By ROLFE WINKLER
Would it be called iTV? Perhaps the iPanel?
The TV prototype in Apple's skunk works has many wondering if the tech giant will upend yet another major market. Excitement over such a device increased when Walter Isaacson's recent biography quoted Apple's late Chief Executive Steve Jobs saying he wanted "to create an integrated television set" and that he had "finally cracked" the issue of simplifying the user interface.
Apple hasn't spoken of such a device, and while it is known to exist, its precise form is a mystery. For curious investors, it is useful to study Apple's past forays into other new markets. It overcame doubts to remake music with the iPod, telephony with the iPhone and computing with the iPad.
TV may prove trickier. Yet there are opportunities for Apple to innovate. Besides smart design, a defining feature of Apple's three blockbuster devices is simplicity. With a TV, Apple could streamline complicated on-screen menus and multiple remote-controls.
Apple wouldn't be first to market. About 24% of the 253 million TVs sold in 2011 were Internet-connectable. Yet only a fifth of those buying such sets actually connect them to the Web and keep them so, reckons IHS iSuppli's Tom Morrod. That is perhaps because many don't feature Wi-Fi, which reduces wire clutter. Apple's wireless technology could address this.
Changing media-consumption habits also may help. Evidence of TV viewers cutting their cable cord in favor of Internet-delivered video is emerging. Deloitte's latest annual survey of watching habits found 9% of respondents had cut the cord and another 11% were thinking about it. Apple might naturally cater to this small but growing segment. Indeed, the iTunes Store—boasting 225 million active users as of July—could give it a leg up.
Just as Apple faced off with Nokia when it launched the iPhone, with TVs it would face powerful rivals like Samsung Electronics, LG Electronics and Sharp. As this week's Consumer Electronics Show demonstrated, these companies aren't short of ideas either. Apple's smartphone carved out a niche as a premium-priced device. But Mr. Morrod notes that existing TV makers capably serve high-end customers already. Sharp has TVs that set a new standard for ultrahigh-resolution. And Samsung this week unveiled technology for navigating TVs via voice and gesture.
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The logo outside an Apple store in California in October.
Selling TVs also is a low-growth, low-margin business. IHS iSuppli expects TV shipments to be flat in 2012, as they were last year. And profits are thin even for Samsung and LG, which make their own components and enjoy huge scale. Bernstein Research analyst Toni Sacconaghi estimates their TV operating-profit margins are in the low- to mid-single digits, while Apple's iPhone commands 45%.
Perhaps the biggest challenge would be securing great video content to set an Apple TV apart from others. Some is available online free (like Hulu), by subscription (Netflix), or available for purchase through iTunes, but much of the best is available only to cable subscribers. Content owners that benefit from high affiliate fees paid by cable companies aren't necessarily keen to risk that revenue by letting Apple sell their content on a timely basis.
Apple had an easier go of it with its iPod, as piracy already had hammered music profits when the device arrived. Labels had little choice but to sell content via iTunes, desperate as they were to stabilize their business.
But don't forget Apple's huge cash pile, which it could use to secure TV content. More broadly, it is worth recalling that before the iPhone launch, many couldn't fathom why Apple wanted to enter such a low-margin, cutthroat business. It did so to transform it and, thereby, change the economics. Marry that track record with the TV's possibilities, and fewer will bet against Apple's chances this time around.
Write to Rolfe Winkler at rolfe.winkler@wsj.com
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