Nevermind the iPad, What’s Next for Apple?

Now that the long-rumored Apple tablet has finally been unveiled as the iPad, we can turn our attention towards figuring out what Apple’s next big product launch might be. Based on the evolution of the company’s devices, software and recent business discussions the answer actually seems pretty clear: Apple should build a true web-enabled home entertainment television experience- the iTV. Here’s why:

Apple TV has been a failure. For a company that loves to reference stats regarding the success of its products, Apple has been very reticent about the sales performance of Apple TV, repeatedly referring to the product as “still a hobby.” The device, which competes with over-the-top (video delivering over a broadband network and not through a cable box) offerings from the likes of Boxee and Roku, has not met with nearly the same success as other Apple products since its launch 2 ½ years ago- primarily because it functions as a peripheral device and not as an end-to-end Apple experience.

Apple’s corporate success has been built upon its desire to create elegant and simple user experiences around its products. The development of the iPad, iPhone/iTouch, iPod and Mac is entirely controlled by Apple from the moment a user turns them on to when the device is powered down. This allows the company to design products that tightly integrate the aesthetic design and functionality of the hardware with the software and services, making it intuitive and easy for consumers to use. All that users have to do is connect the device to a network (broadband or mobile- if even that) to get going. Apple TV on the other hand functions as a peripheral device within a broader television viewing experience that Apple does not have complete control over. This leaves consumers to deal with separate controls for Apple TV, the television set and potentially their cable set-top box, creating a very un-Apple-like experience from the integration of the hardware’s aesthetics, to the rendering of content on the display, to delivering additional value through applications.

iTunes has a robust video content offering. What started out as a music catalog for the iPod has grown to include podcasts, audio books and, most importantly, video content from television networks and movie studios. While the iTunes store has successfully been selling access to televisions shows and movies on a per unit basis over the years, there are persistent rumors that Apple is in discussions with these same video content providers to offer a subscription-based service through iTunes, mimicking cable’s content offering, but at a lower price point. Since the iTunes software is integrated with Apple’s operating system already, connecting it to an iTV device becomes trivial.

The AppStore already competes with TV and gaming consoles. One of the big trends at the Consumer Electronics Show earlier this year was web-enabled televisions that offer not only video streaming services over the internet but access to widgets through the likes of Yahoo’s Connected TV. With 140,000 apps on its platform, Apple has a massive head-start on potential competitive offerings from television manufacturers. With the iPad now expanding the opportunity for game developers while also providing a scaling solution for  apps currently in the App Store, Apple has become an even greater threat to traditional gaming consoles from Nintendo, Sony and Microsoft. By also leveraging apps or hardware, iPhones and iTouches can be turned into remote controls, enabling these apps to work in a more traditional television viewing experience as well as allowing for multi-user games to be played on a single screen, a capability that has been an exclusive feature of gaming consoles to date.

The iPad is a personal entertainment experience. While the iPad offers a great medium through which to consume a variety of content (apps, books, photos, magazines, movies, websites, etc.), because the display is only 9.7 inches it doesn’t make for a great experience when more than one person wants to participate. For an entire family to enjoy watching television or playing games together there needs to be a larger screen.

The iMac’s monitor is already big enough. Even though Steve Jobs referred to Apple as the largest mobile device company during the iPad’s launch event, the company still sells a fair amount of Macs. The current 27 inch display is large enough to already compete with smaller LCD and plasma television displays on the market today. The iMac also offers a great example of how Apple would approach designing-away the clutter associated with today’s television and gaming console cords and cables, creating a much more  aesthetic and desirable device for display at home.

With a complete line of mobile devices now available to consumers as well as content and app catalogs that render across Apple’s entire portfolio of hardware products, Apple will need to find new growth opportunities beyond its current line of ‘iProducts’ in the future. With internet-enabled televisions expected to be a $29 billion worldwide business by the end of next year, and with an average of almost 3 television sets in the over 110 million households in the U.S. alone, Apple can make a multi-billion dollar business out of home entertainment-enabled televisions- especially when you take into account the recurring revenue opportunity provided by video subscription services.

Considering Steve Jobs’ almost maniacal, hands-on approach to launching products, it’s doubtful that we would see a version of the iTV before January 2012. Until then Apple fans can enjoy the launch of the iPad and the evolution of Apple’s content offering in (hopeful) anticipation of a better home entertainment experience.

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Television Programming Will Require Better Discovery in the Future

The ability to access any television program or motion picture on demand is more of a question of ‘when’ rather than ‘if’’ as internet-based delivery of digital television (known as Internet TV or IPTV) is enabling a variety of companies to already offer converged video viewing experiences to consumers.

