AppleInsider | First year Apple TV sales fall below expectations

December 12, 2007 by chuq · Comments
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AppleInsider | First year Apple TV sales fall below expectations:

Introduced last year as the DVD player of the future, Apple Inc.’s $299 Apple TV set-top-box has thus far been anything but a hit with consumers, says one market research firm, which estimates that first year sales have fallen well short of initial expectations.

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Cambridge, Mass.-based Forrester Research predicted back in May that Apple loyalists would help fuel sales of 1 million of the devices by the end the year. However, the firm is now pointing to a failed iTunes video revolution as doing its part to help stifle adoption amongst consumers.

“In addition to the 400,000 Apple TV units we estimate Apple has sold thus far, the company will be lucky to sell another 400,000 in the year-end holiday rush, short of our one million estimate,” said analyst James McQuivey. “Unfortunately, the same lack of interest in iTunes video will mean the iPhone and the iPod touch have less video momentum to ride.”

According to Forrester, nearly half of all adults with access to the Internet say they have heard of the Apple TV. However, only about 5 percent of those people familiar with the product say they’ve read up on it via Apple’s website or took one for a spin at the company’s retail stores.

In fact, Forrester claims that just 3 percent of online adults intend to purchase an Apple TV in the future — essentially the same percentage of iLife users who eventually purchase one of Apple’s standalone Jam Packs for GarageBand.

In a report last week, McQuivey warned executives of the Cupertino-based company that it was in their best interest to “win NBC back” as an iTunes partner if they had any hopes of replicating their success in music with digital video.

“Don’t let the Macgeeks posting angry blogs against NBC fool you,” McQuivey wrote in a report last Monday following the television network’s pull-out from iTunes. “The loser here is Apple, which relies on NBC Universal to deliver 30 (percent) of video download sales. Any supposed backlash against NBC will not materialize because NBC has made its content available, for free, on NBC.com and six other major portals sites.”

Okay, time for a little reality check. Actually, two of them.

First of all, the “Apple TV is falling below expectations” — where in fact the “expectations” (1 million sold) was a number created by the analyst, not by Apple. The analyst actually has no idea how many Apple expected to sell — so he’s comparing Apple’s performance to a number he made up, and declaring it not good enough. Hey, maybe he guessed wrong when he MADE UP the number? nah.

So it’s somehow Apple’s fault that they’re not making a number they didn’t actually create or approve or have anything to do with. God, I love analysts some days…

They estimate the “failing” Apple TV “only” sold 400,000 units so far, and will likely hit 800,000 by the end of the holiday period. Let’s be conservative here, since this analyst is so terrible at making up accurate numbers, and say 600,000 units.

how — distressingly bad of Apple. What a failure.

Let’s see. The Apple TV shipped the end of March. That’s about 9 months, 600,000 units (estimated). That’s around 67,000 units a month.

Now, I happened to look at Tivo’s lated 10Q (issued December 10, conveniently); Tivo doesn’t talk about hardware sales directly, but instead about subscriptions to their service, but it’s safe to more or less assume that the # of subscriptions, new subscriptions and subscription churn is about equal to the number of active units, new units, and units that were unplugged.

For the quarter ending October 31, TiVo recorded 69,000 new subscriptions (down from 101,000 year previous); they lost 65,000 subscriptions, giving them a net increase in units added to the install base for the quarter of — 4,000. That’s 1,350 a month, or 2% of what Apple TV sold.

At a gross level, TiVO is selling as many units in a quarter as Apple TV is selling in a month, so Apple is outselling TiVo about 3X. In practice, since Apple TV is a new product, 100% of those units are increases in the installed base, while TiVo is effectively standing still. In raw unit sales, it’ll take Apple about 5 years at the current sale rate to match TiVo’s 4.1 million active users — but the first TiVO shipping in 1999, so it took Tivo 8 years to reach that number.

