If Apple Inc. (NASDAQ:AAPL) shareholders were banking on the company revolutionizing the TV market, they ought to reconsider their investment thesis. On Tuesday, Microsoft Corporation (NASDAQ:MSFT) fired a preemptive shot at Apple Inc. (NASDAQ:AAPL), affirming its dedication to control the living room.
The Xbox One
“What if a single device could provide all of your entertainment?”
Microsoft Corporation (NASDAQ:MSFT)’s third Xbox is called Xbox One, and as the name suggests, it’s a bit of starting over for the Windows-maker. Although gaming remains a major part of the Xbox brand, the new Xbox is about entertainment in general, rather than gaming in particular.
In an interview with Bloomberg, Microsoft’s Yusuf Mehdi remarked:
“This is the one where we start to become not only a fantastic gaming device, but also an all-in-one entertainment system.”
Although the Xbox One does not fully replace set-top boxes, it does interface directly with them — users can plug their cable box into the Xbox One with an HDMI cord, allowing the Xbox One to take over the process of serving up content.
From there, users can utilize a combination of their voices, hand gestures, tablets and smartphones to control the TV experience — which is dramatically augmented by Microsoft’s technology. For example, with Skype integration, users can talk to each other online while watching TV.
But, perhaps most significant, is Microsoft Corporation (NASDAQ:MSFT)’s partnership with the NFL. The Xbox One will allow for an ideal Fantasy Football viewing experience, showcasing scores and statistics while players watch the game in their living rooms.
When Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings resigned from Microsoft’s board, many wondered if it could be the sign of an imminent takeover. But that doesn’t appear to be the case.
Rather than acquire Netflix, Inc. (NASDAQ:NFLX), Microsoft has become the company’s latest competitor. The Redmond tech giant revealed Tuesday that it had commissioned a Halo TV series — produced by the legendary Steven Spielberg, no less.
The series appears to be exclusive to Xbox Live subscribers (Microsoft’s subscription-based online service). Although it seems insane to believe that many people will spend several hundred dollars on an Xbox just to watch the Halo show, it should increase the device’s general appeal to non-gamers.
Of course, that’s just one series, and Netflix has commissioned half a dozen at this point. Few Netflix subscribers will cancel based on Xbox’s original programming (indeed, with its online capabilities, Xbox One could help Netflix, Inc. (NASDAQ:NFLX) reach more potential subscribers), but Microsoft’s decision to make its own content — rather than acquire Netflix — weakens the case to buy Netflix’s stock.
Apple’s TV ambitions
Officially, Apple has not said anything about a TV, other than its $99 Roku competitor (something it jokingly references as a “hobby”).
But based on several comments over the years, many have assumed that an Apple TV was just around the corner. Steve Jobs, for example, told his biographer Walter Isaacson that the company had perfected the TV interface — that it had figured out how to get rid of the confusing system of multiple remotes and device inputs.
His successor as CEO, Tim Cook, told NBC’s Brian Williams last year that TV was an area of “intense interest” for Apple Inc. (NASDAQ:AAPL); an area of technology that had been “left behind.”
Unfortunately for Apple Inc. (NASDAQ:AAPL), it seems that it is the one being left behind.
Even if a true Apple TV was to make an appearance this year, it would be competing head-to-head with Microsoft’s Xbox One. Presumably, it would sport many of the features of Xbox One (voice and hand control, tablet integration, etc.) but would lack the power of the Xbox brand — something Microsoft has been investing in for over a decade.
Further, if Apple Inc. (NASDAQ:AAPL) opts to release its TV with an all-in-one form factor (screen+technology) it would presumably be much more expensive than Xbox One, which simply plugs into a user’s existing TV set.
In short, while Xbox One does not preclude Apple Inc. (NASDAQ:AAPL) from releasing a TV, it does limit any Apple TV sales. To put it another way, both the iPhone and the iPad have sold phenomenally well over the years, partially based on the fact that they’ve faced little competition (until recently).
But an Apple TV would find itself facing cut-throat competition from its first day on the market.
The smart TV revolution
Smart TVs have existed for quite some time. Samsung’s been offering app-enabled TVs for years, while streaming devices like the Roku allow anyone to get Internet content onto their TV.
Yet, these devices have not attracted the kind of mass appeal many were expecting — their interfaces clunky, the process of switching between them confusing.
With Steve Jobs claiming to have “cracked” the TV code, a fair number of people were assuming Apple would be the one to lead the smart TV revolution — but that doesn’t seem to be the case. With the Xbox One, Microsoft has set itself up to convincingly dominate the living room and win the smart TV war.
The article Apple’s Plan to Dominate the TV Market Just Went Down the Drain originally appeared on Fool.com is written by Salvatore “Sam” Mattera.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple, Microsoft, and Netflix. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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