Jordan Selburn, iSuppli: Apple TV Successor Gives Apple Entry into Booming Internet-Enabled Living Room Market

September 3, 2010

Steve Jobs’ unveiling of the second-generation Apple TV today will give Apple an entry in the market for Internet-enabled living room devices, the fastest-growing major segment of Internet-connected products.

Shipments of Internet-enabled living room devices—a range of products including Internet-enabled television sets, video game consoles and set-top boxes—are forecasted to amount to more than 430 million units in 2014, up from 99.3 million in 2009. At a Compound Annual Growth Rate (CAGR) of 34.1 percent from 2009 to 2014, shipments of the digital living room devices will rise faster than those of the other high-volume Internet-access platforms: PCs and smart phones, whose shipments will grow at a rate of 12.1 percent and 22.7 percent respectively during the same period.

Rising from just a small base in 2009, Internet-connected living room device shipments will expand to nearly the size of the PC and smart phone markets in 2014.

Second Time Around for Apple TV

The Apple TV appears to fit right into the new wave of Internet-enabled living room devices entering the market.

These devices allow consumers to access movies and other content directly from Internet portals such as Netflix and Amazon—a model that competes with current broadcast television methods available through cable or satellite TV.

Apple’s second-generation product is expected to make a renewed pitch to penetrate the living room, following three years of lackluster sales since the Apple TV was first introduced in 2006.

The new device features a lower price—at $99—down from $299 before. It also features low-cost rentals, with television shows priced at 99 cents.

Apple TV also features built-in Wi-Fi and supports video streaming from iPads, iPhones and iPods.

While Job’s demonstration of the Apple TV was impressive, the device still must contend with a host of competing players, according to Jordan Selburn, principal analyst for consumer platforms at iSuppli. The field is currently populated by Internet media players with optical drives like Blu-ray players, video game consoles like the Xbox from Microsoft Corp. and the PlayStation from Sony Corp and standalone media players like those from Roku, Vudu, and the forthcoming Boxee Box from D-Link Corp.

Furthermore, Apple TV must compete against newly available Internet-enabled TVs offered by a growing number of brands. These sets allow consumers to access Internet content without the need for an intermediate device, like a set-top box or game console. Sales of Internet-enabled TVs will climb to 27.7 million units globally this year, compared to 12.3 million in 2009, iSuppli consumer electronics research indicates.

Everything but the Consumer: What’s Missing in this Picture?

From a technology perspective, everything is in place for the digital living room of the future—except, perhaps, the consumer, Selburn remarked.

“Media and networking standards have been established, semiconductors have sufficient power to execute to the highest level demanded by the media, and connectivity options with enough bandwidth and reliable performance are available,” he said.

Nonetheless, despite the inherent potential of the concept, the digital living room of today—and even perhaps for the next year or two—continues to be bogged down by a number of issues.

“There are many boxes, it’s true—each connected to the ultimate consumption device of the display—but only rarely are the boxes connected to one another,” Selburn said. “Sure, the ‘connected home’ is connected to the outside world, but the idea of seamless access remains far from the ideal paradigm of ubiquitous access to content.”

To move forward, content owners and service providers need to establish business models that provide sufficient return while still offering customers value. And customers, he said, must be able to find and access content that they desire—and be able to do so reliably. For instance, stories of Comedy Central content being removed from Hulu.com were bound to frustrate customers, and the TV industry would never have succeeded in the early days if viewers did not know which of their favorite shows were being carried by the channels from week to week or if the shows were being changed willy-nilly.

“When these questions have been answered—and most are issues of business, not technology—the digital living room can, and will, become a reality,” Selburn said.

For its part, Apple’s expected new bid to revitalize Apple TV—which company CEO Steve Jobs had called a “hobby” in the past—will likely make things that much more interesting, iSuppli believes.

In addition to the smashing success of its iPhone and the recently released iPad—credited with single-handedly resuscitating the all-but-moribund tablet market—Apple might now have a product capable of raising the stakes higher for the digital living room—and for everyone else involved.