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Four Reasons Why iTV Will Be the Easiest Money Apple's Ever Made


Apple's television set is almost destined to succeed.

My mother and I used to have frequent telephone conversations that went something like this:

Mom: Michael, I can't get the TV on and I want to watch The Sopranos.
Me: Are the TV and the cable box on?
Mom: I don't know.
Me: Are the lights on them turned on?
Mom: Yes.
Me: Okay, press input on the JVC remote.
Mom: Which one is that?
Me: The one that says JVC on it.
Mom: Okay. Should I press On?
Me: No, input.
Mom: What?
Me: Input!
Mom: Okay. I pressed it, but nothing's happening.
Me: Keep pressing it.
Mom: Why?
Me: Never mind, I'm coming over.

And this, my friends, is one of the many reasons Apple's (AAPL) television set will incinerate the competiton.

Now, this new Apple product -- which we'll call iTV to avoid confusion with the current Apple TV, the company's pint-sized streaming box -- hasn't actually been announced.

But before his death, Steve Jobs gave biographer Walter Isaacson his views on such a product:

"I'd like to create an integrated television set that is completely easy to use. It would be seamlessly synced with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it."

The phrase "I finally cracked it" can't be ignored -- this thing is coming.

If there's anything we've learned from Apple's ascent to become the world's most valuable company, it's that design and ease of use trump feature sets any day of the week. Furthermore, it's those two characteristics that make people open their wallets to pay premium prices.

If you need examples, fine. Remember the media bellyaching over the original iPhone not being 3G, the iPhone 3G not having multitasking capabilities, and the iPod Touch not having a radio built-in or enough storage for the price? All still sold like crazy because they met the basic needs of the silent majority that want something pretty that just works.

But what really has me excited is that Apple's iTV's entry into the television set market will actually be far easier than the company's initial efforts in smartphones and tablets. In fact, iTV will be the easiest money Apple's ever made.

First of all, the TV market is huge, so there's less uncertainty regarding potential market size than there was with smartphones and tablets when the iPhone and iPad were introduced. It's not growing, but DisplaySearch expects 248 million units to sell this year, 206 million of them being LCD, and 17 million plasmas.

Can you imagine Apple taking 10% of that market at $1,000 a pop? I can. That's $25 billion -- not exactly a bad addition to Apple's currrent $108 billion revenue base. What's even better is that iTV would cannibalize 0% of Apple's current revenue. The iPhone definitely took a bite out of the iPod, but iTV will only hit the competition.

Second, Apple has a ton of experience in making displays, including its popular Cinema models and the ones in its iMacs. So there's no obvious technological hurdle. Surely Jonathan Ive can handle a TV tuner.

Third, the competition is just aching to be ripped apart.

Think of it this way: I don't think that the average TV is particularly unattractive, but nobody's doing standout work in design.

If Best Buy (BBY) covered the logos on the TVs in its showrooms with Gorilla tape, do you really think the average person could tell a Sony (SNE) from a Samsung? I vote no.

Meanwhile, Apple products all have a distinctive, minimalist vibe that make them easy to spot from a mile away. iTV would be no different.

And finally, unlike smartphones and 3G-enabled tablets, television sets do not require entanglements with telecom carriers like AT&T (T) and Verizon (VZ).

As far as the stock goes, Apple needs iTV to show investors that it can execute on a new product line in the post Steve-Jobs era, and also create a new source of significant revenue to offset an inevitable slowdown in smartphone and tablet demand. And like every other Apple product, iTV would fit right in with the iTunes/iCloud ecosystem, driving incremental earnings and customer stickiness. Note, this would be considered a significant risk for Netflix (NFLX). (See Netflix: Double-Costanza Time After the Most Predictable Collapse of 2011.)

So yeah, Apple's still a buy.

And a Random Note...

Reviews for the console edition of Electronic Arts' (ERTS) Battlefield 3 (see "Battlefeld 3": Is it Ready for "Modern Warfare"?) aren't so hot relative to intitial takes from critics. That's bad for sales, so I'll be awfully curious to hear the company's guidance and commentary on this afternoon's earnings call.

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