This paper will concentrate on Apples Apple TV business, and its complementing iTunes business.

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Internet Strategy Analysis

Apple TV and iTunes

Vinay Kamath



On January 9th, 2001 Apple Computers Inc. (now Apple Inc.) opened its iTunes music store, thereby revolutionizing the music industry.  To complement iTunes they also added industry leading gadgets like the iPod, Apple TV and iPhone.  During these 7 years iTunes has evolved into a online media store catering to not only music, but also to podcasts, Movie Rentals, television shows, and Apps for iPhone.  The one gadget that brings all these media forms (except Apps) into the consumer’s living room is Apple TV.  Apple TV is a set-top box that, in addition to content from iTunes, also consolidates content like photos, home movies, etc. wirelessly from the users.  Apple TV, therefore, is the gadget that consolidates all the content owned by the user and manages it in one location. In addition, it presents that content on the best display and sound system that the user owns which in most cases today is a large screen TV and a surround sound system.  This paper will concentrate on Apple’s Apple TV business, and its complementing iTunes business.

Background on the business

From its infancy, Apple’s computer line of products had a cult following.  However, it never enjoyed a large market share. true However, iTunes and the iPod have brought Apple into the mainstream unlike any other product.  The Apple brand is one of the most recognized and admired brands.  

While iTunes is the content distribution site and store, Apple TV is the one product that amalgamates Apple’s entire ecosystem of products and services.  Apple TV has not been a growth driver for Apple.  It is a very diverse product, but still lacks a few features that will make physical media killer.  Apple has not released its Apple TV sales figures, but Piper Jaffray analyst Gene Munster estimated that Apple sold 1.6M Apple TV’s in CY2007 and is estimated to sell 2.9M units in CY2008.   Gene Munster, other analysts and the investor community also believe that adding small changes in Apple TV could drive tremendous material growth.  iTunes on the other hand is as successful as the iPod because they both go hand in hand.  Until June 2008, 5 billion songs were sold on iTunes.  

Fig 1.  iTunes music download numbers


Until October 2008 (see Fig. 1), 200 million TV episodes and 2 million feature length films were sold   These figures make Apple the largest music and the most popular online movie store.  

SWOT Analysis

Lets take a look at the SWOT analysis of iTunes and Apple TV separately.

iTunes Strengths

  • iTunes is the largest online content purchase and rental store.  
  • It sells more music than any other store – online or brick and mortar.  
  • It has tie-ups with major motion picture studios and recording labels.  
  • It also has tie-ups with most television channels including all networks.
  • Apple adopted a blue ocean strategy spawning an entire industry creating one of the world’s most popular brands.  Their blue ocean strategy was to introduce iTunes as the first and largest copyrighted music download site.  Apple teamed up with the music industry to legalize music downloads.  They also produced an mp3 player, the iPod that seamlessly worked with iTunes with almost no computer expertise on the part of the user.  
  • It has a loyal set of enthusiastic customers.  Many of its customers are bloggers, and Internet savvy users.  Apple has taken advantage of its customer base for its marketing strategy.  
  • The iTunes software works on most of the popular operating systems and also works online through Apple TV, iPhone and iPod touch, making it accessible through multiple mediums.  In addition, content purchased from iTunes can be transferred on multiple devices (in addition to iPod), thus making it extremely attractive.
  • Searching for content on iTunes is simple.  You can search using genres, keyword search, power search where you can provide different parameters of your search
  • 1-click movie and song previews.  
  • Help and support for iTunes is among the best in the world.
  • Using cloud computing, iTunes now suggests what you may enjoy listening or watching based on the tracks and movies in your library.
  • Movie rentals can be view instantly and it is streamed, while the competition makes you download the entire movie before you can watch it.

iTunes Weaknesses

  • DRM-free downloads has a higher fee associated.
  • Movie and music formats are Apple proprietary
  • HD movies can only be seen through Apple TV
  • HD is limited to a resolution of 720p, which is not as good as 1080p

iTunes Opportunities

  • The age of online content offers Apple and iTunes many opportunities.  As more and more music is purchased through online downloads, iTunes has the opportunity to be the market leader in obtaining that business.  It is true on a much larger scale on Movie Rentals and TV shows.  With more and more bandwidth becoming available, physical media like DVDs can easily fall prey to digital online content.  
  • In this global marketplace, iTunes should tie up with content providers and media outlets in other countries, especially where there is heavy Internet use and provide content from different international languages.  Apple has done a tremendous job at that in music, but has failed to do so in video.

