After revolutionizing the computer, music and cellphone industries with its products, Apple (AAPL - News) has its sights set on remaking the television.
But this time the challenges are more daunting than ever. The maker of the iPod, iPhone, iPad and Macintosh faces high hurdles if it wants to upend the mature TV industry with a landmark new product, as many observers suspect.
Everything about the mythical iTV — some say iPanel — is the subject of fevered speculation. The launch time frame, screen sizes, technological features, price and whether it will come with a new over-the-top TV service from Apple are subjects debated by industry watchers.
Many analysts, eyeing activity among Apple suppliers, say the company will release a television late this year or early next. Apple doesn't discuss products in development.
Here are the big challenges Apple will face if it enters the TV business: 1. Finding its place in a mature market Unlike other markets Apple has entered, the television business is old and established. It's not a new product category with healthy growth rates like smartphones or tablets. Households have TV sets, and they don't replace them very often.
Apple's TV sales would come at the expense of current TV makers such as LG, Samsung, Sony (SNE - News) and Vizio.
The global television set market generates annual sales of $117 billion. Peripherals such as Blu-ray Disc players and home theater speakers generate an additional $83 billion a year. But the market isn't growing much.
"Nobody really needs a new TV these days," said Paul Gagnon, an analyst with NPD DisplaySearch. "So many people have bought brand new high-definition TVs over the last three or four years. And people don't upgrade that often.
People tend to replace their TVs every 8 years vs. 2 years for their cell phones, says Colin Dixon, an analyst with TDG Research.
Plus, the perceived quality of an Apple television would be limited by the TV programming and broadband Internet services that consumers get in their homes, says ISI Group analyst Brian Marshall. And Apple doesn't have control over those.
2. Making a decent profit Profit margins are "wafer thin" in the TV business, says Dixon. Vendors like Panasonic (PC - News) and Sony have posted massive losses in their TV set divisions. Hitachi is exiting the business because of competition and scant margins.
"The question is: Can Apple add enough value to this television experience that they can get a substantial margin?" Dixon said. "They've been able to do that in other products, such as smartphones. But what can they do to get people to pay a substantially higher price for a television?
Apple investors are used to the company posting big profits on its products and will be disappointed if it can't do the same with TVs.
"If they get into the TV business, a lot of people are going to look for them to earn 30 or 40 (percentage) points of margins on these TVs," Gagnon said. "And the average TV manufacturer is making maybe 5 (points).
The only reason an iTV would make sense for Apple is if it's a "Trojan horse" to sell software and services over the life of the product, says ITG analyst Joseph Fersedi. That could include offering a pay-TV replacement service, a supplemental over-the-top video service like Netflix (NFLX - News) does, or video games and other software, he says. Advertising is another possible revenue opportunity for Apple, he says.
3. Making a unique TV set Apple's pluses, should it enter the TV market, include a stellar brand, a loyal following and a reputation for good customer support and service.
A recent ITG survey found that consumers are open to buying an Apple-branded TV set. The same couldn't be said of PC makers Dell (DELL - News) and Hewlett-Packard (HPQ - News), which tried and failed in the TV market.
But can it make a TV that's different enough from what's on the market to get consumers to pay a premium price? And could they come out with a TV without a new service with content from the major studios and networks
"I'm sure the user interface will be spectacular and the look and feel of the product will be great," Gagnon said. "But unless they can find a way to unlock the content side of things, they're really not going to revolutionize the category.
Apple's late co-founder and CEO Steve Jobs told biographer Walter Isaacson about his vision for an Apple television.
In the book "Steve Jobs," Isaacson quotes Jobs: "I'd like to create an integrated television set that is completely easy to use. It would be seamlessly synced with all of your devices and with iCloud. . .. It will have the simplest user interface you could imagine. I finally cracked it.
Jobs told him users would no longer have to "fiddle with complex remotes for DVD players and cable channels.
Analysts have interpreted that to mean that the iTV would use Apple's Siri technology for voice commands and perhaps be controlled with iPhones and iPads.
Apple's iTV also is almost certain to integrate the technology from the Apple TV set-top box, says Lisa Hatamiya, an analyst with IHS iSuppli. Apple sold 3 million units of the hockey puck-sized set-top box last year alone, but executives refer to it as "a hobby.
Meanwhile, other TV vendors have been making more capable sets. The top makers are producing so-called smart TVs, which integrate Internet connectivity, software apps and online streaming video. A second-generation of TVs using Google (GOOG - News) TV software is set to go on sale this quarter.
Apple's TV might include an integrated Blu-ray Disc player and enhanced speakers to minimize the number of plug-in components.
The Holy Grail for Apple would be to get cable and satellite TV providers to allow the Apple iTV to replace their set-top boxes. But that's not likely to happen, analysts say.
4. Creating its own over-the-top TV service A big part of what Apple would like to revolutionize about the TV experience is out of its control. And that involves television programming.
Apple reportedly has tried, and failed, to put together its own bundle of best-of-breed cable and broadcast channels. The broadcast industry is too wedded to its decades-old distribution model of using cable and satellite services and doesn't want to upset the apple cart, so to speak.
"Opening up that access is probably the biggest linchpin for Apple to pull to get in there and be a big player," Gagnon said. "Otherwise, they're just another smart-TV manufacturer like everybody else.
Without Jobs, its charismatic visionary, to do the negotiating, Apple is less likely to succeed on that front.
Another approach would be to strike content deals like Netflix and Amazon.com (AMZN - News) have done for subscription streaming video, analysts say. Apple could supplement that older, catalog content with new releases on an a la carte basis from its iTunes store, Gagnon says.
Apple certainly has the deep pockets to finance the upfront payments likely required for signing those deals. It ended the first quarter with $110 billion in cash and securities.
If the cord-cutting trend accelerates, content companies might change their minds and align with Apple rather than risk losing subscribers to over-the-top TV alternatives and pirated video.
"As more and more consumers move to alternatives, at some point it's going to force the content providers to adapt," says Shaw Wu, an analyst with Sterne Agee. "They're going to have to go where the market is heading.
Many college students and grads today are forgoing cable and satellite TV service and opting for broadband Internet and streaming or video downloads. This cord-cutting trend worries pay-TV services.
5. Finding a compelling way to display the TV sets at retail Lastly, selling televisions at retail is a lot different than selling mobile phones, tablets and notebook computers. Apple's retail stores aren't set up to demonstrate big-screen televisions.
Retailers like Best Buy (BBY - News) have darkened showrooms to show off their TVs without glare. Contrast that to the white and bright Apple retail shops.
And then there's the issue of how best to demonstrate the TV's remote control features and on-screen navigation.
But those are the least of Apple's worries, if it dives into the TV market.Related StoryAndroid Tablets Suffer Steep Drop; Apple iPad Shines
