Home > Uncategorized > APPLE DEVELOPERS CONFERENCE UPDATE

APPLE DEVELOPERS CONFERENCE UPDATE

The WWDC has come and gone with no announcement of an updated Apple TV nor network streaming. Still, rumors continue that the Apple is waiting to seal deals for the streaming. With all that was announced, it is likely what I discuss here is merely posponed.

As for the Apple TV – Jonny Evans at ComputerWorld writes:

HomeKit support has been present in the Apple TV firmware since v7.0, though Apple hasn’t discussed it.

So this, at least, is going forward.


On June 8 Apple (AAPL) opens its World Wide Developers Conference, a week long event for developers of apps for both the Mac and iOS platforms. The schedule is full of workshops and sessions that instruct software engineers and designers on the technicalities of the trade – how to program Apple products.

No session is more anticipated than the opening keynote address (10 AM Pacific time). Here CEO Tim Cook and cohorts will present several important classes of information:

  1. Key updates and statistics on the various platforms and products,
  2. Introduction of new versions of iOS and Mac,
  3. Possible introduction of important product upgrades.

The first point will eye-popping figures of product sales, usage statistics for various features such as Apple Pay, the number of billions of dollars that have been earned by iOS app developers, and so on. Hopefully, there will be some update on Apple Watch sales, a topic of great interest.

Number two is a longer section which will detail all that is new in the upcoming versions of the two operating systems. There are rumors that new features will be few as Apple may have focused more on improving performance. This is what it did with the Snow Leopard release, one of its most successful. However, there will be new features added to each system, but that is not my focus here.

In this article I will focus on number three. While there might be an upgrade to the Apple Watch – most likely with a new, faster processor, there is another product that I believe will take center stage.

  • Caveat: I have no special knowledge of the topics at the WWDC. My propositions are deductive, based on current information and press reports.

One more thing…

A year ago I wrote a piece Apple’s New Strategic Centerpiece. This year I believe is when this plan will be implemented – the Apple TV will move whole heartedly from self-proclaimed “hobby,” to full fledged, critical product. The logo for the event itself pretty much validates my suspicion. The center dark square is exactly the outline of the Apple TV, and “epicenter” is precisely my earlier claim.

Apple TV is a small set top box that connects to the internet (typically via wifi) and provides content to your entertainment system. Currently, it provides access to several services:

  1. Your music library via iTunes,
  2. iTunes radio,
  3. View your personal photos and videos,
  4. Purchase music and videos via iTunes,
  5. View anything you can display on any Mac computer or iOS device via Air Play (web videos, presentations, music, etc.),
  6. Various media from selected providers,

The last is the major motivation for its use, with services including Netflix (NFLX), HBO Now, ESPN, Bloomberg, and many more.

What to expect

The Apple TV sold for several years for $99, until in March they dropped the price to just $69. At the same time, they announced a special deal for early release of the HBO Now streaming service from parent company Time Warner (TWI).

Apple’s plan is clear – get the price low enough to increase purchases. Like the Kindle from Amazon (AMZN), let subscription services bring in the real revenue.

At the WWDC I expect the following product release:

  1. New Apple TV with A8X processor
  2. New remote with keys, etc.
  3. Open app store
  4. New Home Center app
  5. New streaming OTT service for major networks

What is the big deal about the little box?

To begin with, we need to understand that the Apple TV is not just a set top box, it is a complete computer using one of Apple’s A-series processing chips (currently a single core version of the A5). As such, it is capable of anything that an iPhone or iPad can do, including running iOS, or some variant thereof.

Therefore, it would be little work to open up a software kit (an API) for developers. This must already exist in order to operate existing hosted services such as Netflix, etc. An open app store would merely open the existing and new functionalities to the overall developer community.

A new remote, which is already rumored, would have either keys for easier input, a microphone for Siri voice input, some type of motion sensitive wand interface, or a combination of the three. The current minimalist remote is definitely inadequate.

Home Center App

Last year Apple announced its HomeKit:

HomeKit is a framework in iOS 8 for communicating with and controlling connected accessories in a user’s home. You can enable users to discover HomeKit accessories in their home and configure them, or you can create actions to control those devices. Users can group actions together and trigger them using Siri. [Apple developer site]

Accessories include, lights, door locks, home security systems, garage door openers, appliances, etc.

The world of home devices is complex and growing. Many different companies have their own controllers, each not compatible with other systems. HomeKit is a way for a user to control all devices in the home through one central system. (Obviously, it will require that the units are compatible, but most major suppliers have bought into the system.)