iTunes Threats

  • Apple should maintain its relationships with different content creators to keep its offering on iTunes ahead of the curve.
  • One of the biggest threats it faces in the video arena is the lack of 1080p HD quality.  In addition, enhanced HD should be also available outside of Apple TV.  
  • As in any market leader, iTunes should be weary of being complacent.  
  • As the industry leader, they should also try to standardize the content such that it can be played on different mp3 players, and not just iPods.  

Apple TV Strengths

  • Apple TV is a comprehensive digital offering that allows users to consolidate all they own or look forward to own.  Apple TV allows a way to view this content on the best video equipment owned by the customer – their TV, and the best music system they own.
  • Podcasts, Movie Rentals, music, photos, and even YouTube videos can be enjoyed on Apple TV.
  • Apple TV is seamlessly integrated into the iTunes store, which means that the content can be directly downloaded to Apple TV, without the use of an intermediate computer.
  • Movies do not need to be downloaded before watching.  Streaming video can be seen within a matter of seconds from when it was ordered.
  • Easy to use interface.  Apple says it best on its website: “Apple TV gives you access to an easy-to-navigate world of entertainment”.
  • It also provides subtitles, multiple audio tracks and parental control

Apple TV weaknesses

  • Apple TV hasn’t made as big an impact as it was envisioned of making.
  • The movies and TV shows rented from iTunes have to be seen within 24 hours of renting.
  • From a hardware front it needs to contain a TV tuner to make it more promising.  That feature should be also complemented with DVR functionality.
  • As mentioned in the iTunes SWOT, HD video is only 720p, and not 1080p.

Apple TV Opportunities

  • Opportunities are endless with Apple TV.  If a TV tuner and DVR functionality is made available, it will unleash its growth potential
  • HD TV sets, and Home theater ownerships have had double-digit growth over the year.  Marketing Apple TV to households that own such equipment would be tremendous growth to Apple.
  • Apple already has a great set of customers that own one or many products from their line of products.  Apple TV is a great device that can manage content from these multiple products.

Apple TV Threats

  • While online and digital content has been around for a while, the market is far from saturated.  Apple TV hasn’t gained the market share it was projected to gain.  This clearly indicates that users are looking for something more from the device.  This could provide a golden opportunity for a competitor who can gain headway into that space.
  • Apple needs to relax its rental time window to more than 24 hours.  The rental time should be as much as what other video rental shops offer to make it more lucrative.  
  • Apple TV is trying to change the way people rent movies, view TV shows and manage content they own.  The biggest threat is being able to succeed at this attempt.  So far Apple seems to have been unsuccessful.

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Competitive analysis

While there is no competing offering to the iTunes and Apple TV combination, especially since iTunes has a more comprehensive content offering, there are some viable competitors.  While Apple was ahead of the curve when it introduced music via iTunes, it is behind the curve when it comes to video.  The one thing going Apple’s way is that iTunes already has such a huge subscriber base that the competition has its work cut out.


VUDU is a venture-backed firm that allows instant access to thousands of movies and TV shows directly through the television, without requiring a computer or cable/satellite service.  VUDU service works in conjunction with a set top box.  Much like Apple, they have struck deals with movie studios and distributors.  In most formats the videos can be seen instantly upon rental with no download time required.  


  • Using their new technology HDX, video is streamed at 1080p with an audio bit rate that is equivalent to Blu-ray.
  • While the rental prices are higher than iTunes they provide a way to extend the rental by a week for $1.99.
  • Catalog of 5000+ movies, much larger than iTunes.  However, both have approximately the same number of HD movies
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  • HDX is a plan-ahead feature, as the movie needs to be downloaded before watching it.  The download times may be as much as twice the viewing length of the movie.
  • A $299 set top box is required to watch the movies.  While Apple TV is a set top box for iTunes, users can still access video rentals through their computer.  Apple TV is only required when watching the content on TV.  iTunes movies can be watched on a computer, iPod or iPhone.  Users have to be convinced to make the $299 investment with VUDU, while Apple ...

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