Let’s address the electronics value chain first. The electronics industry is already struggling to deal with the growing dominance of a few select vendors in select segments like PCs and smartphones. This reduces the number of device designs for technology suppliers and puts more pressure on pricing. The situation is exacerbated when the leading OEMs develop their own hardware and software technology, such as Apple and Samsung in the smartphone segment. The market for applications processors used in smartphones are a good example. While Samsung still uses third-party or merchant market processors in some smartphone designs, Apple does not.
As a result, the captive market for processors from these two companies is over a third of the total smartphone market. With an 80 million to 100 million unit threshold just to break even on the development of an applications processor, there is only room for a handful of merchant market processor vendors. This leads to industry consolidation, which is what is occurring today as several technology segments. The entry of Apple into the TV market could have the same impact on a segment that is already struggling with over capacity and weak demand.
The entertainment industry could face an even larger upheaval. With most consumers and content already migrating to the web and content aggregators like Apple, Netflix, Pandora, and Amazon, a dominant position TVs by Apple could potentially realign the market for television content much like what iTunes and the iPod did for music and e-readers have done for publishing. With simple user interface changes, high-speed wired or wireless connectivity, and a broad stream of content sources, all traditional service providers could face a daunting challenge maintaining existing pricing strategies, especially cable providers which bundle content for a relatively high price. In addition, Apple would further improve its already powerful bargaining position with the studios. It would not be far-fetched to see Amazon and others following suit with a competing solutions using the Android platform.
Of course, this all hinges on the consumers’ willingness to purchase and use Apples’ products and to be attracted to new interactive features that would likely accompany the device. If it were any other company, I would say that this is possibly an overwhelming challenge, but Apple has all the pieces of the puzzle that could finally push consumers over the top and change the TV technology, usage models, and associated industries. This leads me to believe that it is not really a matter of if, but rather when Apple enters this market and the fallout that is likely to follow.
Founder & Principal Analyst
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