As Apple, Google Chase TV Market, Big Audiences Are Not Tuning In

Courtesy Apple

Apple said it sold 1.3 million Apple TV devices last quarter. The company sold 17 million iPads during the same period.

Apple, Google and Roku see an untapped market in set-top boxes that deliver online entertainment to the television, but after many years, some are wondering if they’ve tuned into the right channel.

The overall market for these devices, which compete with hardware from cable and satellite TV operators, is growing. Research firm IHS ISuppli said sales of these so-called over-the-top boxes rose 39 percent last year to 8.6 million units globally.

But is that a lot? Consider that Apple alone sold 32 million iPads in fiscal 2011, its second year on the market. The company sold around 2.8 million Apple TVs during the same span, and so far has sold 4 million of the devices this fiscal year, Chief Executive Officer Tim Cook said during two separate earnings calls. The gadget, which lets users stream Netflix and other content such as Major League Baseball, debuted in 2007.

“There are some very innovative over-the-top models,” said Jordan Selburn, an analyst for IHS ISuppli. ”The question is, ‘Is the time ever going to come?’ And I don’t know if the answer is ever going to be yes.”

Technology executives and analysts say that if these boxes could just offer more cable programming, then they could succeed. (Google TV works with Dish Network’s paid TV service, but IHS ISuppli research suggests it hasn’t helped sales of the device.)

“It doesn’t matter how beautiful you make the device or user experience if you can’t get access to the thing you want to watch just now,” said Avner Ronen, the CEO of Boxee, which makes Internet TV software. “The devices are not able to be competitive at this stage.”

Apple has been talking with at least one cable operator about adding live programming to the Apple TV, one person with knowledge of the discussions said earlier this month. The Cupertino, California-based company leads the tiny TV box market. But at $99 a pop, the profit margin on that product is among the thinnest of anything Apple makes, and consumers don’t appear willing to pay any more, said Selburn, the IHS ISuppli analyst.

Google looked to spread its bets in set-top boxes with a second system, the Nexus Q. Then, about a month after unveiling it this summer, Google said the product would be delayed indefinitely. The company has continued to update its first entry into this market, the Google TV. For early partner Logitech, supporting Google TV was “a big mistake,” Chief Executive Officer Guerrino De Luca said last year.

Representatives from Apple and Google declined to comment.

Apple’s highly anticipated plans to build a TV set were seen as another way for the world’s most valuable company to get a foothold in consumers’ living rooms. But an analyst report, based on an interview with Apple’s Eddy Cue, said a TV “appears extremely unlikely in the near-term.”

Roku, which makes low-price streaming hardware, sold 1.4 million units last year, according to the IHS ISuppli research. Despite the aversion by some people to cluttering their living room with boxes, Roku’s sales tripled last year compared to 2010, according to Anthony Wood, the company’s chief executive officer. The Roku Streaming Stick, expected to come out in the fall, can plug into the back of some TVs to add more robust streaming features.

“People don’t want a box, but that said, they obviously buy boxes,” Wood said in an interview. “People will buy a box if the value is there.”

Newer TVs have Internet functions built in, and if cable companies play ball, they could eliminate the need for separate boxes entirely, said Ross Rubin, an independent analyst at Reticle Research. If that’s the case, technology companies hoping to break into the living room will need to think outside the set-top box.

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