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Analysts now see Apple TV as catalyst for the company Marketwatch - May 31, 2007 2:29 PM ET
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SAN FRANCISCO (MarketWatch) -- While much of the attention Apple Inc. has received of late has been tied to the upcoming release of the company's iPhone, industry analysts say the company's set-top box holds the potential to become a profitable part of Apple's growing consumer-electronics strategy.
Another part of that strategy came into view Wednesday, when Apple (AAPL) said that, beginning in June, owners of the Apple TV device will be able to wirelessly stream video content from Google Inc.'s (GOOG) YouTube site to their wide-screen televisions.
The company plans to make available a free software download allowing that YouTube streaming.
That YouTube development marks the first time the Apple TV, released in April, will be able to play content from a source other than the company's iTunes Music Store. Currently, Apple TV works as a set-top and can wirelessly stream, and also store, music, photos and videos that are loaded onto a Macintosh or a Windows-based PC that uses iTunes.
Chris Whitmore of Deutsche Bank said the addition of YouTube content "provides a glimpse of this product's potential and its future evolution."
Whitmore said that, for the next several months at least, Apple TV will only mean incremental additions to Apple's profits. However, he predicted that adding YouTube to Apple TV signals the company is likely to make more outside content available for the device and could set Apple TV up for a growth pattern similar to that of the popular iPod digital music player.
Additionally, the analyst raised the possibility that Apple could take in advertising revenue for content accessed through Apple TV, and he estimated that capturing just 5% of the DVD market could add 10 cents a share to Apple's annual earnings.
Whitmore holds a buy rating and $140 price target on Apple's stock.
UBS analyst Ben Reitzes, who has a buy rating and $133 price target on Apple's stock, said that the YouTube content, along with other potential new video-content additions, "are the key to driving momentum long-term" for Apple, which currently offers episodes from 350 TV shows and more than 400 movies, in addition to 5 million songs, through iTunes.
Reitzes estimated the market for DVD sales at 420 million units a year, but, as more content becomes available for the Apple TV, the device, he said, "could be considered as a DVD replacement."
At a high-profile gathering of technology professionals Wednesday, Apple CEO Steve Jobs called Apple TV "a hobby" for the company, but he reiterated that he believes there is potential for the device to upset the entrenched consumer habit of watching DVDs in the living room.
"Our model for Apple TV is a DVD player for the Internet," Jobs said at the fifth annual "D: All Things Digital" conference in Carlsbad, Calif.
Apple also said the Apple TV would now be available with an option for 160 gigabytes of storage, capable of holding 200 hours of video, for $399. The current $299 version of Apple TV comes with a 40-GB storage capacity that can hold 50 hours of video.
The idea that Apple TV might eventually be a replacement for the DVD player had some analysts who follow Apple taking new looks at the Apple TV and its place in the home-entertainment market.
Apple shares continued their recent surge Thursday, trading as high as $122.17, an all-time record for the stock.
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