If Apple Licensed iTunes For Non-Apple Devices, They Could Own The Living Room

While there are a lot of video based hardware devices in the market all competing for the living room, today, none of them have the three essential components needed to be declared the winner. To truly have a shot at owning the living room, you need the content consumers want, the software platform to control the content and an install base of devices capable of reaching a large enough audience. Today, so much of what we hear about regarding these broadband enabled devices is the hardware, but that's the least important part. With Internet connected functionality being built into nearly every device associated with the TV, stand-alone boxes are not the path for long-term success. The path to the living room is not a hardware play.

When Apple announced the new Apple TV, some predicted that Apple would ship a lot of the units since they retail for just $99 a pop. But all the Apple TV does is cripple the web experience. You can only access the web through apps and many devices made by Apple restrict the way in which we interact with our content. Because Apple wants to control not only the iTunes software but also the hardware, Apple is preventing themselves from ever controlling the living room. We know the hardware is becoming less important. Roku's box is cheaper than Apple TV and offers support for USB and 1080p. So this is not about Apple having better hardware with Apple TV because they don't. It's about who has the best content and the best platform to manage it.

Apple is setting themselves up for failure in the living room all due to the fact that they feel they have to control everything in the video ecosystem. But just imagine if Apple cared less about the hardware and was more open with their iTunes platform. If Apple licensed iTunes to every TV and Blu-ray manufacturer and these devices all shipped with iTunes built in, Apple would immediately have the largest install base of anyone overnight. iTunes would become the dominant platform in the living room and could go uncontested if Apple added browser functionality to iTunes.

We know this model works as we can look at Netflix's success in approaching the market in that way. Netflix does not make any kind of hardware and is not trying to control the video playback device. They want to and will work with nearly every CE manufacturer to get the Netflix platform on as many devices as possible and at the end of this year, expect to have an install base of 100M devices. How many devices is iTunes on in the living room? The answer is very few as they only have the Apple TV.

Of course folks who love Apple are going to point to how many iPhones or iPods have been sold and the install base that iTunes has on them, but that has nothing to do with the living room and the task of getting Internet delivered video to the TV screen. One could argue, and I would agree with them, that today Microsoft and their Xbox 360 console is the winner so far. Outside of a set top box, it has the largest install base of any device connected to the TV, has a platform to go with it and has quite a lot of content available via Zune Video. And with ESPN and other forms of content coming to the device shortly, Microsoft is clearly focusing more of their efforts on the platform and the content as opposed to the hardware.

The market for the living room is completely fragmented right now with nearly every vendor falling under the hardware category, platform category or content category. Very few are working on all three. Hulu is a content play, yet they have no install base in the living room and are only now starting to work on that. Hulu has been hard at work on two of the three requirements to dominate the living room, but is missing the eyeballs. Netflix on the other hand has the platform, the device penetration and is hard at work on improving the content.

Then you have all the hardware players in the market including Roku, TiVo, WD TV Live, Popbox, Sony Netbox and all of the broadband enabled TVs and Blu-ray players. Aside from Roku who is spending a lot of time focusing on the Roku platform and brining new content channels to the device, most of the others are all a hardware play. Of course TiVo has been working on all three for some time, but unfortunately has not shown much success. If there is one thing TiVo has proven in the market it's that the value is not the hardware, but rather the software and application layer. TiVo still has the best software hands down, yet does not have much in regards to the content side of the business nor that big of an install base.

On the platform side of the business, companies like Sonic Solutions are trying to become the dominant platform for devices, but still has a small device install base. Like others, they also have no control over the content side of the business and have to hope that content owners not only adopt their platform but also work with CE manufactures to get on more devices. Then you have platform providers like Yahoo!, VUDU (now Walmart), Blockbuster, Rovi and others who are all struggling to find their identity in the living room.

I like Apple devices, I've only used a Mac my whole life. But Apple makes some really dumb mistakes in the market at times simply due to their ego and this is one of those occasions. If Apple opened up iTunes to non-Apple devices, they would be dominating the market. And if they did that, and had the kind of device footprint Netflix will have by the end of this year, it would be a lot easier for Apple to get the studios to agree to allow them to add new business models like monthly subscriptions for video. 

The competition to get consumers attention in the living room is wide open and with Google TV, Boxee and others all gearing up to launch their offerings, Apple's iTunes platform and Apple TV device are only going to fall further behind in the race to control the connected living room.

