After years of rumors and hopeful optimism, it finally appears Apple (NASDAQ:AAPL) will launch its much-anticipated TV product later this year.
This recently resurgent news has left analysts and investors alike in a mad dash to parse the potential opportunity for an Apple over-the-top service. One analyst also recently highlighted another interesting angle to the Apple TV thesis. Let's take a look.
Another $35 billion market for Apple
In a recent note to investors, J.P. Morgan analyst Rod Hall postulated that an Apple TV service would open the door for Apple to expand its presence in the global video game market. Apple already dabbles in mobile game distribution via its App Store, but Hall believes that breaking into the living room would position Apple to compete against the likes of Microsoft, Sony, and Nintendo for a share of the global console and PC gaming market that produces $35 billion in sales annually.
According to his line of reasoning, Apple already has many of the pieces required to enter the market already in place. Hall reasons that Apple's A8X chip that's found in Apple's iPad Air 2 is capable of "near PlayStation 3 quality graphics." He also notes that Apple's iPhones and iPads already enjoy support for third-party, Bluetooth-enabled controllers, iCloud syncing for saved games, social networking functionality via Apple's own GameCenter. Viewed in their entirety, there's certainly a case to be made that Apple is well-suited to move into this space, and that Apple's likely over-the-top streaming service could be the perfect entry point.
Low risk, high reward?
Hall estimates that Apple could add 1.5% to its earnings for every 10% of the gaming market it captures. The implication is that even if Apple were to capture significant share, attacking the console and PC gaming market probably won't prove a tremendous growth driver for Apple and its investors. However, the potential move into PC and console gaming could still benefit Apple in a numbers of ways.
For starters, entering the console and PC gaming space could help attract more developers onto Apple's nascent TV app platform. Although it isn't clear how the financial opportunity might compare between Apple's potential gaming users and traditional desktop and PC gamers, Apple's app ecosystem has proven to be the most lucrative platform for mobile app developers. That of course falls short of definitively showing Apple would prove as attractive to PC and console game developers, but it certainly implies there could be meaningful financial opportunity for enterprising developers on a new Apple gaming platform. And by expanding the Apple over-the-top offering's use cases to cater to gamers, Apple could create another attractive cross-selling opportunity into its supposed TV content package. Gamers who might buy the system could also be compelled to subscribe to Apple's TV content offering, and vice versa.
The start of something bigger
Like Apple's potential entry into the gaming market, it's rumored over-the-top content service likely wouldn't prove a financial game-changer in its own right. However, my working big picture theory is that Apple's moving into delivering TV content could create the entry point into Apple's next great hardware market -- the connected home.
In order for Apple to continue to grow given its swelling revenue base, it will need to continue to move into new and significant growth markets. And thankfully, the connected home should represent a genuinely gigantic growth opportunity in the years ahead. Apple has already signaled its interest in establishing a software platform for the connected home space with HomeKit. However, Apple needs an entry point to actually get HomeKit in front of consumers, and packaging HomeKit alongside an Apple over-the-top TV service would create an outstanding entry point to help spur adoption and attract developer interest. Better yet, the smart home space offers a multitude of potential new hardware opportunities for Apple to sell into. So, while Apple's TV content product remains a rumor today, it's increasingly clear it's the kind of rumor Apple would do well to pursue.