DiogeneX

It must be silly season.

Over the weekend, clamor about a future Apple Television kicked up again. No doubt fueled by rumors of channel checks indicating that a new unicorn was near.

As much as I’d like to replace my off-brand 32” HDTV with something shiny from Apple, I do not believe Apple will launch a television. At least, not yet.

Some have pointed to the stranglehold that regional cable monopolies possess — at least in the U.S. Or the warehousing issue. Or the fact that people don’t buy televisions every year.

But each of those arguments focuses far from the real intractable issue of TV: the content owners’ veto. Content owners, similar to their counterparts in the music industry, are mortified by new business models that threaten their control over content distribution. In fact, we repeatedly see their insouciance to consumer happiness in their dealings with Hulu and Netflix.

Content owners care about two things: audience and money. And, frankly, it’s really just money, since audience equals money in the advertising business. But that’s an aside.

So what can Apple do?

My take is that Apple’s strategy is already in over 2 million households: the gen 2 AppleTV. Yes, the current device is hardly indicative of a product that can, much less will, transform the television industry. But, I would argue that unlocking AppleTV’s potential rests in recycling three elements of the iOS ecosystem: apps, iAds and subscriptions.

Apps, in particular games, give Apple an opportunity to extend their hugely successful mobile development platform into the living room. Low-priced apps, immediately downloadable, connected via GameCenter, controllable with iOS handheld devices just make sense. Nintendo, Sony and Microsoft should be nervous.

iAds offer content owners and brand advertisers an opportunity to replicate fragments of the TV ad business on a new TV connected platform. This is not an element that Nintendo, Sony, or Tivo, among many other pretenders to the set-top-box throne have been able to offer. Further, given each AppleTV’s link to a customer’s iTunes account, advertisers have a potentially powerful means of engaging with customers in a way that Nielsen has never been able to deliver — even if the system is opt-in.

Subscriptions are interesting. With DVD sales declining, premium content providers (like HBO) are facing a future without a major revenue source. Like it or not, the trends are not in their favor, so a company that can deliver a large installed base (numbered in the 10s of millions of units), consumers who’ve demonstrated a propensity to buy content, and a platform for seamless subscriptions will be hard to resist. Especially, if that company can dangle attractive upfront payments made from a large cash horde.

Overall, I look at Apple’s iOS ecosystem as one that can be transplanted, piecemeal, into the living room without requiring Apple to make a TV set. In fact, the current AppleTV is very close to an ideal Trojan horse product. What it lacks today is a “feature” that makes consumers feel compelled to buy it. That killer feature is apps. Further, drop the price to $49 and it becomes so cheap that it becomes a no-brainer to buy two.

As iPhone was a proof of concept that gave Apple the confidence that the market was ready for iPad, I expect a similar pattern from AppleTV to the Apple TV.