In May, Samsung was the first manufacturer to ship TVs with Apple TV integration. Vizio, Sony, and LG have also signed on to this effort and are expected to release TVs later this year. Our takeaways:

• Four years ago, our belief that Apple would make a TV became a fairytale when the company shut down its standalone TV hardware development.
• Since then, Apple’s approach to the living room has been a slow hobby in the company’s words, led by Apple TV which we estimate is now used in 26m US homes monthly (21% of US households). We believe there are 53 million active Apple TVs worldwide.
• This year Apple’s living room strategy took a step forward with the start of integrating the Apple TV interface with third-party TV manufactures. We believe, eventually, many major TVs will embed Apple TV software. This adoption curve may be similar to CarPlay, which Apple recently reported is available in 90% of new cars sold in the US, and 75% globally.
• The goal is simple, expand the distribution of Apple TV software to grow the reach of Services (Apple TV+ and Apple Music subscriptions, along with content rentals and purchases).
• This will have a fractional positive impact on Apple’s overall revenue, and a measurable impact on the Apple TV installed base.
• We believe this strategy will expand the US installed base of Apple TV by around 2m units annually, on a base of 26m, resulting in about 10% growth. This is based on an average smart TV life of around 6-7 years , 90% of major TV brands selling integrated Apple TVs by 2021, with 10% of those buyers converting to new Apple TV users.

Stand Alone Apple TV Will Retain Unique Features

While this may appear to be the beginning of the end of the Apple TV box, we believe the device will retain unique value. We believe the standalone box will continue to offer two features not available on third-party display integration. First, the Siri remote which is increasingly used for navigation and content discovery. Second, the ability to pair a PlayStation or Xbox game controller is a measurable value add for the upcoming Arcade gaming service.

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