storage "media" (I hate using a plural word for a singular thing) -- the Sony MemoryStick. My family had a Sony TV because it was the best at the time, and when I bought a laptop in 2007 it was a Sony Vaio -- again, the best at the time (complete with a slot for that stupid Memory Stick, which I never bought).

    Remind you a bit of Apple today? Yup. And look at me. Not only do I have Apple stock, I recently switched from my Sony Vaio to a MacBook Pro with Mountain Lion! (mostly because I was fed up with MS XP and all those "updates" that kept messing up my software, and the need for add-on security programs like Norton 360 that hogged memory, delayed boot-up and shut-down, and messed up software themselves).

    So what's the tech breakout of tomorrow? If I had a crystal ball, I'd use it and then I'd know what to buy after I sell my Apple shares. But ....

  • Report this Comment On December 19, 2012, at 4:11 PM, mikecart1 wrote:

    "An Apple TV would never be as much of a growth driver to Apple's business as the iPhone or iPad."

    They said the same thing in 10 years ago when they described the iPod and compared it to the iMac.

    :)

  • Report this Comment On December 31, 2012, at 3:22 AM, thidmark wrote:

    I just want to pay for the networks I watch, not the hundreds of channels of crap I'm also forced to take on.

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