Apple Faces Many Rivals for Streaming to TVs

This article is cited from Nytimes.com (http://www.nytimes.com/2010/09/06/technology/06apple.html?ref=technology)

SAN FRANCISCO — When Steven P. Jobs introduced Apple’s first iPod in 2001, it held more music and was easier to use than the handful of rival products already in the market. But it had a big shortcoming: it worked only with Macintosh computers, then less than 3 percent of the PC market.

A few upgrades later and with the creation of the iTunes Store, the iPod emerged as the dominant digital music player, eclipsing its rivals and turning Apple into the world’s largest distributor of digital music.

So last week when Mr. Jobs unveiled the second version of Apple TV, a product with limited capabilities and content, many in the consumer electronics industry wondered whether history would repeat itself in the market to deliver content to the TV from the Internet.

Most consumers are either unaware of or confused about how to use an Internet-connected TV. There are no strong brand names but a growing number of competitors. And it is a lucrative market ripe for a company that understands consumers.

“They are getting more aggressive in the living room, and that’s the last big market that can move the needle for Apple,” said Gene Munster, an analyst with Piper Jaffray.

The Apple TV box, which fits in the palm of a hand, is elegant and easy to use to rent television shows for 99 cents, though for now only from ABC and Fox. Owners of iPads, iPhones and top-of-the-line iPods will be able to transmit videos, photos and other media from their mobile devices to the television. It will also allow Netflix subscribers to stream thousands of movies and television shows without an additional fee.

But more than 100 other devices can stream Netflix movies, including game machines, Blu-ray players and Internet-connected TVs. Indeed, Apple faces an increasing number of competitors that include upstarts like Roku and Boxee, powerful rivals like Google, and established players like Sony and Samsung.

And its revamped Apple TV box is, as Mr. Munster put it, “an elementary effort.”

Steve Perlman, a former Apple executive and a pioneer in efforts to merge the Internet and television, described Apple TV’s features as “underwhelming.” “Apple is still in a holding pattern when it comes to television,” said Mr. Perlman, now the chief executive of OnLive, an online gaming company.

Mr. Perlman and others suggested that Apple TV suffered from shortcomings like limited programming choices and an inability to use the kinds of applications and games that made the iPhone so popular. They say it is a box that provides some nice additional features for TV watchers, but not a replacement for the products and services that consumers now rely on.

Many of the current generation of HDTVs come with Internet capability to stream movies, YouTube videos, Twitter feeds and music. They do not cost much more than TVs without that capability. John Revie, senior vice president for home entertainment marketing at Samsung Electronics, estimates the industry will sell 6.5 million “smart TVs” in 2010.

If Mr. Jobs had bolder ambitions for Apple TV, they were thwarted, in part, by the same challenges faced by most of its competitors: the established cable operators and content companies that want to protect their businesses even as they tiptoe into the world of Internet television.

CBS and NBC, for example, have refused to make television shows available to Apple at 99 cents, and even Fox suggested that it views its agreement with Apple as an experiment.

Mr. Jobs, a master marketer, tried to cast the device’s simplicity as a virtue, saying that Apple TV delivers many of the things consumers want. “They want Hollywood movies and TV shows whenever they want,” he said. “They want to pay lower prices for content. They don’t want a computer on their TV. They have computers.” He added: “They don’t want to manage storage.”

Apple has other advantages as well. The most significant improvement Apple made to the device was the price. It dropped it to $99, or $200 cheaper than its predecessor model. Given Apple’s substantial advertising budget, many consumers who have never heard of Boxee or the movie-streaming abilities of the Xbox 360 will certainly learn about Apple TV as the holidays approach.

Analysts say that with Apple TV, the company is well positioned to take a bolder step into Internet television in the next year or two. And they say that its most significant impact, at least in the short term, is likely to be not on the established television industry’s incumbents, but rather on new players like Roku, Boxee or Google.

Google has yet to enter the market but is expected to release in November its first version of Google TV. The company’s approach is more ambitious, more complex and notably different from Apple’s.

Google wants its software to be at the center of the television viewing experience. The software system will be built into televisions and will let people have access to any Web site and Web video, and easily search for programming. Prices for Google TV devices have not been announced.

Boxee is also trying to marry much of the Web with the television set, as well as stream programming from Netflix and other sources. The company’s box is expected to go on sale in the fall for $199.

“It is really aimed at a different consumer,” said Avner Ronen, chief executive of Boxee. While Apple TV will be great for access to some media, he said, “people want to be able to watch any video they see on the Internet on the TV.”

Analysts say that Apple TV’s closest match in the market is Roku, whose box has been available for two years and also offers streaming from Netflix and other services. Anthony Wood, the chief executive of Roku, said he was not worried about competition from Apple. He said sales of the Roku boxes, which start at $60, were growing fast, and the company expected to have sold a million devices by the end of the year.

“We try hard to offer a better product for a lower cost,” Mr. Wood said. “They’ll be a competitor for us, but I don’t think they have an Apple-sized success on their hands.”

Apple will have another important advantage over many rivals: the ability to demonstrate Apple’s TV capabilities in its stores. “I can’t walk into Best Buy and ask to see how Roku works,” said Tim Bajarin, an analyst with Creative Strategies. Roku is sold only online.

But Apple’s biggest challenge may be the same one facing all the new entrants in the market: An established industry that gives television consumers much of what they want and that it is itself inching toward the Internet, albeit slowly.

“When Apple introduced the iPod, the music player was broken,” said Mr. Munster, the Piper Jaffray analyst. The software to connect to music players was clumsy and seemed more suited to technophiles than average consumers, Mr. Munster said, creating an opening for Apple. “Now the television works well,” he added, “and a lot of people don’t realize that they need Internet TV.”

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