Apple's Leaving Money on the Living Room Table


It's not pretty when Apple is on the wrong end of a trend, and that's exactly what's happening these days with Apple TV.

Apple may have finally gotten it right with its digital media receiver the third time around. Shrinking the size, lowering the price, and enhancing the streaming features have helped the consumer-tech giant sell millions of its portable set-top gadgets.

Still, it's not enough.

Marketing researcher Diffusion Group is out with its latest "Defining the In-Home CE and Network Ecosystem" 2013 report, and it doesn't bode well for Apple TV.

  • Just 14% of all broadband households own a dedicated streaming device, including Apple TV and market leader Roku's portable solutions.

  • A larger 25% of broadband households own smart TVs, the Web-enabled high-def televisions that make a digital-media receiver a redundant purchase.

  • Here's the scary part: Smart televisions and dedicated streaming devices accounted for 12% penetration a year earlier. In other words, smart TVs are the hot trend by more than doubling market penetration over the past year.

Sure, the same study shows that just 69% of smart TVs are actually connected to the Internet. There are a lot of people out there buying Ferraris to drive through school speed zones. That's even worse for Apple, since the next wave of adopters has already invested a premium to make sure they won't need a standalone digital-media receiver in the future.

Microsoft 1, Apple 0
It should also be fairly obvious that a lot of homes that don't own smart TVs are using their Xbox 360, PlayStation, and Wii consoles as digital media receivers. A whopping 62% of broadband households have a next-generation console.

Microsoft's the top dog here, with an installed based of 76 million consoles. A seemingly insurmountable 46 million are Xbox Live subscribers, already hogtied to cyberspace for their entertainment.

Mr. Softy has been the butt of consumer-tech jokes as PC sales sputter and its mobile operating systems are failing to gain traction against Apple's iOS and Google's market-trouncing Android. However, when it comes to the Web-embracing future of video entertainment that Apple, Google, and television makers so want to be a part of, it seems as if Microsoft is the one getting the last laugh.

Apple needs to put out its long-rumored HDTV product -- now -- and it wouldn't hurt if it also raised the bar as a gaming console.

Last call for the iTV
We've known that Apple's been working on a smart TV for some time. Steve Jobs told his biographer that he finally cracked the code when it came to television, and even Tim Cook teased about it late last year by calling it an "area of intense interest" on primetime television.

The solution has seemed fairly obvious for some time. Apple will put out a slick TV running iOS with a touchscreen remote. One can argue that it can do exactly that through its existing Apple TV box, but consumers have decided that they want either an actual TV that can do it or a gaming console that does so much more.

Apple is at the wrong end of this trend, and that's not a pretty place to be. Think about music. Apple's riding the wrong horse there. At a time when Pandora usage is exploding -- active listeners are up 36% to 69.5 million -- Apple's emphasis on playback and digital purchases are out of touch. iPod sales have fallen sharply over the past two years, and iTunes Music Store sales have slowed to a crawl.

Apple missed the shift in the way music is being consumed, and its feeble iTunes Match attempt at cloud-based tunes appears to be a dud.

Can Apple afford to blow video, too?

This is it, folks. This is the holiday shopping season that Apple has to introduce the iTV. Later this month, Microsoft will unveil the next Xbox. It would be a shock if the new Xbox doesn't hit the market in time for this year's telltale holiday shopping season, joining rival Sony that's already eyeing a November launch for its state-of-the-art PS4.

Apple purists will shake their heads. Apple doesn't have to do anything. It will roll out a smart television when it's ready, thank you very much. If it's having a hard time getting the content deals with the studios and networks in place that it feels it needs or if production capacity isn't there for the bar-raising components at the price points that it requires, why should Apple kowtow to what the competition is doing?

Swallowing pride is so underrated these days.

The clock is ticking on Apple's smart television, and there's never been a better time to strike than now -- aside from yesterday -- to make it happen.

Put out the iTV this year, and that's more people who won't be making the new Xbox or PS4 the big-ticket item they want this holiday shopping season. Put out the iTV now, and shareholders will return as Tim Cook finally puts out the first new product category of his era at the helm.

Sit out this holiday season, and living rooms will be filled with more non-Apple smart TVs and next-gen gaming consoles.

There's no pride to be had in missing the last golden opportunity to matter in this growing market.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google and owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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