IMHO Apple would be wise to drop ATV completely. There are no profit margins on a device that retails for less than 100, and the benefit to the user is minimal when compared to other products.
It would be great if they shifted their focus to more important areas where they are behind, like iCloud. We've seen what happens when Apple loses focus and tries to make a million different products.
This is a decent point. Apple is the company who make money from hardware, and there is isn't much of it here.
They're getting to a point where they do need to think about ecosystem, though. The cloud means that people can move seamlessly between devices, except that if they're part of Apple's cloud they can only move between Apple devices.
The TV is not going to remain a dumb screen. People still spend time in front of it. If Apple vacate this space, they leave the TV to companies like Google and Amazon, but also Samsung, LG, Sony, etc. This undermines Apple's iTunes services greatly - people won't be able to access their iTunes content from their TVs (the one dedicated media consumption device in peoples' homes). Even more of them will likely move to services such as Spotify, Netflix/Amazon Video, or Google Play Music/Videos.
iTunes is one of the original uniquely-brilliant features of Apple devices. It also ties people to the Apple ecosystem by raising the barrier for switching. If Apple retreat from the TV, they retreat from all media services. If they do that, they weaken every product the company makes.
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However, the iTunes stores are in
desperate need of a revamp. iTunes Music is probably going to be shaken-up soon with the integration of Beats, and Apple needs to make sure this is rolled out internationally at breakneck-speed.
iTunes Movies are a total joke. Firstly, it's SD as standard and HD is only available for a surcharge (really, it's coming up to 2015 and Apple is still selling SD movies). Netflix has one price and it'll give you the best quality it has, even up to 4K. You can get an entire month of Netflix (and have change) for the price of 2 HD movies from iTunes.
At the same time, content is changing - TV shows are tackling more mature subjects with better scriptwriting, acting and directing. Shows like Lost, Breaking Bad, Mad Men, Game of Thrones or House of Cards wouldn't have been aired 10 or 15 years ago. Smaller doses of more mature episodic content is great news for the subscription model.
At the same time, piracy in the music industry has levelled or fallen; most young people don't even bother to pirate music these days, because services like Spotify are more convenient, social and affordable. Movie piracy is at an all-time high because internet connections are fast enough to allow it and the content is still fragmented and highly expensive. Netflix is popular, but the biggest complaint about it is that it doesn't have enough movies (because the studios still refuse to sign up).
It seems obvious that iTunes is a 20th century man's view of what a 21st century media store would be like. Apple now needs to remake it in the shape of what media stores are actually thriving in the 21st century: stores which are actually all-you-can-eat subscription services.