So, I’m having trouble seeing how the Apple TV is doing so badly. I know, “A seasoned analyst of financial analysts estimates that in the next 12 months, Forrester Research will issue 4,565 financial reports with an accuracy of 98%”. There. I’m now a financial analyst analyst. A year from now, I’ll come back and see just how far from this estimated number of research reports Forrester actually issued, and if they don’t come close, I’ll trash them for under-performing and we can all dump their stock, okay?

In a report last week, McQuivey warned executives of the Cupertino-based company that it was in their best interest to “win NBC back” as an iTunes partner if they had any hopes of replicating their success in music with digital video.

Second point:

“Don’t let the Macgeeks posting angry blogs against NBC fool you,” McQuivey wrote in a report last Monday following the television network’s pull-out from iTunes. “The loser here is Apple, which relies on NBC Universal to deliver 30 (percent) of video download sales. Any supposed backlash against NBC will not materialize because NBC has made its content available, for free, on NBC.com and six other major portals sites.”

No, they don’t. Here’s the thing: Apple can look at video as a LONG TERM financial investment. They DON’T NEED THE REVENUE from video, or from Apple TV, right now. they can take it slow and be patient, build the market sustainably and not let the studios dictate terms that will hurt the long-term growth of the market. NBC, on the other hand, has cut off the one market where any significant online revenue can be made, which is one reason why (he says in a gruff, analyst-like voice) NBC is off making deals not just with another online service, but with EVERY DAMN ONLINE SERVICE it can find. Especially with the writer’s strike going on, and with the director’s guild contract after that, and the SAG contract after that — they’re in a potential serious world of hurt financially, and online revenues could help offset that. Unfortunately, the online revenues generated by services not owned by Apple are mouse nuts, and won’t offset for NBC what they were getting from Apple. Not even close.

Apple could benefit from having NBC on iTunes, no question. Apple can happily afford to let NBC leave, though, because there’s no financial pressure to drive revenue from the video side in the short term. It can afford to wait. NBC, however, NEEDs iTunes — what it WANTS is iTunes on NBC’s terms, but Apple’s not interested in playing that game. So Apple just waits for the phone call, and can wait as long as NBC wants to think it can pressure Apple into caving, or until it figures out it’s not going to win. In reality, the revenue from iTunes via NBC is small enough for Apple that losing it doesn’t really matter.

Unfortunately, this is a typical case of an analyst thinking like an analyst, not like someone from the real world. Apple isn’t afraid to invest for the long term, isn’t afraid to be patient and wait for a market to develop, and isn’t going to screw over a long term business model for a short term profit — and analysts are pretty rotten at thinking about anything but next quarter and making some arbitrary number (like 1,000,000 Apple TVs!). Apple, fortunately, is making more than enough money from all of those other things they do that they can ignore the analysts and just let the market create itself as it will, and not try to force it too soon, too fast, or make bad business deals in the name of trying to mature the market now.

Frankly, I think people should just not pay any attention to online video yet; the network pipes aren’t there yet, especially for HD content, and until the content and iTunes Store and Apple TV are all HD, this is all still a market waiting to happen. Oh, and iTunes needs rentals, too, but rumors keep saying that’s coming. Will there be a new Apple TV at Macworld? Will it do HD? Will I be able to rent videos or pay some subscription service like I do NetFlix for access to content? Will it have the kind of video backlist NetFlix has?

If Apple answers any percentage of those questions, THEN we can start talking about Apple TV’s sales spiking. right now, it’s still an early adopter product, and as that, it seems to be doing amazingly well. 67,000 units a month, and exactly how much has Apple been advertising that puppy? Um… anyone remember any advertising at all for the product? (by the way, TiVo is spending $300 for every new customer, according to their 10-Q… That means a customer doesn’t “break even” for them for almost two years @ 12.99 a month…)

So, someone tell me again why Apple TV is a unsuccessful product? Apple basically announced it at Macworld, said “it’s shipping” a couple of months later, and hasn’t advertised it in any significant way since — and it’s selling tens of thousands of units a week? Man, a lot of companies would die for that kind of failure. I bet TiVo would…