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Monday, December 19, 2011

Apple TV... what it could mean

The Apple television is getting traction again thanks to a WSJ article highlighting its progress.  Although, an interesting concept in the article is not so much about the actual TV, but the potential for Apple to act as a service.  To me this seems the most interesting, and truly disruptive force in TV.

We all hate our current cable providers. I know I do. I hate them, because I know they hate me. They don't care about me. When there is disruption to my service they claim they do not know until someone calls and informs them. (WTF?!?) They force me to purchase channels I do not watch in the guise of subsidizing the less watched channels.

What if Apple's TV strategy is to leverage its Apple TV to provide a-al-carte service to the current offerings?

Thanks to the iPad, we already know the set top box is an obsolete irrelevant piece of hardware. Its function, as it turns out, is literally to take up space and collect dust.  And here lies the importance of the Apple TV as it would facilitate such a service to most of the world's TVs.

The implications of such a subscription service to AAPL, imo, would be huge. It would effectively usher in a whole new class of investor to take a hard look at the stock. Basically, the value boys will be tripping over their feet to get into the name. (AAPL valued by the current cable company standards, ebitda cash flow, is disturbingly undervalued. I mean, just compare TWC ebitda to AAPLs. You do not need a complex model to tell you the obvious.)

Toni Sacconaghi already revealed to us last week that the value investors were very much under investing in AAPL.  Having a subscription model would alleviate many of the concerns value investors have from the device-driven nature of the company.  A subscription model would also usher in a new basis of valuation, that would also benefit the stock, especially at current levels.

Technically, the model is now feasible. With advances from content delivery providers like AKAM, and the processing efficiency from FIO, IPTV is very real. The cable companies are already seeing the effects. Albeit, relatively small numbers of sub declines, at the moment, but the world is just waiting for a player to make IPTV user friendly. (Especially since the cable companies are doing nothing in order to protect their legacy businesses. They are fucked if they do not step up.)

This is really good news for Apple's stock. And with market declines, if anyone is looking for a momentum play, take a hard look at FIO.

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