Apple TV Comes a Step Closer to Home Entertainment Reality


It may not be long before Apple (AAPL) has a starring role in your living room.

The Wall Street Journal is reporting that the world's most valuable tech company is testing television designs with major Asian component suppliers. Executives at some Apple suppliers are confirming that designs for a large-screen high-def TV are in the works.

Testing isn't the same thing as producing, of course, but Apple could certainly use the boost.
After peaking above $700 just three months ago, Apple shares have fallen by nearly 25 percent.

A new product would ease concerns that analysts have been raising about margins contracting on the company's popular iPhone and iPad lines as cheaper Android smartphones and tablets flood the market.

Apple's Next Act

Critics argue that Apple needs to raise the bar on innovation again. After all, isn't the iPad simply a super-sized iPod touch -- which could be seen as just an iPhone that doesn't make phone calls?

Apple has a juggernaut with its iOS platform. It has sold hundreds of millions of iPads, iPhones and iPod touch devices running the company's flagship mobile operating system that plays nice with Apple's rich iTunes and App Store ecosystems.

Scoring a hit in the higher-priced TV market would be a great way to win back investor confidence.

Traditional TV Dets Are Getting Dusty

There is little doubt that an Apple-branded smart television is on the way.

"When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years," CEO Tim Cook teased NBC's Brian Williams in a Rock Center interview earlier this month. "It's an area of intense interest. I can't say more than that."

It's an area of "intense interest" for investors, too.

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A recent survey by AlphaWise and Morgan Stanley found that 47 percent of the 1,568 people polled were interested in an Apple TV, and they would be willing to pay -- on average -- 20 percent more for it.

You have to love Apple's ability to squeeze out a premium for its product before the public even knows what would make it better than the growing number of smart TVs on the market.

Steve Jobs told his biographer that the company had finally found a way to raise the bar in the commodity market that TVs have become. It was apparently one of Jobs' final projects at Apple before passing away last year.

Apple better hope it really has cracked the code here. Sony (SNE) has been losing on its iconic TV business for years.

Musing on the iTV

An Apple TV -- or iTV as some have been calling it -- would probably use an iOS-based touchscreen device as its remote control. Obviously, the TV itself won't be a touchscreen. Who wants to smudge or sit that close to a full-sized monitor?

The one area where Apple could truly revolutionize the experience is by getting cable networks to offer their channels on an a la carte basis, but they will naturally be reluctant to do that. It's far easier to keep channels bundled in costly cable and satellite television packages so that their corporate owners get paid whether or not consumers ever watch the channels.

Even if the company fails on that initiative, Apple TV could still be a hit by merely blowing up the apps that have made its other iGadgets so popular.

It won't be perfect. Folks aren't going to trade in their TVs every year or two the way they do with iPhones and iPads. The sheer size of TVs will make them hard to casually bring to the local mall-based Apple Store for repair. And they'll take a lot of room to display in Apple's retail showrooms.

However, we'll let Apple worry about all of that later. Right now, Apple's stock is struggling. It needs a catalyst. Flicking on the TV sounds like the perfect way to cure the its ills.

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Motley Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple.

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