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Apple TV Upgrade: Upside Limited Without Content

It’s showtime for Tim Cook: Apple’s CEO is about to unveil a long-awaited new version of Apple TV at a press event in San Francisco Sept. 9, with beefier hardware, a fancy new remote control, more apps and a new focus on video games. But one key component of Apple’s battle plan for the living room will be missing from Cook’s carefully choreographed keynote: the company’s very own video service.

Apple has been working for some time on a cable killer, and is looking to combine broadcast and select cable networks for a cheaper, better-looking bundle. But that isn’t the extent of the company’s content ambitions: As Variety reported exclusively, the company has even made overtures to execs in Hollywood about producing its own original programming, with the goal of building out a production unit that could one day churn out TV shows or even movies.

But no Apple originals are in the foreseeable future, and negotiations with networks to license channels have been slow-moving, forcing the company to postpone the launch of the service until some time in 2016.

Without that content infusion, Apple TV is just another box — and an expensive one: Numerous leaks point to a base model launch price of $149.

That’s significantly more than the competition, which already has been eating Apple’s lunch with cheap boxes and streaming sticks. Roku, whose entry-level devices retail for just $50, sold 34% of all streaming devices in the U.S. in 2014. Apple TV’s market share was just 13%, according to data from Parks Associates, which also has sales of Google’s Chromecast streaming stick and Amazon’s Fire TV devices surpassing those of Apple’s hockey puck.

Consumers are voting with their wallets, argued Parks Associates research director Barbara Kraus: “If I just want to stream, I can do that with a $35 stick.”

Not too long ago, Apple actually dominated the market with its streaming box. The company sold 25 million Apple TV units worldwide between its introduction in 2007 and early 2015.

And in 2013, Apple generated more than $1 billion in revenue with sales of Apple TV as well as media consumed via the device.

Apple is now looking to get its mojo back by adding more apps and games. In the past, the company has tightly controlled access to the device, adding just a few dozen media services over the years. In comparison, Roku users can now access more than 2,000 apps. To catch up, Apple is expected to embed a full-blown app store in the device, and make tools for developers available that make it easy to port over existing iOS apps.

The company also has an ambitious plan to turn Apple TV into a kind of console for casual gamers, complete with a remote that doubles as a game pad. Apple already has relationships with thousands of iPhone and iPad game developers, and it hopes to bring some of their best work to the TV.

Not everyone is convinced that there’s an audience for this kind of casual game console. “It’s going to appeal to a niche market,” said Kraus.

And it’s a market that already has quite a few competitors: Amazon’s Fire TV, Nvidia’s Shield Android TV and Razer’s Forge micro-console all try to mix video gaming with media streaming. Thus far, none of them has been a breakout success.

Apple, however, may have another ace up its sleeve with HomeKit, its home automation framework for smart thermostats, light bulbs and doorbells. HomeKit already integrates with Apple TV, which could eventually turn into a kind of brain for the smart home, displaying everything from temperature data to security camera footage on the TV.

“Apple TV is strategically and technically important as part of the HomeKit mix,” said NextMarket Insights analyst and smart home expert Michael Wolf. However, he doesn’t expect this functionality to have much of an impact on Apple TV sales over the next 12 months. “Apple is moving very slowly with HomeKit,” Wolf cautioned.

So what’s Apple to do to turn things around for Apple TV? Start talking about it, for one thing. Late Apple CEO Steve Jobs famously called Apple TV a “hobby” five years ago, and the company has done little to dispel that notion.

Apple has long hidden Apple TV on its website. Consumers can’t try the product in Apple’s stores, where it is instead sold next to headphones and cable adapters. “Apple TV has historically seemed an afterthought for Apple,” said Wolf, adding: “Apple needs to focus on pushing this box.”

Kraus went even further. Consumers are moving away from expensive streaming boxes, and toward cheaper HDMI sticks, she argued. Her advice to Apple is simple: “Do a stick.”

Of course, making cheap hardware isn’t very Apple-like. Instead, the company likes to win by targeting the top of the market with premium experiences.

For that, content is key: The iPod only turned from a nice piece of hardware to a breakout hit after Apple unveiled the iTunes store, and iPhone sales skyrocketed after the company launched
the App Store.

In other words: If Apple really wants to turn the new Apple TV from a shiny and expensive piece of hardware into a game changer, it better get those TV deals signed, and pronto.

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