No, AirPlay Is Not The New Apple TV

Editor’s noteDavid McIntosh is the founder and CEO of Redux, a fast-growing video discovery company. Redux is the top downloaded app on Google TV, and you can read David’s other guest posts here.

If you asked your mom or dad what DLNA or UPnP stood for or did, would they just look at you weird? While the two technologies enable users to wirelessly beam content to Internet Connected TVs from their tablets, phones, and computers, Apple’s AirPlay is the first implementation that makes the experience seamless. Tap the button again and playback resumes on your root device. No complicated setup is required – it simply works.

Some, like Bloomberg and Hunter Walk, have suggested that AirPlay is Apple TV, and that Apple will simply license AirPlay to the major Connected TV manufactures – and by default every Connected TV sold will be an “Apple TV” – the remote being your iPhone or iPad. It’s certainly a sensible theory – there are 250 M+ iOS devices, and with the upcoming OS X update, laptops can now leverage Airplay as well. That’s over 300M Apple devices that can push content to TVs.

Fragmentation is the reality

That level of integration would be a dream come true for many networks, studios, and cable companies looking to sell a “TV Everywhere” experience directly to users. Simply integrate with an iOS app, and with one tap consumers can watch content on hundreds of TV devices. Today it’s a big competitive advantage to be able to offer a consistent and incredible TV experience across hundreds of devices. Netflix built its early lead around that competitive advantage, and many networks, studios, and cable companies are looking to build technological solutions to combat fragmentation so that they can compete with Netflix. A content network or studio needs to be able to deliver a discovery and consumption experience better than Netflix’s across just as many devices — otherwise the consumer will turn to Netflix.

A ubiquitous AirPlay integration would level the playing field considerably, but is unlikely for several reasons:

(1) AirPlay adoption is not wide yet. There are less than 5M Apple TV units in the market, which means that today there are less than 5M users in the market that use Airplay for video.

And while Apple is heavily promoting AirPlay-video-enabled apps in the iTunes store, wide consumer adoption is unclear. Unfortunately, stats on Airplay usage aren’t widely available, but anecdotally – in my group of friends I’m the one evangelizing it – many Apple TV owners I meet don’t even realize AirPlay exists.

(2) Manufacturer adoption will be slow. Given that AirPlay does not have a critical mass of users, it’s hard to imagine how in the short-term Apple will convince any of the top five TV manufacturers to adopt AirPlay. Margins on TVs have been decreasing over time, and manufacturers are looking to integrate Connected TVs into an ecosystem of higher-margin tablets and phones. Integrating AirPlay,while it may sell more TVs (when Airplay has critical mass) will reduce sales of higher-margin tablets and phones they could have sold that exclusively interfaced with their TVs.

(3) A seamless experience is unlikely. It’s unlikely video AirPlay would be integrated consistently across all Connected TVs to create the same seamless experience consumers have with an Apple TV today. DLNA is a good example. It’’s an open protocol that in theory should accomplish what AirPlay does, except it’s implemented inconsistently across devices and often doesn’t work at all. Unless Apple has full control of the software layer, simply licensing out AirPlay would not achieve the desired experience.

Apple can overcome the issue of critical mass with enough of its own Apple TV units in the market. But at the pace of sales for its existing Apple TV, it will be years before AirPlay would have the usage to give Apple the clout to get integrations with other manufacturers. That’s why the rumors of an upcoming integrated Apple TV or upgraded device make sense. While AirPlay may be the long-term bet, in the short-term Apple needs a critical mass of users airplaying content to their TV. And AirPlay may be a central part of the rumored AppleTV. It  wouldn’t be surprising if Apple uses their new device to train users how to use AirPlay. At that point, AirPlay could become a must-have for other TV manufacturers. As a TV manufacturer you would lose sales by not having it integrated.

But even with a critical mass of AirPlay users in the market, it’s still unclear whether Apple could convince many manufacturers to adopt AirPlay, or would even have success getting them to implement it the way it’s implemented in Apple TV. That’s why Apple owns the hardware and software layer; they can create experiences that would never be created by leaving third-party manufacturers to their own devices.

Winners in TV will have technological solutions to fragmentation

What’s more, a fragmented approach to DLNA and Connected TV has already developed. Just as the Android ecosystem is increasingly fragmented, while iOS is uniform, the Apple TV of the future will be nicely unified with other iOS devices through AirPlay, whereas other Connected TVs will have fragmented platforms with fragmented DLNA protocols.

That means that succeeding in the fast-growing Connected TV ecosystem will require a killer approach to fragmentation. Leading cable companies, and networks looking to sell directly to consumers will have to sit on top of iOS’s uniform AirPlay platform, as well as a highly fragmented Connected TV and DLNA platform to reach meaningful scale.

There’s also the issue of whether or not Apple can strike a deal with Hollywood and other content creators but that’s a story for some other time.