I don't think I knew anyone who even owned an MP3 player in 2001. So that isn't a saturated market. It was still largely an untapped market. [...]
I see your point. Maybe I can spin my original "saturated" comment by saying that there were many manufacturers selling iPod-like devices (portable music players with miniature internal hard drives) back in 2001. And none of them was either good or dominant. (By the way, I bought an Archos Jukebox Recorder about 2 weeks before the original iPod was announced. :-( )
[...]
I only see Apple in this business in two ways:
1: Set top boxes like ATV.
2: License deal to include ATV functions in TVs of other manufacturers.
I disagree partially. I think Apple could keep the ATV nearly as it is now for people who already have TV sets they like. But I think an Apple television set could add compelling features that no other TV set will have (or will do well.)
For example, the Apple set could have a microphone for Siri and an iSight camera for FaceTime calls and for individual and group user recognition. The ATV box wouldn't have the Siri interface or an iSight camera, if it's positioned as it is now as a relatively low-end product (in terms of price.) Also, there would be issues with positioning the ATV box correctly to see and hear people watching TV etc.
But I don't think Apple would want to license their technology, for several reasons. You refer to Apple being "in this business," the television set business. And yes, if all Apple wants to do is sell conventional big-screen TVs that can also stream content from iTunes, then maybe licensing is the best way to go.
But I think Apple will be looking to change the entire industry, not just add value to it. If Apple simply licenses the ATV technology, and TV makers embed an iOS-running circuit board in their sets, then that ATV feature will become just another input. No significant advantage over an external ATV box. Some people might want it, but others wouldn't. So the manufacturers would still need to build non-ATV sets as well. It would be seen as an extra cost option, and it might be hard to convince people in showrooms (or shopping online) to spring for it.
On the other hand, if Apple does their own TV set, they could drastically simplify its electronics. No over-the-air digital TV tuner, no cable-ready circuitry, no RGB / S-Video / composite signal inputs, etc. And no DVR functionality at all (more on that later.) That would reduce its component cost. And they could use the IGZO LCD and/or advanced OLED technology they're supposedly working with Sharp to develop. That's another cost and energy consumption reduction.
So that could give Apple enough of a cost advantage to consider building their own TV set. And, more importantly, Apple could maintain decent margins while still selling their TV set at *competitive prices.* That's very important. It's every hardware competitor's worst nightmare, and it's become a waking nightmare for all of them since the iPad was released and the MacBook Air price was dropped. But how could Apple get consumers to buy their TV set? What compelling feature(s) would it need to have?
Industrial design and picture quality aside, it would need to be simple to set up and use. Like ATV is now. Plus a simple and powerful Siri-driven and/or gesture-driven interface. With FaceTime calls and facial recognition, both of which Apple has been working on for years now. With content streamed from iTunes, and maybe even iOS game-playing built in. (But without an email app, browser app, Twitter app, FaceBook app, and all that other crap you can do with smaller-screen devices without hogging the communal TV screen.)
Oh, and as for the lack of DVR functionality, well that's one of the keys to the Apple television set's (and current ATV's) future success, isn't it? There is zero chance that we'll ever be able to record random content from cable or satellite or over-the-air broadcast on an Apple device. For the same reason that Apple will never add a DVD/BD player to ATV or the Apple TV set. Because recording your own content or playing your own discs would undercut Apple's entire iTunes-based infrastructure. Never going to happen. Sorry. Get over it.
Question - So what will take the place of your carefully programmed DVR? And your nascent Blu-Ray disc collection? And watching the Superbowl live?
Answer - iTunes on-demand playback. Of everything, including live events.
You could watch live events streamed from Apple's servers (e.g. the Paul McCartney concert.) With full pause/rewind/slo-mo. And the instant the live event is over, it would be available on Apple's servers for playback on any device including the Apple TV set. Just like iTunes Match.
Sound simple? Well, from a consumer perspective, it is.