  • It only benefits our industry for Apple to lose this battle. Other than Akamai and some of the encoding companies, Apple is a walled garden. Personally I welcome their failure for creating a monopoly on music, destroying the music business and making life so tough for companies in our space. They earned it.

  • Guy

    Well, Apple says they don’t make money on the iTunes store, it just facilitates sales of (their) hardware. So how is “controlling the living room” going to make them money?

  • Necniv

    …Apple makes some really dumb mistakes in the market at times simply due to their ego and this is one of those occasions.
    Please read about Airplay — http://blogs.computerworld.com/16918/interview_apples_airplay_is_a_big_big_business — before you talk about how Apple should open up iTunes. Seems to be happening on Apple’s terms.
    And about Apple being dumb and arrogant, please tell me where it’s hurt them?
    $40 – $50 billion in short term cash / holdings and they’re getting ready to initiate “iTunes in the cloud” once their center back East goes live.
    If this were a quick race, IBM would have won long ago, and Microsoft after them. We’re at the beginning of the digital convergence. Just because you can’t see the possibilities, doesn’t mean they don’t exist.

  • Airplay? That has to do with music, nothing to do with video. And no matter how much money a company has in the bank, that does not mean you stop questioning their business model or how they can improve their business.

  • Nevermark

    @Dan,
    Steve Jobs demonstrated AirPlay with iOS 4.2 for November release with video streaming. So maybe AppleTV sales will finally get a strong halo benefit from connecting TVs to everyone’s iOS devices, as well as iTunes.
    If they can figure out how to make apps work well on AppleTV (with iPod/iPhones as controllers?) they could flip game console economics on its head in terms of game pricing. Inexpensive games for iOS seems to be turning the tide against handheld Nintendos and PSPs.
    Apple isn’t guaranteed to win the living room, but I expect they are putting in more effort behind the scenes to find unique ways to attack the market than most of the competition. Good luck to them, and everyone else!

  • My post is about getting video to the TV. You’re saying that Apple might be able to compete with handheld gaming devices. That’s not relevant to video.

  • VladK

    Apple wants to sell you a device, iTunes is part of end to end experience to make sure you buy your next Apple device!

  • Bruce

    As noted above, Apple is primarily a hardware company that uses software, apps, and ecosystem to aid in selling their devices for premium margin. Selling only content would be a much lower margin business (Apple claims it is little over break-even…might be close to true) with no guarantee that it could be made up in volume. Even at $99, Apple is likely making good margin on AppleTV.
    Without a clear path to “winning” the living room, Apple is taking an approach of making AppleTV a lower cost accessory for the TV ($99 makes it more likely as an impulse purchase). It offers an “outlet” for Apple/partner content onto the TV, as a companion device to the much larger iPhone/iPod/iPad device market. It also offers some basic streaming/rental functionality, as well as Netflix. It most likely is a variant of iOS (minus touch screen UI) and could also provide apps in future.
    Even excluding iPhone for the minute by classifying it as a “mobile smartphone”, Apple will sell far more iPod’s and iPad’s (and $$) this year than any CE vendor will sell independent STBs. This is where their money is, and where Apple is focusing their “video strategy” – sell those mobile/CE devices. The TV is frankly the last outlet of priority for Apple, given the current marketplace dominated by well entrenched Pay TV operators with rental STBs.
    Finally, the post about AirPlay above relating to video is true. While the link provided referenced only music, the info from Apple (checkout their website) makes it clear that AirPlay is about streaming audio, video, and photos from an iDevice (or iTunes) to AppleTV. Thus the tie-in of AppleTV to the much larger iDevice market (rent or purchase content once, and watch it on iPhone/iPod/iPad or on TV via this tiny little device).
    In short, this AppleTV won’t win the living room, but it isn’t intended to…there is far more money in their mobile/CE device market.

  • Airplay is about video to the tv:
    http://www.macrumors.com/2010/09/17/airplay-opens-door-to-almost-any-web-video-on-apple-tv/
    Still to be fully confirmed .. But hey, makes perfect sense.
    I don’t want the web on my tv .. I only want to watch video from the web pushed to my tv. I browse and email from my iPhone or iPad in the living room (with touch input/direct interface) and have what I play then piped to my tv.