Fuzzy picture for Apple TV

This has been quite a year for Apple, but Steve Jobs' magic wand doesn't always work.

In March, Apple unveiled Apple TV, the company's attempt at tackling a question that has eluded the PC industry for years: how can we get people to watch content delivered over the Internet in their living rooms on their big-screen TVs? When he announced the product last September, Jobs said that Apple TV "completes the story" of Apple's bid to reinvent the way people watch movies and television shows.

(Credit: CNET Networks)

Now, as we head into the holiday shopping season, it doesn't seem that all that many people are interested in products like Apple TV. Apple has been a pretty good judge of consumer taste of late, but few companies get a hit every time they step up to the plate.

"That category of devices is so nonexistent," said Ross Rubin, an analyst with The NPD Group, which tracks almost every imaginable retail segment. "It hasn't really evolved to the point where we've been tracking it as a category."

As a result, it's difficult to get a sense of how many Apple TVs have been sold. Apple employees were given last week off for the Thanksgiving holiday, and company representatives were therefore unavailable to comment.

Apple doesn't report shipment totals for Apple TV like it does for Macs, iPods, and iPhones. Revenue from Apple TV is lumped in with a number of other segments on Apple's financial statements, and it's also recognized on a subscription basis over a period of two years. But it's clear that Apple TV is quite a bit lower on the company's priority list behind the Mac, iPod, and iPhone divisions: Jobs even called it a "hobby" during the D: All Things Digital conference.

To be fair, it's not like any company has figured out how to make this work. Despite a lot of talk, and some interesting new products, the Internet is still not the delivery vehicle for prime-time television shows and movies; that box is already in your living room, and it came along with your cable or satellite service. There's no need to have something that links your PC or Mac to your TV if you don't have very many movies or television shows on your PC or Mac.

And even if people are watching videos on their PCs, many aren't even aware that there are products that can do these kinds of things, according to Joyce Putscher, an analyst with In-Stat. Retailers aren't sure the products will sell, so they don't carry them or display them as prominently as other types of tech products.

"Video drives the television experience, and while the PC has become the hub for photos and music, they haven't become great storehouses of commercial video," Rubin said.

And a virgin Apple TV is designed to only get paid video from the iTunes Store or free video from YouTube. There are a lot of popular shows and movies on the iTunes Store, but there are also lots of other sources of video on the Internet. Apple TV doesn't come with a browser, and high-definition shows aren't offered at the iTunes Store. You can hack it to run Mac OS X, and therefore lots of other applications, but most people aren't going to do that.

There are signs, however, that the long-awaited promise of Internet-delivered movies and television shows is starting to come together as the networks experiment with delivering their shows through their own Web sites. If that takes off, a crippled Apple TV is going to prevent owners from watching a wealth of free content that's becoming available on the Internet.

"There is one key recent development that would affect Apple TV and products that will try to compete, the quick and expanded move for studios to make their content available for free as long as you look at the ad," said Chris Crotty, an analyst with iSuppli. "But there's no (easy) way to view this ad-supported content on the television, which is ironic considering where it originates."

It will be interesting to see what Apple cares about more if networks actually pull off what they are promising to do with their own distribution vehicles: Apple TV or iTunes? If people show they want to download or stream videos from the networks or other sites like Amazon.com's Unbox or (shameless plug) CNET TV, they'll want a way to display that on the big screen.

Assuming that all comes to fruition, Apple could be missing a significant hardware opportunity if it decides it wants to protect the iTunes Store franchise at the expense of an Internet-capable Apple TV. Of course, if it were to give Apple TV owners the option of accessing free content, we'll find out if people want to pay to own ad-free content as Jobs maintains or endure ads to avoid paying a couple of bucks for something they'll never watch again, which could hurt iTunes sales.

Still, Crotty made an interesting point on that score. "Do the math: there's 6 minutes of commercials (on a 30-minute show), if you value your time at 20 an hour, there's your $2," Crotty said.

Until this new model shakes out, cable and satellite companies remain in firm control of the living room. But that doesn't necessarily mean Apple TV can't be a success in its current form; it's not going to replace a set-top box anytime soon, but could it replace a DVD player?

That was the company's emphasis for Apple TV in its early days, with the iTunes Store as the Blockbuster or Netflix equivalent. "It makes more sense to do online distribution of content than it does to be pressing media onto shiny plastic discs, and packaging them up and putting cardboard around that," Crotty said.

The issue here, though, is that the rental/subscription model for movies and TV shows is very much entrenched in the consumer's mind. Apple has strongly resisted a subscription model for the iTunes Store to this point, and Jobs has said on several occasions that he doesn't think people are interested in that type of service. Of course, right up until the company released its first video iPod player, he also said for years that people weren't interested in watching video on iPods. Now the entire iPod lineup (sans the Shuffle) is designed with video in mind.

In June, the The Financial Times reported that Apple was considering an online rental service, and Apple bloggers were recently excited at the discovery of code in the latest version of iTunes that hinted at such a service. So the same pattern may be at work here.

With Apple TV, Apple fulfilled its usual goal of coming up with something sleek and quiet that people wouldn't necessarily mind putting in their living rooms, and the device seems relatively easy to set up and use.

But it doesn't come even close to fulfilling the promise of Internet-delivered video: the ability to watch anything I want, whenever I want it, without having to pay for all the useless channels I never watch. Nothing does yet, unfortunately, so I make do with the 250-plus channels I now get plus my digital video recorder.

If you want to disrupt an industry, you have to come up with something significantly different, or something that delivers an experience that wasn't possible before. Apple TV doesn't do that, and until it does, it will still be a hobby.