Will Apple Succeed at Turning the Apple TV Into a Gaming Console?

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Apple (NASDAQ: AAPL  ) could be turning its Apple TV set-top box into a gaming console soon, according to reports from 9to5Mac and iLounge.

However, anyone who has been following tech news over the past year realizes that an Apple gaming console is hardly a new idea.

Nvidia's (NASDAQ: NVDA  ) handheld SHIELD, the Ouya home console, and the Mad Catz (NYSEMKT: MCZ  ) M.O.J.O. console have already tried that approach with Android games, while Logitech's (NASDAQ: LOGI  ) PowerShell attempted to turn iPhones into handheld devices comparable to Nintendo's (NASDAQOTH: NTDOY  ) 3DS and Sony's (NYSE: SNE  ) PS Vita.

The Apple TV. (Source: Apple)

So far, none of these ideas, which are based on the theory that mobile games are more playable with physical buttons, have taken off. Apple's upcoming device will reportedly use Bluetooth controllers that could possibly feature Wii or Kinect-like motion controls.

Therefore, can Apple break into a market where others have failed? Let's take a look at some key factors that could determine its success or failure.

3 Reasons an Apple TV gaming console could succeed

Apple has three reasons to believe that it can successfully turn the Apple TV into a gaming console -- high sales numbers, exclusive games, and an identical hardware configuration across all of its same generation systems.

At the end of fiscal 2012, Apple held a 56% market share in TV streaming devices, followed by Roku at 21.5% and TiVo (NASDAQ: TIVO  ) at 6.5%. The exact number of Apple TV units sold to date has not been disclosed, but CEO Tim Cook has stated that 13 million units were sold in May 2013.

By comparison, the current eighth-generation consoles -- Nintendo Wii U, Sony's PS4, and Microsoft's (NASDAQ: MSFT  ) Xbox One -- have respectively sold 5.5 million, 4.6 million, and 3.2 million units. The top selling seventh-generation console, Nintendo's Wii, has sold 101 million units to date.

Based on sales of 13 million units, Apple could get off to a running start, which would give it some short-term momentum. Yet in the long run, Apple will have to sell a lot more Apple TV units to establish itself as a contender in gaming consoles, especially since not all Apple TV buyers are necessarily gamers.

Apple boasts major strength in hardware as well, since all of its devices across a single generation -- whether they be iPhones, iPads, or Apple TVs -- share identical hardware and software configurations, in comparison to the fragmented world of Google (NASDAQ: GOOGL  ) Android devices.

The third generation Apple TV, for example, is powered by an Apple A5 processor, which also powers the iPad 2, iPhone 4S, fifth generation iPod Touch, and the iPad Mini. In terms of raw processing power, it doesn't come close to a PS3 or Xbox 360, but it is more than sufficient for most 3D games.

Since the hardware is clearly defined and similar to previous iPads and iPhones, developers should have an easy time producing games for an Apple TV gaming platform.

Inifinty Blade 3. (Source: iTunes)

That's why developers are still pumping out exclusive iOS titles, such as Oceanhorn, Infinity Blade, Resident Evil: Mercenaries Vs., Mass Effect Galaxy, and Metal Gear Solid Touch, which indicates that the Apple TV gaming platform could enjoy plenty of third-party support.

3 Reasons an Apple TV gaming console could fail

Despite those strengths, an Apple TV gaming console has three glaring weaknesses -- the ratio of smartphones and tablets to Apple TV units, the ratio of gaming consoles to Apple TV units, and the fact that similar Android devices haven't been major hits.

Last quarter, Apple sold 33.8 million iPhones and 14.1 million iPads. Combined, that's nearly 50 million reasons in a single quarter for developers to release touch screen enabled games rather than controller-based ones.

The same problem applies to consoles -- 13 million Apple TVs just aren't that impressive compared to the growth potential of home consoles, which can range from 82 million (Playstation 3) to 101 million (Wii).

Therefore, there's very little incentive for developers to create controller-based iOS games, unless Apple can boost its Apple TV sales considerably. In fact, game developers might be better off making games for Windows Phones, since Nokia (NYSE: NOK  ) notably sold 30 million Lumia handsets in 2013 alone.