The home can be divided into rooms, and controllable devices allocated to one of these. To do so, however, one needs a control center that keeps track of the hierarchy of organization. It is likely that the new Apple TV will have a new app to perform this function – a Home Center.

This is a key feature in the Apple ecosystem. If you have an ATV, then this may be the one computing device that never leaves the home. It is always there to control things via an iPhone over the internet. If the Home Center has a web interface, perhaps as part of iCloud, then it could be accessed via any web browser. Additionally, since it is based on a mobile processor, current draw would be minimal.

Home Center will be a key differentiating feature for the ATV as a desktop box. Other platforms will not have this capacity, and if any should add something similar, such as a Chromecast player by Google (GOOG), then the compatibility will not be there, and developing a communications protocol, plus getting it built into the OEM devices, will all take time. Apple clearly has the jump on things here, and now they will be moving to exploit it.


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Streaming services

It is widely expected that Apple will introduce a couple of new streaming services at the WWDC.

The first is a music radio service based on the Beats Music service that Apple acquired in May of last year. Rumors are that it will feature playlists that have been curated by professional DJs, and perhaps annotated as well.

The second streaming service would be video from the main networks. Some already have channels on the current ATV, such as CNN and ESPN. The new service would allow a user to pick the channels desired, and not subscribe to all the others. The idea is that this would lead to reduced cost for the consumer. Apple is reportedly trying to include local channels to the mix.

Once again, if offered, this would be a huge differentiator, and a real driver for sales.

Games

As I reported in my earlier piece noted above, one main new feature of a new ATV will be games. If there is an open app store, then games will be produced. They are a hugely popular and profitable category in the current iOS app store.

Already you can stream iPhone/iPad games to your big screen via the AirPlay feature, but to have the game hosted on the ATV itself would open up new possibilities.

First is increased power. Since the ATV is plugged into the wall, there is no need to conserve power as in the iPhone, and you can run the processor at a much higher speed. A larger heat sink and ventilation would support this.

Additionally, Apple might beef up the graphics processor significantly to give a performance that would rival dedicated game consoles such as the PlayStation by Sony (SNE) or Xbox by Microsoft (MSFT). Apple provides advanced versions of its processor chips that have beefed up graphics. The iPad Air 2, the current flagship model, runs an A8X. With 10 million or more units per year, an even more powerful version, say A8Z, might be produced. Apple might even offer two versions of the ATV, a base model, and a souped up version for gamers.

One advantage that Apple has in this area is their Metal technology. I present a detailed explanation of the technology in Apple Metal Explained. Suffice it to say that Metal allows a tremendous speed up of games and other graphic processing. Additionally, it’s a technology that cannot easily be matched by other hardware manufacturers.

It should be noted, any existing iOS games (or other apps for that matter) would need very little modification to run on the ATV. Most likely, the biggest change would be in user control, since the it does not have the sensors of an iPhone or iPad. All this has already been anticipated by Apple which introduced in 2013 a developers kit for iOS controllers that supports both form fitting controllers (into which an iPhone or iPad would be nested), and extended wireless controllers. The latter would fit perfectly with an ATV.

One thing you will not see

One feature that will not be present on a new Apple TV is support for Ultra High Definition, or 4k, televisions. This is a surprise to many observers, as the format is supported by several high end smartphones (including the Samsung Galaxy Note Edge), and it has been reported that Apple’s A8 chip (which drives the iPhone 6/6 Plus) has internal capabilities to drive 4k.

Site I, Cringely reports:

But this new Apple TV – the first Apple TV hardware update in three years – will not, we’re told, support 3840-by-2160 UHD (popularly called 4K) video and will be limited to plain old 1920-by-1080 HD. Can this be true? Well, yes and no. The new Apple TV will be 4K capable, but not 4K enabled. This distinction is critical to understanding what’s really happening with Apple and television. [italics in original]

The idea is that the capability will be in the hardware, but that it will be disabled by the operating system. Cringely goes on to give an elaborate explanation for how this plays into Apples long term content acquisition strategy.

I believe the answer is simpler. That is, the whole infrastructure necessary to support UHD does not exist at this time. One important aspect of this is the bandwidth required to transmit the image which is four times the size of current video.

Dan Rayburn reports for StreamingMediaBlog.com:

While 4K can in theory be compressed at 10-12Mbps, this is typically achieved by reducing the frame rate or sacrificing quality…

UMAX in Korea, for instance, compresses its 4K p60 streams at 32Mbps (i.e. using a rate of 60 frames per second, progressive). For the full effect of sports and documentary content, this is a more realistic bit rate at today’s compression efficiency.

