Apple vs. Microsoft: The Coming TV Wars

Apple (NASDAQ:AAPL) is rumored to be working on a flat-panel television tied to the company’s online ecosystem to replace its “Apple TV” box by late 2012. Since June, Microsoft (NASDAQ:MSFT) has been talking about plans to deliver live TV through its Xbox consoles, and is reportedly nearing deals with at least two providers: Comcast (NASDAQ:CMCSA) and Verizon Wireless (NYSE:VZ).

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Rumors about a real Apple TV have been circulating for some time. Piper Jaffray analyst Gene Munster found evidence this summer that Apple was preparing to roll out production of a real TV set by late 2012. Venture capitalist Stewart Alsop, a former board member at TiVo (NASDAQ:TIVO), has also published rumors of an Apple TV. Even Steve Jobs himself hinted at it at last year’s All Things Digital Conference in July. “The television industry … pretty much undermines innovation in the sector,” said Jobs. “The only way this is going to change is if you start from scratch, tear up the box, redesign, and get it to the consumer in a way that they want to buy it.”

According to Nielsen (NYSE:NLSN), the typical U.S. consumer watches 5 hours and 9 minutes of TV a day, but 18 to 24 year olds only view 3 hours and 30 minutes on televisions daily, watching another 49 minutes on the web and 20 minutes on mobile devices. And despite a plethora of channels available by all major U.S. cable providers, the average American watches just 18 channels a year, not using roughly 86% of available channels. Clearly the industry is ripe for a new product that can integrate new technologies that appeal to younger audiences while also cutting back on the waste.

And that’s exactly what Apple might do, but Microsoft is going the more traditional television route. If the company is successful in its plans, Xbox consoles will be able to replace set-top boxes. Of course, they’ll come with a few perks, namely the ability to search for shows via Microsoft’s Bing search engine or call them up using the voice-enabled Kinect controller. The service might save some people on buying their set-top box, but considering the average cable bill is $75 per month, that might not be enough of a savings. Consumers have been increasingly dropping their cable subscriptions in favor of watching videos on Netflix (NASDAQ:NFLX) and Hulu (NASDAQ:NWSA). Comcast lost 238,000 subscribers during the second quarter of 2011. Americans don’t want cable — they want something new.

Because news of a new Apple TV has yet to be confirmed with any solid proof, we can only imagine the sort of features it may have, but Apple has a tendency to surprise. It seems likely something must be brewing, especially considering the possible advantages. Firstly, it would allow Apple to get in on all those TV advertising dollars. TV ad spending totaled $70 billion in the U.S. in 2010, and Forrester Research (NASDAQ:FORR) expects TV ad spending to reach $84 billion by 2015. Secondly, it would give Apple room to grow as it saturates the PC, smartphone, tablet markets.

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Of course, as in all its ventures, Apple will face competition. Netflix has already embedded itself in hardware devices, including some TV sets and Nintendo’s (PINK:NTDOY) Wii console, Sony’s (NYSE:SNE) PlayStation 3, and Microsoft’s Xbox. Google (NASDAQ:GOOG) already has its own TV service. Apple will have to come up with something completely new if it’s going to break into the TV business the way it has broken into other markets. Some are placing their bets on a 3D TV. In 2010, Apple won a patent for a revolutionary new 3D screen system that would not require glasses or goggles to be viewed.

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