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Will Apple’s iTV shake biz to core?

Speculation rampant about long-rumored device

The most-talked about device at CES isn’t in Las Vegas. It actually may not exist at all.

But that won’t stop the tidal wave of hype building for the so-called “iTV” — Apple’s pending entry into the connected-TV market — from washing over the Las Vegas Convention Center’s show floor, where many TV manufacturers will be touting similar products.

Never mind that Apple hasn’t confirmed such a product is even in development. Ever since Apple founder Steve Jobs was quoted in his posthumous biography late last year as having “finally cracked” TV, an endless amount of anonymously sourced scoops and speculation regarding iTV have surfaced, with the result that its existence is doubted by few. There’s too much smoke for there not to be fire.

In the absence of known facts about the product, iTV has become a bogeyman of sorts — a mythical creature for the industry to project all its fears and fantasies about just what a TV set of game-changing proportions might look like.

That Apple is its maker only feeds this frenzy because the company has proved time and again that its offerings can dominate markets seemingly overnight, as it did most recently in the tablet space with iPad. And Apple manages to cast a perennial shadow over CES despite the fact the company doesn’t even bother to show up there.

If there’s a market vulnerable to an outsider of outsize influence, it’s the small screen. Global TV shipment revenue growth has sunk to single digits in recent years, according to IHS iSuppli Market Intelligence, which projects the decline will begin in 2014.

But it’s worth noting that the TV market is a tough nut to crack for several reasons, and Apple’s previous efforts here haven’t matched the success the company has found elsewhere.

Regardless, analysts are bullish on iTV even before it’s in stores. Barclays Capital has already forecast sales of $19 billion for the product in 2013, yet there’s no consensus as to when exactly iTV will be available, with estimates ranging from the second quarter of 2012 to sometime next year. Apple analyst Gene Munster — who predicted an Apple-produced TV years before Jobs went public with it — has projected it could cost $1,600, not a small sum coming off a holiday season where manufacturers were slashing prices.

Like Bigfoot, the iTV has been lavished with varying awestruck descriptions from sources who have no proof they’ve actually seen it.

The size of its presumed liquid-crystal-display screen has been estimated to be anywhere from 32″ to 50.” There may be more than one size model. ITV has been described by some as not a TV set at all, but a set-top addition to existing models.

But size and shape aren’t what will set iTV apart from the rest of the field; it’s the bells and whistles built into the set. The obvious additions would be iTunes, the App Store, a Wi-Fi connection and AirPlay, the Apple devices that could bring iTV into a connected ecosystem with its other wireless devices. The iCloud service could also make iTV devoid of storage.

But what really gets tech enthusiasts excited is the possibility that Siri, the voice-activated technology currently running on iPhone 4S, will be part of the product, potentially rendering useless the remote control that has been TV’s primary navigation tool for decades.

Microsoft doesn’t manufacture TVs, but its Xbox videogame console has drawn raves for Kinect, a voice and motion recognition system that has become an integral piece of the service’s multimedia strategy — and major revenue generator.

But anyone who tells you they know what iTV looks like is lying. Regardless, it will be the invisible yardstick by which many of the so-called “smart TVs” sure to be unveiled at CES are measured

As many as 60% of new sets are expected to have Internet connections that will allow consumers to access on-screen apps for IP-delivered video. IMS Research projects connected TVs will be a $122 billion market worldwide by 2016.

While leading manufacturers aren’t saying much about what their plans are before Monday, when the Venetian Las Vegas Hotel, Casino and Resort hosts back-to-back-to-back conferences from Vizio to Panasonic. But one competitive response that has already come to light before CES began was Google TV, which announced last week that LG, Samsung and Sony are among the companies integrating the service into new devices this year.

Google TV had a very rough first year, but to hear Google tell it, the technology was always meant for a gradual release strategy with this coming wave said to be a vast improvement above its predecessor.

Competitive forces

TV manufacturers have a well-grounded fear that Apple will do to them what the iPhone did to wireless handheld makers like RIM, Motorola and Nokia.

Cowen & Co. analyst Jim Friedland foresees widespread embrace for Google TV precisely because of the iTV. “We think the threat of market entry by Apple will force television manufacturers to incorporate Google TV into their products, especially given the success of Android,” he wrote.

Apple will likely end up partnering with some TV manufacturers to provide the parts they need to build its dream machine. Korean media reports have suggested that Samsung will produce the chips for iTV while Sharp will do the same for its screens.

But while plenty of speculation has given the tech industry a good idea of what iTV will look like, one crucial aspect of the product remains a mystery: Apple’s content strategy.

In keeping with its game-changing mandate, Apple is expected to attempt to secure first-run programming or entire channels on an a la carte basis. But that’s an exceedingly difficult proposition considering content companies already receive billions from MSOs who expect some exclusivity.

Programmers haven’t been persuaded so easily in prior negotiations with Apple, which has tried and failed on the a la carte front.

Previous attempts for content have been on behalf of Apple TV, a device that has been Apple’s uncharacteristically underwhelming innovation to video delivery. Strategy Analytics forecasts that as many as 4 million Apple TVs will be sold this year at $99 a pop — nearly a third of the connected-TV set-top boxes it forecasts will be sold in the U.S.

How Apple TV and iTV might coexist, or maybe if, is another open question. The emergence of iTV could very well make Apple TV obsolete.

If Apple can’t secure the content it wants, the prospect remains that Apple may have to strike a deal with existing multichannel services the way Microsoft has brought in Comcast and Verizon to use Xbox to deliver a virtual-MSO experience.

Of course, if there’s a company sitting on enough cash — $80 billion at last count — to change some minds, it’s Apple.

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