Is There an iTV in Apple’s Future?

Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Since the early days of the Macintosh computer, Apple (NASDAQ: AAPL) has seemingly displayed the Midas touch on its products and services, and consequently on its stock prices. Until recently, there was hardly a hedge fund to be found that didn’t include Apple in its holdings. But 2012 saw a gradual reduction in Apple holdings for some hedge funds, and with share prices dropping 25% since September, sell-offs accelerated. It looks like Apple needs a new market to pull out of its dive. But will that market involve the television industry?

Why an iTV Seems Like a Great Idea

Apple has built its success on producing the best and most consumer-friendly products on the market. The company has been enormously successful in the music and mobile industries, so it makes sense that they should enter the television arena as well, especially since the market has yet to discover a satisfactory solution to the on-demand appetite of consumers. Although movies can be streamed to televisions through an internet connection and set-top boxes (like the one Apple already makes) can give consumers access to online content, there is currently no consumer-friendly way to access regularly scheduled television content on demand. Consumers chafe under cable providers, finding themselves held hostage to a pricy bundle in order to access just a few favorite channels. Surely Apple, with their history of industry-changing gadgets, could come up with a better model?

Apple founder Steve Jobs once hinted at his desire to create a better television, and current CEO Tim Cook has said that Apple holds an “intense interest” in such a project. And with a recent Wall Street Journal report disclosing collaborations between Apple and Asian manufacturing companies, consumers have experienced a collective surge of anticipation. But that may be a little premature.

Television Isn’t All It’s Cracked Up to Be

iTunes and the iPhone both revolutionized their respective industries, not only because of the exceptional quality of the products, but also because they were the first of their kind on the scene. Unfortunately, there are two good reasons why a repeat performance in the television industry isn’t in the cards.

First, Netflix (NASDAQ: NFLX) already cornered the market on streaming movies to television via an internet connection. Even though recent bad publicity has threatened the stability of share prices, new contenders in the industry have fostered healthy diversity. Netflix’s recent deal with Disney has also given the company a slight edge over the competition. In short, Apple wouldn’t be adding anything new from that perspective. In fact, they already have a set-top box that gives users access to online content. An iTV would need to be substantively different and better in order to make the same splash as iTunes and the iPhone.

Second, the cable companies learned an important lesson from the way Apple changed the music industry. In order to keep their profits high, they need to maintain a monopoly on access to at least some content. When iTunes made it possible for consumers to purchase individual songs rather than whole albums, the music industry experienced an excruciating evolution that left many companies scrambling to keep up or face extinction. And who can forget the deal Apple struck with AT&T (NYSE: T) that gave Steve Jobs everything he wanted while AT&T held exclusive rights with the iPhone—for a limited time only. While AT&T benefited in terms of share prices, the company still had to make some significant changes in order to accommodate the rising iPhone star.

An iTV would force cable companies to face some of those same issues, most likely resulting in lost revenue. As long as they maintain a monopoly on popular content that can’t be found anywhere else, they can keep doing business as usual. A deal with Apple would prove to be too big a threat.

What This Means for Investors

Is an iTV the next big product that will keep Apple at the top of the industry? Probably not anytime soon. While consumers dream of a television that will respond to their every whim the way their iPhones do, Apple still has some considerable obstacles to overcome before Cook’s “intense interest” and rumors of talks with Asian manufacturers develop into an actual project in the works. If you’re betting on the iTV to revive Apple’s underwhelming short-term stock performance, don’t get too excited just yet.

copyhubwriters has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Netflix. Motley Fool newsletter services recommend Apple and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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