Please ensure Javascript is enabled for purposes of website accessibility

Why Apple Has to Make a Splash in the TV Market

By Travis Hoium – Mar 31, 2014 at 11:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apple's product line has become stagnant. With competitors encroaching on its territory, Apple needs the TV market for growth.

If there's one thing you can't do in tech it's stand still. The world moves quickly and it will pass you by before you know it.

The common trait among companies that have lasted a long time in tech is continuous reinvention, and for more than a decade that's why Apple (AAPL -0.40%) outperformed everyone else. But it's been four years since the iPad was released, and recent updates to the iPhone, iPad, and iOS have been anything but breathtaking. So Apple has to shake things up and find a platform for growth; TV is where there's an opportunity to upend the market.

At this point, making a splash in TV isn't a choice for Apple, I feel it's a necessity.

Apple TV gives Apple a start in disrupting TV but opening the device to developers would kick start a TV revolution.

TV is more than a hobby
The Apple TV was released in 2007, but until recently the company viewed the device as a "hobby." But CEO Tim Cook said earlier this year that the product's potential can no longer be ignored after it delivered $1 billion in revenue last year.

Apple is already laying the groundwork for opening Apple TV up to developers, and that's when the product could really transform television. It seems that every week a few new apps show up on Apple TV; before long will likely have an app store like those on iPhones and iPads.

One thing Apple is trying to do with its expansion in apps is prove viability to media content owners. Apple is running into the same challenge getting content owners to sell through Apple as it did with music, which was essentially launched with a small library and was so successful that record labels were forced to sign up.

The App Store has made the iPad a hit, something that could translate to Apple TV.

The television and film sectors are even more entrenched in their business models, but it's easy to see a path to them offering subscriptions through Apple or on their own, much like Netflix or Hulu Plus. Time Warner's (TWX) HBO Go app is one of the most popular apps on every streaming set-top box; it could easily offer subscriptions directly to consumers. Disney's (DIS -0.84%) new Disney Movies Now app ties directly into iTunes and opens up a direct to consumer model for the media giant.

We've already seen sports packages such as MLB.TV and NBA League Pass lead the way in offering streaming only options; if history is any guide, live-action sports is the litmus test on the cutting edge of TV.

Many questions remain
What's still up in the air is how Apple will position itself in the TV market and who will go along for the ride. Devices such as Roku are already more open than Apple TV, so Apple will have to differentiate itself from the competition, potentially by leveraging its existing ecosystem. 

Content owners also haven't been willing to part with lucrative monthly cable revenue to offer streaming services. Apple, Intel, and others have hit a brick wall when trying to offer an alternative to cable (Intel recently gave up on the set-top business, selling its developments to Verizon).

However, the landscape may be changing after Disney reached a deal with Dish Network (DISH 0.93%) that will allow for a streaming only subscription option. Could Apple strike a similar deal with Disney given their normally cozy relationship? Time will tell, but Apple will need some sort of streaming subscription model to fight cable. 

What's really exciting for Apple is the possibilities the App Store opens up on a television. If opened up to developers, Apple TV could be a gaming console, a streaming device, and a tool for productivity.

This is more important to Apple than you think
With the iPhone and iPad facing increased competition, Apple needs to make a move to stay ahead of its rivals. The logical move is into our living rooms: Consumers crave a change in the cable TV status quo and Apple could open up a world of possibilities for developers and content owners.

I think a new and improved Apple TV is not just a product Apple should introduce, it's something Apple needs just to keep consumers and investors happy. Tim Cook's legacy may depend on it.

Travis Hoium manages an account that owns shares of Apple and Intel. The Motley Fool recommends Apple, Intel, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Intel, Netflix, and Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.