  • Cable & Satellite Companies. While digital television services have traditionally been delivered by cable and satellite providers, these companies have also been at the forefront of providing non-linear television and movie watching capabilities through digital video recording (DVR) and video on demand (VOD) services. Now the likes of Comcast, DirecTV and Time Warner Cable are joining forces to launch TV Everywhere, a service that will enable their respective subscribers to access their television content on the web.
  • Telecom Providers. AT&T and Verizon are leveraging IPTV to build the most direct competitive offering to that of cable and satellite television. These subscription services include DVR and VOD functionality while also leveraging internet connectivity to allow users to access social networking services and video content from web aggregators through their set-top boxes.
  • Device Manufacturers. Television sets, Blu-ray disc players, video game consoles and digital media boxes are all incorporating Internet TV into their devices to offer consumers alternatives to traditional subscription-based linear programming. LG is producing TVs and Blu-ray players with internet capabilities to enable access to certain video websites and services. Microsoft’s Xbox system is repurposing its broadband connection used for multi-player gaming to deliver a similar video experience while also extending the social nature of the console to allow gamers to watch shows and movies with other Xbox users. Devices from Apple, Roku and Vudu offer dedicated alternatives to traditional cable and satellite boxes, providing their own content catalog to consumers in some cases or partnering with other video service providers in others.
  • Internet Properties. Sites such as Amazon, Boxee, Hulu and Netflix are also leveraging the internet to provide consumers PC-based options for streaming and downloading video content as well as partnering with device manufacturers to extend their respective web offerings.

As set-top boxes and other devices become more powerful and broadband connections get faster, business models will be forced to evolve to address the control consumers have in a converged video experience. So what could slow down the adoption of on demand television by consumers? The actual user experience of finding and discovering programming.

Think about how people discover what to watch on TV today. We know what day of the week, time slot and channel a particular show is broadcast primarily through television marketing. During the airing of any show on TV the network providing the programming for that channel will advertise other shows within its portfolio along with the appropriate tune-in information (typically the show being promoted will be broadcast on the same channel on the same evening or in the same genre as the show you are watching but on another night). Word of mouth marketing from friends, coworkers, etc. fill in the rest of our content discovery needs. Now fast forward 10 years when channels and time slots in a converged video experience give way to on demand programming- how do we discover what shows and movies to watch and recommend?

Current discovery options, available primarily on video websites, are basic filters (find by name, genre, latest and most popular) associated with each site’s content catalog. Clicker, runner-up for audience favorite at TechCrunch50 recently, is trying to enhance this type of discovery by structuring the underlying data associated with video content across websites to make it easier for users to search for content as well as build their own playlists to watch.

TVGuideFiltering only provides a partial solution though. Recommendation engines that offer video suggestions to users based on particular attributes completes the discovery equation. Netflix believes in the power of recommendations enough to award $1 million to a team that was able to improve Netflix’s current movie recommendation results by 10%. While user preferences are the key to Netflix’s recommendation results, other attributes do exist. Word of mouth discovery through friends can be equally, if not more, effective. Based on the homophily principle that “birds of a feather flock together”, if your friends highlight certain shows and movies as favorites then you might be inclined to watch them as well. TV Guide, the original provider of television programming information before the internet existed, offers a web-based solution for discovery through association by leveraging Facebook Connect to allow users to access their social graph on Facebook to see what shows are their friends’ favorites.

Interestingly enough I’ve yet to see anyone combine the power of push and pull (recommendations and search filters) discovery into a single solution. The company that creates an intuitive user interface that incorporates both types of discovery mechanisms to enable the programming of a television has a tremendous opportunity to own the converged video experience across multiple providers or directly with the consumer. An internet company such as Netflix, which has distribution partnerships with video service providers, a large subscriber base and a recommendation engine, is best positioned to provide this type of solution. Some might consider Hulu an option, but it has focused its efforts on being a technology and web distribution platform up to this point. From a start-up perspective, Boxee, a favorite of the early-adopter community still lacks the service distribution partnership, established media relationships and easy set-up to be considered a serious threat in the short-term.

In an on demand environment television networks and movie studios face an equally daunting task regarding discovery- how to promote their content to subscribers. Recently launched Simulmedia is attempting to address this problem for media companies by better targeting users with on-air promotions through data mining. This methodology could easily be applied to a non-linear viewing experience that could really benefit networks and studios. Services that can leverage subscriber data to target users with the appropriate programming promotion will be important as audiences are only willing to tolerate so many interruptions while watching television. Each pre-roll, mid-roll or overlay that is used for marketing television shows takes away from potential advertising dollars that could be placed there instead.

Where networks will have leverage with audiences and advertisers is in broadcasting live events. Securing rights to sporting events, award shows and the like can mitigate some of the effects of non-linear viewership. Knowing the day and time when an audience will be watching television opens up a tremendous opportunity for timing the release of shows, movies and advertising campaigns around the event.

Regardless of whether a discovery solution being implemented for consumers or provides, in a converged video experience both parties have the benefit of leveraging various user and content data sets to create a more efficient discovery process than is available to us today.

Now if I could just figure out my remote.

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