Why Apple selling HD Televisions makes sense

CNet reported Friday a rumor from Jason Calacanis that Apple was working on networked televisions. The end result would be Apple’s monitors with a television tuner and the functionality of the Apple TV built into the set itself.

We’ve speculated previously what the next generation of Apple TV needs, and top of that list was a DVD/ Bluray player to make the box more appealing. I made the following observation as to why the Apple TV needed to do more:

With most TV manufacturers launching internet enabled TV sets in 2009, the use case for the Apple TV diminishes, after all, why buy a box from Apple when your TV will offer many of the same features built in.

I’d presumed that the problem of Internet enabled televisions (see our full post on the rapid coming of Internet enabled television here) meant that Apple needed to more with the Apple TV box. The problem in that mix though was always going to be Apple’s preference for digital content delivery over support for physical mediums; offering DVD support means customers have a choice other than the iTunes store. But what if the solution to the coming of Internet enabled televisions isn’t an improved Apple TV box, but an actual Apple manufactured HD LCD Television with the functionality of the Apple TV box built in as standard?

New market, new player

Apple entering the television space may seem a little far fetched, after all, it’s a market place with many existing competitors, entrenched brands, and often savage price cutting. Lets swap television with mobile phone, and it’s the same argument we heard prior to the iPhone being launched.

Apple has proven that it can enter new markets and take significant marketshare with the iPhone, and they can do the same here.

Unlike mobile phones though, internet enabled televisions are a new market within a market. There are no established internet enabled televisions on the market today, and Sony, Samsung, Panasonic and Phillips are all slated to launch their sets in 2009.

Clear and present danger

The entry of most of the top television makers into the internet television space presents a clear and present danger to Apple. We don’t know all the details of who will offer what (or how open the sets will be), but we do know that some manufacturers are doing content deals that will see services offered exclusively instead of others. Every internet enabled television sold that offers premium content from stores other than iTunes is a threat to Apple’s leadership position in the future. The market for the Apple TV box will dry up as people buy internet enabled television sets, and don’t need Apple to buy or rent movies from their lounge rooms.

The market today for premium digital content (outside of music) may be small, but once you overcome the delivery issue through internet enabled televisions, the market will boom. It will be the last stake in the death of broadcast television, but who will benefit from this?

Apple wants to maintain its leadership in premium digital content delivery where ever people are in the home. If Apple is not in the lounge room, it doesn’t get its share of the boom to come. Worse still, if a competitor such as Amazon is offered by other players, those customers may not only end up renting movies from Amazon, they become Amazon digital content customers and there may well be a switch away from the iTunes store for music as well…and the flow on affects could also deliver a hit to Apple’s iPod/ iPhone franchise.

Apple needs to be in the lounge room, and the Apple TV box can’t compete against internet enabled television sets. The only way to tackle this risk is for Apple to offer its own range of televisions, tied into the existing Apple content and product ecosystem. Naturally they also need to be better than the competition, but this is one part of the mix Apple is good at.