Switched On: Apple TV gets its second audition

Each week Ross Rubin contributes Switched On, a column about technology, multimedia, and digital entertainment.

Apple TV was overwhelmed by the introduction of the iPhone at the Macworld 2007 keynote, but the little set-top device has been the recipient of a complete makeover in 2008. The rich visual menus of the first release are now revealed only after traversing a textual navigation grid that looks austere for an Apple product and downright grim for a TV-based user interface. "Take Two" as it is being called, upgrades Apple TV's software and positioning, but the product will still struggle to break out of its niche in the mad rush to free movies from their disc detainment.

The first iteration of the Apple appliance was, like many products before it, focused on sending content from the PC to the television. Apple included a fast 802.11n receiver and even a hard drive for ensuring content availability when the network was offline, and the product's media serving was tied to its popular iTunes software. But ultimately, Apple learned that the music and photos that populate consumers' hard disks have a hard time competing for attention with premium Hollywood television. This curse of familiarity is especially insidious when it comes to video that demands constant replenishment.

As Steve Jobs noted during his Macworld keynote, Apple now "gets" that video is what consumers want on their TVs. And Apple TV should deliver. In fact, the movie rental and purchase proposition is now very similar to that of the device and service offered by Vudu, Inc., which has a head start on content but a higher price and nowhere near Apple's brand or distribution power. Apple is also offering podcasts, YouTube and its original ability to access personal content from PCs.

But in adopting Vudu's proposition, Apple has also accepted its main challenge -- convincing consumers to purchase a product for the main purpose of selling -- or at least renting -- other product. The original mission of Apple TV might not have been compelling, but at least it had a recognizable benefit for those with large media libraries managed by iTunes. Now, Apple must rely on the convenience message versus alternatives such as physical store DVD rental and Netflix, which is intent on streaming its movie collection for its members to any number of set-top boxes.

Apple TV continues to work counter to the dynamics that drove the success of the iPod and iTunes store. The availability of "free" content (via file-sharing and ripping CDs) drove the early market for the iPod, which in turn drove music sales. With Apple TV, the tail is wagging the dog. Fresh content acquisition drives the need for the device. This is a much slower path to hardware adoption.

Whereas the original iTunes music store represented a breakthrough in usage rights when compared with previous online music vendors, Apple TV movie rentals conform to the same online rental rules by which everyone else -- including cable on-demand offerings -- must abide. This includes the 24-hour completion window that is woefully out of touch with the modern consumer's life. One saving grace, at least for standard-definition movies purchased via a PC, is the ability to resume a movie on the go using the latest video-enabled iPods or iPhone.

Apple, which has resisted offering DVR features due to justifiable reluctance in competing with cable monopolies, is doing exactly that as cable companies roll out switched digital video and telcos continue to expand fiber-based TV offerings, both of which are designed to offer thousands of movies available on demand. And if that weren't enough, there is other competition from TiVo as well as its old rival Microsoft, which has a Trojan horse in its Xbox 360 with which to drive digital distribution of movies and shows to the TV. Sony could well do the same with its PlayStation 3.

HP has gotten around this problem by embedding movie rental capability directly into its MediaSmart televisions, but while the LCD television businesss doesn't require the kind of investment that starting a new videogame platform does, it is also tough to compete with the Sonys, Samsungs and Vizios that dominate TV sales at Best Buy and Costco.

But one location they're not in is Apple Stores. Like HP, Apple could also choose to take its Apple TV "hobby" more seriously by entering the TV market. Without the subsidization enabled by service providers, in the case of cable, or software, in the case of video games, Apple TV will likely continue to be a big fish in the small pond of digital media adapters and video rental venues that haven't sneaked their way into the living room.

Ross Rubin is director of industry analysis for consumer technology at market research and analysis firm The NPD Group,. His blog can be read at http://www.rossrubin.com/outofthebox. Views expressed in Switched On are his own.