Market Insight

Apple Launches a New, Costlier Apple TV – Is it Revolutionary or Evolutionary, and Will Non-Apple Consumers Pay for It?

September 09, 2015  | Subscribers Only

Paul Erickson Paul Erickson Senior Research Analyst, Service Provider Technology

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At its September 2015 launch event, Apple debuted the new Apple TV, the first new iteration of the Apple TV product line in over three years. Among the new features were a new remote control with capacitive touchpad and microphone, a new tvOS operating system with SDK and supporting third party applications, Siri-based voice navigation and search, and enhanced gaming capabilities utilizing the gyro- and accelerometer-equipped remote as a gaming controller. The new device is powered by a 64-bit A8 processor, and is equipped with Bluetooth 4.0, 802.11ac MIMO wireless connectivity, and an infrared receiver.

Pricing for the 32GB and 64GB versions is $149 and $199 respectively, with availability beginning October 2015 in the US.

Our Analysis:

The new Apple TV is an evolutionary, not revolutionary update. While this is a significant step up for Apple TV from its last model iteration, many of the new features are already state-of-the-market – TiVo and others have universal search; Roku, Fire TV, LG, Android TV, and others have voice search; gaming is on other platforms as well.

The most interesting possibilities are opened up by the app platform, and the MLB At Bat app demo is a teaser of what some of the creativity of third parties can accomplish with the new Apple TV and tvOS. Over the long run this will eventually become an area of differentiation where the power of the platform might be displayed. As such, it is an area where Android TV, game consoles, and other platforms similarly app-enabled will be the main rivals for a next generation TV experience.

Apple is positioning the device upmarket from the field, and separating it from the pack of other media streaming devices by using gaming capabilities as its strongest differentiator. In this context, Apple’s pricing is attempting to bridge the value/functionality of the streaming media device and the market for low-priced gaming options: casual gaming, microconsoles, and last-gen consoles. While Roku, Chromecast, and others will not necessarily be threatened by this move, Sony’s PlayStation TV and Nintendo’s Wii U are the most likely to be affected by the Apple TV’s new gaming capabilities.

For those already in the iOS fold, the choice to purchase the new Apple TV may remain a simple decision to stay within the Apple ecosystem. For the non-Apple universe, and even those iOS device owners on a budget, the decision to purchase the new Apple TV will be a question of whether the gaming capabilities, apps, and perhaps the level of Siri’s intuitiveness in voice control will make the substantial premium worth paying in the consumer’s mind.

Despite the new app platform and gaming capabilities, the new Apple TV has not changed the game in the streaming video device market. It brings the device in line with the highly competitive status quo of this market. The app platform and enhanced gaming capabilities are tangible updates, but at this time they are debatable as features that significantly change the dialogue on what a streaming box is supposed to do; gaming has not traditionally been known as a purchase driver within the streaming device market, and at this time there is a lack of depth of marquee apps showing compelling, potential game-changing capabilities for the platform.

In this context, pricing has now become a tangible dividing line. A 50% to greater-than 100% premium for an Apple TV device, in a market which has traditionally been in the $50-99 price range, places specific focus on what added value the consumer will perceive they are receiving. For the iOS device owner, this is less a factor, as Apple TV has enjoyed a strong tie to the iOS user base, and likely $149-199 will simply become the “new normal” for many looking to watch streaming video, view their photos and videos on the TV, and safely remain within an integrated Apple ecosystem.

For the consumer merely wanting to view streaming video and display photos and videos on the TV, a Chromecast, Roku, or other options under $99 will still remain compelling propositions depending on consumer needs. The new Apple TV does not currently present a value gap sufficiently paradigm-changing to convince the average price-sensitive non-iOS consumer to pay a sizeable premium.

This update to Apple TV is an iterative move that does well in capturing the attention and purchase decision of consumers already within the Apple ecosystem, but a high price premium and a lack of truly game-changing functionality will ensure that the device’s appeal and qualitative total available market continues to remain constrained to largely the iOS device owner base.

IHS’ forecasts thus remain conservative on Apple TV due to the price rise presenting a tangible barrier for a substantial jump in mainstream traction outside the iOS and Apple ecosystem base, despite Apple TV’s positioning to bridge the streaming device market and the low end gaming market. Holiday 2015 will be a pivotal time to see whether Apple’s gambit has paid off.

At this time, IHS forecasts Chromecast continuing to out-ship Apple TV globally as it did in 2014 (8.7M to 8.3M units respectively), at 10.3M to 10M units respectively in 2015. Roku is forecast to be in third place in 2015 shipments at 7.5 million units.

Strategically for Apple, not capturing significant new mainstream volume with the updated Apple TV may be perfectly acceptable to the company. Apple may instead be content to capture a higher revenue-generating piece of the market, and to make the new Apple TV a must-have for a high percentage of the substantial iOS user base – a highly profitable prospect for the company.

 

Organization
Apple Inc. Google Inc. Roku
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