Will Apple TV Be Bigger than the iPhone?

Competition from Microsoft

Heynen said Microsoft and its Windows Media Center don't compete effectively with Apple TV.

"While [Windows Media Center] does open up your PC to different content and channels and does help organize existing digital content, it's very tough to get used to and it's slow," Heynen said. "Plus, you have to launch it on the PC. And most people aren't going to stick a Dell computer in their living room." By contrast, Apple TV content will be available directly from the television screen, he noted.

Microsoft does, however, have additional competition in mind. Specifically, the XBox 360 game console can already be used as an extension to Windows Media Center, and the company has promised to beef up those capabilities even more, turning it, in essence, into a set-top box for IPTV, which is starting to be offered by broadband vendors.

But it won't be appealing to many people to buy what will essentially remain a game console to help them collect and manage Internet-based programming. Plus, Microsoft's efforts won't effectively compete with Apple TV because the two companies are aiming at different targets.

"Apple is going after the early video on demand market, while the XBox is limited only to service providers that support it," Heynen said. "AT&T is the biggest of those and their [IPTV] subscribers total about 1,000 at this point. That will grow, but you can use the Apple TV platform no matter what type of subscriber you are."

Potential Pain

NPD's Rubin said Apple TV could be a big success, but he's not as confident as Heynen. For one thing, the technology is complicated.

"There are a lot of moving parts," Rubin said. "There's the PC, the network, then you have to connect it up to your television. Broadband is a factor if you want to download commercial content."

"Apple TV still requires effort from the consumer, more than calling the cable operator and having the person come out and install it," Olausson agreed.

That potential level of complication means that Apple TV won't succeed in the same way iPod has succeeded, according to Rubin.

"With the iPod, it was the Walkman of the 21st century," Rubin said. "That was easy to understand, but with Apple TV, it will take some education."

Another impediment to Apple is that serious competition is starting to shape up, and not just from Microsoft.

"Some companies are building those same capabilities into their televisions," Rubin said. "HP is one company. Sharp has said it will ship such a TV and Pioneer says it will ship TVs that can stream content from PCs. The technology could be embedded [in TVs], so you wouldn't have to be concerned with a separate box."

In the end, though, the success of Apple TV or similar technology by other vendors will depend on how much video content is available.

The iTunes store is steadily "increasing the video library, and that will give consumers some incentive on Apple TV," Rubin said. "But you have to consider whether what they're offering can't be obtained elsewhere. Every movie they're offering is available on DVD, and every TV show is available on cable or satellite. There's a very high overlap between Apple TV and the premium cable and satellite providers."

Olausson agreed.

"It will come down to having access to all the content people want," he said. "On the music side, if iTunes didn't have access to millions of songs, it wouldn't work."

Over time, all the experts agreed that, when lots of video content is available and the idea of using a product like Apple TV to manage that content is widely understood, consumer behavior will change significantly.

"In the short term, it'll take away DVD sales more than take away from cable and satellite providers," Olausson said. "If you look further into the future, the dynamics for offering content certainly will change. There will be converged systems using the Internet and managed systems like cable and satellite."