Most importantly, it's hard to see why Apple will succeed where Ouya, the $99 Android set-top box, failed. Ouya hasn't released any hard sales data for the console, but NPD Group estimated back in June that sales were "relatively light."

Could an exclusive deal between Apple and Nintendo be in the works?

Therefore, that leads to an interesting idea -- what if Apple forged a partnership with Nintendo to launch the Apple TV as a gaming console?

Although Apple still has exclusive iOS titles, imagine the respect it would suddenly command among gamers by offering exclusive Nintendo titles for the Apple TV. Nintendo clearly could use the help, considering that it recently slashed its full-year Wii U sales forecasts by nearly 70% and its 3DS sales projections by 20%.

Nintendo has been famously stubborn about releasing its software on other hardware platforms. To some extent, I agree with Nintendo -- releasing its prized first-party titles into the Android wilderness, which accounts for 81% of the smartphone market and 67% of the tablet market, could cheapen its flagship brands.

Could Mario find a second home on the Apple TV? (Source: Nintendo)

Offering exclusive Nintendo titles on iOS, however, could be a win-win situation. Nintendo could generate extra revenue from limited releases of titles on Apple's gaming platform, where quality can be strictly controlled thanks to the Apple TV's identical hardware and software configuration.

Meanwhile, Apple would be able to solidify its position in the gaming world as an "alternative" Nintendo console. The game-enabled Apple TV would also offer far more advanced streaming media features than the Wii U.

The bottom line

In conclusion, Apple's foray into console gaming could be interesting to watch, but it's not likely to be a game-changer unless it can forge a partnership with Nintendo or another industry heavyweight.

What do you think, dear readers? Would you buy an Apple TV gaming console, or is it doomed to join the ranks of Ouya, SHIELD, and M.O.J.O? Let me know in the comments section below!

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Read/Post Comments (7) | Recommend This Article (1)

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 January 26, 2014, at 10:58 AM, CalvinballPro wrote:

    I find the claim of 13 million units of a niche product moving in one month to be highly specious. Probably no way to prove it, either, which is why Apple is saying it.

  • Report this Comment On January 26, 2014, at 11:49 AM, TMFSunLion wrote:

    The 13 million units weren't sold in a single month, they were a rough estimate of total lifetime units sold.

    Apple TV sales are not usually reported in Apple's earnings reports.

  • Report this Comment On January 26, 2014, at 12:05 PM, Sharm0ck wrote:

    I don't think the article meant that 13 millions units were sold in a month even though that's what's written.

    I think it meant "In May of 2013 Tim Cook said 13 million units were sold".

    So that's total units over the life of the device.

  • Report this Comment On January 26, 2014, at 3:02 PM, jameskatt wrote:

    An AppleTV gaming console will be wildly successful.


  • Report this Comment On January 26, 2014, at 3:19 PM, cluckey wrote:

    jameskatt- If you think an Apple game console will be successful you are crazy. Android has cheaper products out that are not successful. It's because gamers do not want to play ios or android games. They want AAA games. Which ios does not have. Also the people who play ios games want cheap to free games. They are not willing to spend that much money to play a game. Console gamers actually spend big money on games. Consoles will be wildly successful. AppleTv will not.

    Also devs will not want to develop for ios. Sure they have a ton of crappy devs that are able to just make a living. But there is no profit in it. Except for a few big players. Mobile gaming is a joke and will never turn out profits like console gaming does.

  • Report this Comment On January 27, 2014, at 12:14 AM, CrazyDocAl wrote:

    Apple will fail. Who sits at home and says "I want to pay more money to play angry birds"? Nobody. Smart phone/ tablet games are great when you have a few free minutes at work, on the bus, or other times when you are not at home. But they are not games that serious players play.

    Secondly Apple does not hold a 56% share of streaming devices. Both the PS3 and the Xbox 360 have sold over 80 million units. While all are not being used to stream there are a lot more that are than what Apple has sold.

  • Report this Comment On January 27, 2014, at 1:43 AM, TMFSunLion wrote:

    56% refers to pure streaming devices -- Roku, Chromecast, etc. Comparing those to consoles is like comparing apples to oranges.

    If Apple TV becomes a gaming console as well, then it can reasonably compared to the PS3 and Xbox 360.

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Leo has covered the crossroads of Wall Street and Silicon Valley since 2012. Follow him on Twitter for more updates!

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