> Note: Netflix reports that it transmits 4k at 15 Mbps, but that is likely due to reduced frame rate, i.e. is suboptimal.

The 32Mbps (Megabits per second) figure for UMAX is higher than many ISP services provide. It also becomes a problem when many people want to utilize this much capacity over a long period of time (such as a two hour movie). We are talking here of up to 2 TB of data per hour.

Finally, Rayburn notes regarding transmission rates:

If you want 60 fps, it’s going to be even higher. But even if we use the 10-12Mbps number, no ISP can sustain it, at scale. So while everyone wants to talk about compression rates, and bitrates, no one is talking about what the last mile can support or how content owners are going to pay to deliver all the additional bits. The bottom line is that for the next few years at least, 4K streaming will be near impossible to deliver at scale, even at 10-12Mbps, via the cloud with guaranteed QoS. [emphasis added]

Since Apple does not want to initiate a service or feature of a product where the quality of service will be disappointing, they are delaying its implementation in the current offering.

And so…

Altogether, this gives Apple a truly unique and compelling product, with the following services:

  1. Apple AirPlay and iTunes (music/video) connectivity,
  2. New compelling streaming services,
  3. High level gaming,
  4. Home Center.

As such, the Apple TV will become the epicenter of one’s household system, driving entertainment, and security and automation.

No other set top box will provide such a broad range services. At a mere $69 (assuming Apple does not raise the price again), it is a very affordable product. Even returning to $99 would keep it affordable.

Rationale

Yet the question remains: Why would Apple go to such lengths for a low priced product?

There are two big reasons. The first is revenue from streaming services. If Apple were to get a mere $3 per month in access fees from the average ATV owner, then in a five year period, that would be $180 in what is essentially all profit income. A monthly income of $3 per device might be very conservative. If Apple maintains its 30% cut as for the App Store, then subscriptions of $20 per month, still tiny in comparison to cable fees, would bring in twice that. On top of that would be any income from games and other apps.

An April 30 Parks Associates press release noted:

Parks Associates announced new research today showing 27% of U.S. broadband households now own a streaming media device and nearly 90% of these households have these devices connected to the Internet.

A few weeks earlier the research company reported:

55% of U.S. broadband households subscribe to an OTT (over-the-top) video service, up from 44% in 2013. Subscriptions are highest among households with a younger head-of-household, with 72% among ages 18-24 and 71% among ages 25-34 having an OTT service subscription.

These points tell us several things.

  1. Only one quarter of broadband households already have media devices.
  2. Yet twice that number use OTT so they are ripe for purchasing a player.
  3. Younger people are more likely to use OTT programming.

Item three in particular is important as this is a key population group for any product, particularly one for which longevity of service is the objective.

Larger reason

More important than the direct financial cash flow, is ecosystem extension. In a certain sense, Apple has only one product – the iOS/Mac OS team – its platform. A new Apple TV + services will draw more people to this platform. In particular, it should draw many Apple-reticent people into the platform because who does not want to save money on cable bills?

The brilliant thing is how all these major features target somewhat different populations (though admittedly overlapping). The iTunes connectivity targets current platform users, Home Center the person whose main objective is home security and automation, etc. Many of these people will slowly begin to convert to other Apple products as they see the benefits of the system.

  • In short, the purpose of the Apple TV project is to grow market share for the iPhone, et al.

Conclusion

Apple reported in January that it had sold some 25 million Apple TV units since the product was initiated. This reflected an increase of 5 million for the previous announcement nine months earlier. This is tiny compared to the roughly 700 million iPhones sold worldwide to date. While no one expects Apple TV sales to reach that number, clearly there is room for growth. With growth already accelerating, it is easy to see 100 million units installed in just a couple of years.

A more powerful new product with new streaming, apps, games and Home Center should drive real growth, add a significant revenue stream, and bring new customers to the platform. As such, it is the epicenter of Apple’s new strategy.

The first Parks release I noted above states.:

  • “The paradigm is changing, thanks to the growing amount of online and OTT content available to connected CE, which has allowed streaming media devices to carve out a key niche in the connected home,” said Barbara Kraus, Director of Research, Parks Associates. “With the popularity of content streaming, CE manufacturers must innovate to create unique user experiences.”

Apple most certainly is innovating here.

— Comments Appreciated —

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