Analysis: Can Apple's iTV dominate the living room?

Hewlett Packard’s trying to do it. So is Sony. And Microsoft has made it a major strategic priority. And yet, for all their efforts and the resources at their disposal, none of these companies have been able to bridge the gap between personal computers and home-entertainment systems.

So why does Apple think it’s going to fare any better with its forthcoming iTV device ? The set-top box— previewed a week ago and slated for an early 2007 release —is designed to stream movies, music, and other multimedia files from a computer to a television set. It’s part of Apple’s strategic effort to extend its presence into users’ living rooms.

The company will point out that it’s been successful at these types of things before—look to the iPod and the iTunes Store to see examples of Apple’s success outside of desktops, laptops, and software. While industry analysts aren’t exactly ready to forecast doom and gloom for iTV, they’re also reserving judgment on the Apple product’s potential for dominating the market.

“There is this push to plug all the devices together, but everyone suffers the last 10-feet problem,” JupiterResearch Senior Analyst Joe Wilcox told Macworld .

That “lat 10-feet problem” described by Wilcox is the challenge of successfully integrating a device to get content from a computer to the television in an easy way. Any tech company with dreams of convergence has tried to solve this puzzle. And according to Wilcox, none of them have succeeded thus far.

Many have tried

Most companies that have tried to conquer the home entertainment market build a device and use Microsoft's Windows Media Center software. Hewlett Packard's z558, the Aria Media Center and NiveusMedia's devices are existing products that Apple will be trying to displace in the home.

While existing devices have a variety of features including HD DVD support, multiple tuners, 7.1 surround sound, DVD burning, media card readers and wireless networking, none have captured the interest of consumers in a big way.

Apple has one thing going for it that many other companies do not—a reputation for ease-of-use. “It all comes down to whether Apple can work it’s magic again,” Wilcox said. “Can Apple take complex tasks, like seamlessly getting content from a computer to the TV, and simplify them for the everyday person?”

The company has done as much with legal music downloads. The iPod is the most popular MP3 player in the world, and Apple has focused much of its attention in recent years on integrating that device with its iTunes jukebox software. The concept of seamlessly purchasing music, downloading it to the computer, and transferring it to a portable player was a pie-in-the-sky concept when the iPod was introduced five years ago; now it’s a fact of life.

While Apple clearly hopes to capitalize on the success of the marketing-leading iTunes Store to launch iTV—the company is pushing the set-top box as the perfect way to stream movies bought from the store to your TV—it’s jumping into a packed market that includes software giant Microsoft.

“This is one reason that Microsoft is pursuing [its portable media player] Zune,” Wilcox said. “Microsoft assumed with Windows Media Center that it could dominate the living room, but they ran into a problem called Apple and iTunes.”

But Apple is taking a different approach to the living room than other companies before it, including Microsoft. While Microsoft, EyeTV DVR-maker Elgato Systems, and others have focused on products that incorporate recording and watching television programs via the computer, Apple is using the purchased model, allowing people to buy content from iTunes and then stream it to their TVs.

Microsoft has dabbled in the purchased content arena with Media Center as well, offering links to services like Cinema Now, but analysts aren’t impressed with the implementation.

“You could argue that Microsoft’s Media Center has an interface to Cinema Now and while the use has increased the interface has not taken hold with consumers,” said Ross Rubin, director of analysis at NPD Group.

Apple isn’t just competing with technology companies. Many cable providers also offer on-demand services that let viewers pay a fee to watch specific programming whenever they want—without involving the computer at all.

That’s certainly a challenge, analysts say, though not one Apple can’t overcome. Take the iTunes Store’s Season Pass feature, which allows users to grab content from specific programs, much as they would with on-demand cable programming. And then there’s iTunes’ newly added movie download service.

“iTV would have access to purchased movies. This could enable Apple to act as a pay-per-view system, but with a much broader array of content than is available on cable systems,” said Rubin.

Questions remain

While Rubin and Wilcox both say it’s too early to tell if Apple can ride the wave of iTunes into the living room, they agree that iTV’s success will, in part, depend on the networking protocol used in the device—a detail Apple yet to divulge.

“The one key specification that could be a major factor, is what 802.11 variant [Apple] will use,” Rubin said. “802.11g has had a difficult time keeping up with video streams in the home, but 802.11n is designed with that functionality in mind.”

The success of Apple’s iTV may have less to do with what it can do for the existing market and more to do with what else it has to offer consumers and the industry in the long term.

“Certainly they’ve done the usual exceptional job on the form factor,” Rubin said. “The price point is in line with other products in the category, but they have not done very well. Based on the functionality of streaming iTunes Store purchased content as well as video and photos to the TV, that is not a product the mass market is clamoring for today. It will do well for the category, but we still need to know more to see if it will expand the category.”

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