Apple TV Could Generate $13B in U.S. Revenue (Study)

Apple unlikely to launch alternative to cable

A product that doesn't even exist yet could net Apple as much as $13 billion in revenue from U.S. consumers, according to a study by Morgan Stanley. The nifty device remains hypothetical at this point, but Apple's plan for an internet-connected television is one of the worst kept secrets in Silicon Valley.

Getty ImagesThe Wall Street Journal reported Wednesday that Apple and Asian suppliers are testing designs for a TV set, and CEO Tim Cook recently hinted at the product in an interview with NBC's Brian Williams.

“When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years,” Cook said in a segment on NBC's "Rock Center." “It’s an area of intense interest. I can’t say more than that.”

Some consumers are already salivating. Morgan Stanley analyst Kate Huberty and research team Alphawise polled 1,568 heads of households and discovered that 11 percent said they were "extremely interested" in buying an Apple TV and an additional 36 percent are "somewhat interested."

They're even inured to the hefty price tags that often go hand-in-hand with Apple's sleek line of gadgets. Some 46 percent of respondents were willing to cut a check for more than $1,000 for an Apple set, which represents a 20 percent markup for the standard amount they paid for their current TV. Ten percent of those surveyed said they would go as high as $2,000 for the privilege of vegging out in front of an Apple TV.

That could translate into $4.50 in earnings per share, if the Apple TV takes off, the study estimates. When Apple last reported its quarterly financial results it netted $8.67 per share. 

Morgan StanleyFor now this is a hypothetical proposition. Apple does have a TV box, which connects traditional television sets to online media and has also been dubbed Apple TV, but it has yet to produce its own internet-connected, high-resolution set.

Cook has long dubbed television a "hobby," but that appears to be changing based on several reports.

Still, while Apple may profit tremendously from a TV set, the analysts do not think the company will upend the television industry as it did music with iTunes and the iPod.

Mostly because it's unlikely that it wants to. Though it could launch a "virtual cable service" to challenge cable and satellite providers like Time Warner Cable and Dish Network, the costs are prohibitive.

As the study's author's note, the content costs associated with funding or licensing content would be intimidating even for a deep-pocketed organization like Apple. A new player in the space would only cause those prices to rise as the demand for media grows, just as programming costs jumped when telco and satellite services first entered the fray.

The study's authors write "…programming is currently a distributor’s largest and fastest growing cost… adding another distributor would put upward pressure on these costs and therefore downward pressure on video margins."

For now, Apple seems most likely to become a high-end device maker, not an alternative to cable. Sometimes it's smarter to play for margins.