A billion dollar hobby

[Approx. transl.]: considering the specifics of Telebreeze's business, we found interesting one of the articles of Horace Dediu , an expert and analyst, focusing not only on the world of smartphones, but also on smart-tv technologies, methods and approaches to content distribution.

At the last meeting of shareholders, Tim Cook released data on sales of Apple TV for the past fiscal year (its end falls on September 2013). According to this information, Apple TV sales exceeded $ 1 billion, which, according to the company, includes revenue from both the devices themselves and the sold content. And here comes the problem. The fact is that in previous reports of the company the number of units sold was covered, and not the level of income from them. Judging by the information presented in them, by January 1, 2013, the total volume of Apple TV sold by the 3rd (current) generation was 6 million units.
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Above is a graph illustrating the quarterly estimate of the number of Apple TV sold. Given the fact that Apple did not give additional comments, the only thing we have for 2013 is the phrase "Billion Dollars." However, when you try to divide this amount into content revenue and hardware revenue, a number of difficulties arise:

• When does selling content relate directly to Apple TV? What if I, for example, bought several TV shows on iTunes from a desktop computer or an iPhone and wanted to watch them on Apple TV? Would such purchases be credited to an Apple TV account? Is the full amount of the content value taken into account, or is it only the percentage that Apple picks up for itself?
• How does Apple calculate revenues from cable channels, which services are presented on Apple TV? Do the channels pay for placing their buttons in a certain place of the interface (even though the user needs to subscribe to use this functionality)? Is this the main source of content revenue?
• How are things with Netflix, YouTube and others? Under what conditions do they grant a license to their channels? Is access to Netflix a reason to buy Apple TV or is the purchase of Apple TV itself the reason for subscribing to Netflix?
• If you do not take into account the content, then you would think that for 1 billion profit lies about 10 million shipped devices for the 2013 fiscal year (at a price of $ 99 per unit). This assumption is not entirely correct, since such a price is possible only in the case of direct sales of Apple TV through Apple retail stores (including online). When selling devices through other channels, Apple may give part of the profits to retailers. In this case, the average price of the device will be less than $ 99.
• There is also a problem with the lack of information from the financial statements. We only have data for the 4th quarter of 2012 (about 2 million devices sold), therefore, to determine the number of devices hiding behind the phrase “Billion Dollars”, we need information for the three calendar quarters of 2013.
• And the last. Using information from various sources for previous periods, I conducted an assessment of the entire video production market (see the iTunes Business Report). According to the data, the revenue from video content (directly related to iTunes) was $ 1.8 billion for the fiscal quarter. If at least 50% of this amount falls on the share of Apple TV, then this is the first sign of a sharp decline in revenue from sales of these devices in 2013. In other words, if the revenue from sales of Apple TV for 2012 (6 million devices, priced at $ 89 apiece) add revenue from sales of video content for the same period (1.6 billion dollars - I got this figure after analyzing the market), then the total amount will be 2.1 billion dollars. In this case, the phrase “Two Billion Dollars” would fit the description of income from 2012.

All this adds certain difficulties. Based on current assumptions, the only thing I can say is that, for the most part (if not completely), the income from the sale of content on Apple TV consists of the revenue from the distribution of the content of the channels, and not from the sales in iTunes. This revenue will eventually fall into the amount of licensing fees from the iTunes / Software / Services segment and will not include revenue from Apple TV (which belongs to the category of Accessories). Thus, the most plausible number of Apple TV sold for the fiscal 2013, in my opinion, is an indicator of 7.6 million units (or more than 8 million units in a calendar year).

If I'm right, then the dynamics of Apple TV sales will look like this:



By the standards of Apple, this result can not be called outstanding. We see an intensive growth in sales, the total volume of which has exceeded 25 million Apple TV, but this amount can hardly be compared with 800 million other iOS devices.

However, the most important position in the “Million Dollar Business” is the Apple TV positioning itself. As seen above, Apple TV hardware sales are not as high. I would even call Apple TV "Apple's Kindle equivalent", since this product is sold at the lowest price as an entry point into the more lucrative world of content (iTunes). The problem with this approach is that selling someone else's content has never brought much profit. If such a model were sustainable, the Kindle would somehow become the entry point to Amazon Prime.

In short, the profit from the distribution of Apple TV, according to its existing commercial model, is not so high. In any case, by the standards of Apple. Actually, this explains the “status” of the hobby. However, what if this model turns into a platform for searching for content or an equivalent, will I not be afraid of this word, portal? Of course, the interface imposes certain restrictions on the search and consumption of information, but in the presence of a small amount of content it looks quite good. This approach does not involve active user interaction. Just think about how much time it took to change the process of interaction with the TV interface: for decades people had to press the same button to switch the channel.

If my assumptions are correct, then Apple TV can act as an auction site for placing content. Similarly, iTunes is now working, offering exclusive music content in its interface.

You can make a lot of conclusions from this material, but in this I would like to see your participation.