Why Apple’s Impact on Media Companies Has Only Just Got Started

There was a sense of disappointment in some quarters yesterday as Apple announced the third generation iPod, largely because it looks pretty much like a better version of the iPad2 rather than a dramatic step change.  But it was the right move for Apple.  The history of Apple’s device business in the last decade and bit has been a highly effective blend of step change, and evolution.

An Evolutionary Update for iPad3 Was The Right Move

There was no need for Apple to revolutionize the iPad now.  It is the market leading device that is still the most eagerly sought after and is continuing to leave the competition in its wake (latest figures from Forrester suggest that no single competitor has more than 5% market share).  Just as the iPhone 4S was an incremental update that left some industry observers disappointed but actually went on to perform fantastically in terms of sales, so the iPad3 delivers enhancements without breaking the winning formula.  It also enables Apple to push down prices on the iPad2, effectively turning it into the entry level device for iPad customers – a smart strategy which Apple has used to great effect with the iPhone range.

What iPad Lacks in iPod’s Scale It Makes Up for In Momentum

To date Apple has sold 55.2 million iPads (see figure), no mean feat in less than 2 full years of sales.  But to put those figures in context, Apple has sold 334.5 million iPods.  Add that to the 183 million iPhones sold and it is clear that the majority of Apple’s iDevice customers do not have iPads.  iPods and iPhones remain Apple’s most pervasive impact on media consumption and yet the iPad appears to be the one having most dramatic impact on media business models.  There are three key reasons for this:

• iPad owners are highly valuable, leading indicator customers. iPad owners are the cream of Apple’s already tech skewed audience.  They spend the most and value content the most.  The ROI on developing for this current installed base alone is enough to justify the pivoting of many major media companies’ content strategies.  But iPad owners also give us an indication of what future consumers will want.
• Tablets are a tailor made for media experiences. As much as media companies wanted to embrace mobile, mobile phones always had the frustrating restriction of tiny screens, forcing media companies to crush down their carefully crafted content into artificially small chunks.  Tablets on the other hand present most of the benefits of mobile with the visual capabilities of PC but with the added benefit of touch.  Thus while mobile was always a case of cutting down to optimize, tablets actually enable media companies to deliver richer user experiences than ever before.
• iPad growth is dramatic, and some.  It took Apple 7 quarters to reach 55 million iPad sales.  It took them nearly 5 years to reach the same milestone for iPods.  Of course there are numerous mitigating factors (the increased presence of Apple is just one) but the momentum is clearly with the iPad. 

The TV is Apple’s Way of Really Getting Into the Living Room

So the case for media companies’ obsession with the iPad has no small amount of justification (though of course it should be part of a blended device and platform and device strategy that matches the behaviors and needs of the target audience, not the personal device preference of senior management).  But at risk of sowing fear, uncertainty and doubt (FUD) into the minds of content strategists, beware, Apple has got its sights on a new market: the TV.  It seems increasingly likely that Apple will launch a fully-fledged TV product later this year.  Whether they do or not, this is Apple’s next new market.  Of course Apple has patiently plodded away with Apple TV for years, a product that still – uncharacteristically for Apple – lacks identity and if TV wasn’t so important for Apple would have gone the way of the Newton long ago.

TV matters for Apple because it needs a foothold in the living room:

• Living room technology spend is all about the TV.  Consumers used to change their Hi-Fi just because the manufacturer changed the colour, now living room tech spend is firmly focused on the TV.  Having an iPod temporarily plugged into another company’s docking station is simply not enough for Apple.  Air Port Express and Apple TV aren’t enough either.  And though Apple shows little appetite for trying to reignite the Hi-Fi space – they can leave that battle to Sonos and Google – they do know that getting into the TV corner of the room opens up a whole new market for them in the way the iPhone did.
• New markets accelerate growth.  Opening up new markets is important for Apple.  Unlike a company like Samsung,  Apple do not play for the whole market, they play for the upper part of it – not the top, as their entry level device strategy attests – but certainly from the upper mid upwards.  This means that each of their range of devices has a theoretical ceiling and Apple’s way of sustaining market momentum is to find a new market to address before growth in the former slows. (Note that hardly an eyebrow is raised at the fact that iPod growth has been in decline since 2010).  And though some might say TV feels like an unnatural fit for Apple, I remember first joining Apple analyst briefings soon after the iPod launched.  Everyone was asking questions about server and education strategy and gave me very bemused looks when I started asking questions about music strategy!  TV  is in actual fact a much better fit for Apple 2012 than iPod was for Apple 2001.
• TV helps establish the iPad in the living room. The iPad has many great use cases, and the living room is certainly one of them. But Apple doesn’t want it to go the way of the laptop in the living room and just become a tertiary device for multitasking when you are bored with what’s on the TV.  Instead Apple wants the iPad to become our universal remote control – in the way that the iPhone once looked like it might.  And to do that, it really needs to have a great big piece of Apple – or Apple integrated – kit where the TV currently sits.

Apple’s TV Strategy Could Kill Off Connected TVs

When Apple does finally play its TV card – and there are many, many things it could do – expect it to transform the sector in the way it did the smartphone sector with the iPhone.  Yes, a whole market of TV manufacturers are rightly concerned. Not just because of the competitive threat but because Apple’s TV strategy could well leave their Connected TV strategies stillborn.  I’ve been a technology analyst for long enough to see a few false dawns for interactive TV.  While connected TVs are much better than what has come before, they deliver much inferior browsing and interactive experiences to PCs and tablets.  And therein lies the problem: TV companies are trying to squeeze the Internet into TV, which is a doomed to failure.  Because we know that TV (i.e. video) experiences already work great on the web. The TV is already in the Internet.  The missing piece is simply taking the TV that is in the Internet and placing it in the TV set in a seamless, elegant, convenient and highly interactive way.  And we all know which company builds those principles into its product DNA.  When Apple flicks the switch on its TV strategy it will instantly remove the distinction between TV and web.

Apple has spent the last decade transforming media businesses and content experiences.  But the media companies pay heed: the journey has only just begun.