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The Apple TV App Continues to Expand Outside of Apple Hardware

Apple (NASDAQ: AAPL) continues to expand its Apple TV app, one of the company's rare cross-platform offerings, beyond its own hardware. Sony (NYSE: SNE) announced this week that it has launched the Apple TV app on certain smart TV models. The app is rolling out today to Sony X900H series TV sets via a software update before making its way to older models by the end of the year.

The launch is just Apple's latest collaboration to grow its services business.

The Apple TV app is coming to certain Sony smart TVs. Image source: Apple.

A platform on top of a platform

Sony smart TVs will join other third-party manufacturers that have been embracing Apple's TV platform in recent years. The app is already available on smart TVs made by Samsung, LG Electronics, and Vizio. Even rival video-streaming platforms Roku and Amazon Fire TV have added the TV app.

In some cases, the Apple TV app is essentially a platform on top of a platform, but the underlying economics are unclear. For example, if a customer subscribes to a premium TV channel on the Apple TV app on Roku, what does the revenue-sharing breakdown between the service provider, Apple, and Roku look like?

While most platforms charge around 30% as a commission, Apple has struck deals with 130 video apps (including Amazon) on its platform for a reduced cut, so it's conceivable that the company was able to leverage its own market power to negotiate a favorable cut when the roles are reversed and Apple is the one trying to get on someone else's operating system.

The Cupertino tech titan's TV strategy has evolved quite a bit and now revolves around greater availability of the Apple TV app, as opposed to selling more Apple TV set-top boxes. With a mere 2% market share, that box is less relevant than ever.

The box still has a role to play. Image source: Apple.

Speaking of the box

The Apple TV box has languished for over three years without any updates, but it still has a role to play. Beyond TV content, Apple is still trying to grow its Apple Arcade subscription service, recently introducing a promotion that includes three months of Arcade with qualifying hardware purchases. That's similar to the ongoing promotion for one year of free Apple TV+ (which the company is extending by a few months).

But the Apple TV box hardware isn't aging well: Apple TV 4K runs on an A10X chip and the even older Apple TV HD uses an A8 processor. 3D games, like many of the ones found in Arcade, need more power than that silicon can offer. Speculation has emerged that Apple has a TV box update in the pipeline, potentially featuring an A12 or A14 chip. Certain games might require an A13 or higher. Apple hopes to position the Apple TV box as a sort of low-end game console, including a first-party controller, rumors suggest.

Apple TV (the app) and Apple TV (the box) now serve different purposes, notwithstanding the fact that the Apple TV app is also on the Apple TV box. The app has become the company's main conduit for all video streaming, while the box is evolving into gaming hardware. Both will keep feeding the company's services segment in their own way.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon, Apple, and Roku. The Motley Fool owns shares of and recommends Amazon, Apple, and Roku and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.


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