More Evidence That Apple, Inc. Needs to Refresh Apple TV

Image source: Apple.

Let's face it: It's been way too long since Apple (AAPL -0.08%) refreshed its Apple TV set-top box. Not including a quiet update in 2013 implementing a smaller 28-nanometer chip with no other changes, the current Apple TV has been around for over two and a half years.

That's quite a while in the realm of consumer electronics, particularly as the streaming media device space has gotten a lot more competitive over that time frame. Google (GOOG -2.17%) (GOOGL -1.99%) launched its Chromecast in 2013, while Amazon.com (AMZN -2.44%) jumped in with Fire TV and Fire TV Stick earlier this year.

Well, Fire TV is catching up with Apple TV and Chromecast just overtook it.

We're No. 3! We're No. 3!
That's according to a recent report from Parks Associates. The market researcher has released market share estimates for the first three quarters of 2014. Roku is still on top, but Google and Amazon are each grabbing respectable pieces of the streaming media device pie.

Source: Parks Associates. Only top four brands shown.

In 2013, Parks Associates estimated Roku's market share at 46%, followed by Apple at 26%. The tables are starting to turn, suggesting that Apple needs to do something to reinvigorate Apple TV sales.

That's not to say that Apple has been completely idle. The company gave the Apple TV interface a fresh coat of paint in line with its new design aesthetic, and continues to add new app channels to the lineup. With as much as Tim Cook has talked about much Apple can contribute to the TV experience, it still feels like the company could (and should) be doing more.

Stick it to Apple
There's also another interesting trend unfolding. Roku and Amazon have both followed in Google's footsteps and released low-cost streaming sticks of their own. These small devices are now available from $35 to $50 and are carving out a segment of the market at lower price points. All three devices support all the major video streaming services that you'd expect.

Cook has discussed price umbrellas before, and right now Apple TV's $99 price point is effectively a price umbrella allowing rivals to undercut the Mac maker. While Apple generally resists pressure to compete merely on price, it could fortify its ecosystem by similarly moving downmarket with a low-cost streaming stick. Even if Apple did so, it would likely still position itself at a premium, perhaps $60 to $70.

If that's where consumer preferences are heading, Apple needs to play ball.

How far we've come
To be clear, the streaming media device market has come a long way in recent years, and Apple has easily been a major driver in increasing consumer propensity to pay for streaming devices.

Just four years ago, Steve Jobs noted that no one was willing to pay for a set-top box because the cable industry provides a subsidized one, effectively crushing innovation. Parks Associates estimates that 10% of U.S. households now own a streaming media device, a testament to how the market has evolved and grown.

From a financial perspective, Apple TV remains relatively small in the grand scheme of things. Apple doesn't regularly disclose data around this business, but in April, Cook said that cumulative unit sales have now topped 20 million. Roughly a year earlier, cumulative unit sales were 13 million.

That's enough for the product to graduate from its "hobby" status, but Apple TV results are still modest enough that Apple will include the figures in its "Other Products" segment under its new reporting structure. Other Products will also include iPod, Apple Watch, Beats headphones, and other accessories.

But Apple TV's significance has never been financially, nor will it probably ever be; rather, Apple TV is strategically important to Apple's ecosystem as its primary inroad to the living room. That's why we need a new one.