Apple CEO Tim Cook recently announced at the company’s “Spring Forward” event in San Francisco that there would be a price drop of its Apple TV streaming media device to $69, in celebration of it having reached 25 million units shipped at the end of 2014, a mark previously revealed in late January of 2015. The company also announced that HBO’s new full-featured over-the-top video service HBO Now would debut exclusively on Apple TV at launch.
While Apple has announced that the price cut for Apple TV is intended to celebrate the milestone of 25 million units sold, this is less likely the true reason - the price drop is most likely a move to address increasingly heated competition and to begin channel inventory clearance to potentially make way for a new model.
The market for streaming video devices at $99 and below has become increasingly crowded and competitive. Several years ago, Apple TV stood atop a market that featured Roku as its lone true competitor. Today, the market features a broad span of products including the $25 Chromecast HDMI stick, sub-$50 full-featured HDMI sticks from Amazon and Roku, and a range of more powerful streaming boxes in the $50-99 price span from Roku, Google, Amazon, and several niche competitors. Apple TV’s sales growth has slowed over the past few years as the level of competition within this market has accelerated. The price cut to $69 is likely in part a response to this change in competitive dynamics and the growing success of one particular competitor with a significantly lower-priced product – Google.
IHS expects that Google will be the primary competitor of worry for Apple TV for the foreseeable future, via the Chromecast HDMI dongle and long-term growth of support for the Google Cast standard. Despite limited geographic presence, consumers have responded strongly to Chromecast thus far – IHS forecasts that 8.7 million Chromecasts shipped in 2014, outselling Apple TV’s 8.3 million units shipped for the year. Along with offering its now-familiar casting capabilities, Google’s Chromecast in combination with supporting third party apps offers a functional alternative to arguably the primary lock-in functionality used by Apple to capture Apple TV sales from the iOS device user base – a way to view media content on your phone on the big screen – at a much lower price tag.
Chromecast shipments are expected to continue exceeding those of Apple TV by a close margin for the near future – though the Apple TV has dropped to $69 neither its fundamental capabilities nor its iOS-centric market focus has changed. While the iOS user base is expanding, HBO Now is a notable addition to the content selection, and the price drop will generate additional sales of Apple TV, Chromecast has multi-platform compatibility along with continuing geographic market expansion working in its favor.
Of greater concern for Apple, the increasing popularity of Chromecast along with increasing direct support for Google Cast among app developers for both iOS and Android has the potential to open the market up even more strongly in favor of Chromecast. “Free” Chromecast functionality via built-in Google Cast support within smart TVs based on the Android TV platform, arriving this year from Sony, Sharp, and Philips, will also chip away at the need to purchase Apple TV within iOS households purchasing new smart TVs from these brands.
Aging Hardware and a Potential New Model
Apple TV is currently in its third generation, which debuted in March 2012 – making today’s Apple TV hardware roughly three years old. Despite aging hardware specifications, the Apple TV’s dual-core ARM-based A5 processor, PowerVR GPU, and 802.11n wireless capability have thus far been sufficient to handle the 1080p video streaming and AirPlay duties that the device is primarily used for. Nonetheless, the device is due for a likely hardware revision this year given age, increasing iOS complexity, and evolving market needs.
Like all older or soon-to-be-replaced products, similar to Apple’s past behavior with older iPhones to make way for newer models, the drop to $69 is also likely a price move to help move older product out of retail channel inventory to make way for a new Apple TV model. What is unknown is whether this a temporary cut to make way for a new model to debut at $99 or a new competition-driven price ceiling for the Apple TV product family. In following with past design language and philosophy, the ever-thinner, ever-more-compact theme traditionally followed in many Apple product line evolutions is expected to yield either a smaller Apple TV unit or possibly a stick form factor in any future model that may be released.
HBO Now only a Short-term Advantage
While Apple announced that HBO Now would be available exclusively on Apple TV at launch, this will at best be a timed exclusive. HBO’s own FAQ for HBO Now states that HBO Now will be available on desktop/laptop computers and iOS devices at launch, with additional devices supported soon thereafter. Based on the platform’s dominance of the global mobile device market, it would be surprising if support for Android devices and Android TV-powered smart TVs is not thus slated for eventual release. Overall, HBO Now is expected to eventually become broadly multi-platform in reach out of simple scale and business necessity for HBO, and Apple TV / iOS exclusivity will be a purely temporary advantage for Apple.
Overall, to create and sustain market advantage against rapidly strengthening competition, Apple will need to expand the overall capabilities of Apple TV, continue expanding the selection of marquee content partners, release updated hardware, or some combination thereof. The company’s latest price move to $69 can be seen as both a competitive response and a move that gives credence to a likely launch of the next-generation Apple TV later in 2015. To successfully stave off Google’s advances in the market, Apple will need this new, more powerful hardware revision as part of a renewed competitive proposition. In terms of scale over the long-run, however, Apple’s hard ties between Apple TV and iOS devices will still continue to cap Apple TV’s total available market in the face of Google’s multi-platform, multi-company, multi-device attack on the streaming audio and video market with Google Cast.