Apple TV revamp expected as Google rivalry heats up

The competition between Apple (AAPL) and Google (GOOG) in the digital living room is about to intensify.

Tech analysts expect Apple soon to revamp its under-performing Apple TV gadget, which plugs into a TV so you can watch movies and shows via iTunes, in order to take on the new Google TV service when it launches this fall.

Google TV is a new way of watching Web content on televisions, via a Google operating system of sorts. Google is partnering with Sony (SNE), Logitech (LOGI), Dish Network (DISH) and others on the service, which will make its debut on a new set from Sony. No specific date has been announced.

To gear up for the competition, tech analysts expect Apple to cut the price of Apple TV to $99 from $229. But is it too late?

"Google is proposing a solution that will change the way we watch TV," says James McQuivey, an analyst at Forrester Research. "This is something Apple needs to take very seriously."

McQuivey doesn't believe a price cut is enough. He thinks Apple has to offer more than iTunes viewing: Apple TV also needs to work with the more than 10,000 software apps that are available for the iPhone and iPad. "Apps are the new definition of the Apple experience," he says.

Unlike the iPhone and iPad, which can connect to a host of entertainment choices from the likes of Netflix, ABC and Hulu Plus, Apple TV owners' only option are downloads from iTunes.

Consumers looking to add Google TV to their living room will have a choice of a new flat-screen Sony HDTV or Sony Blu-ray player that has Google technology built in. Pricing hasn't been announced. For those who don't want a new TV or Blu-ray player, options include a set-top box from Logitech or a new box being offered for satellite TV from the Dish Network.

Piper Jaffray analyst Gene Munster believes Apple eventually will reinvent Apple TV as an all-in-one, high-def TV set with built-in Web connectivity. He sees it launching in 2012 at $1,800-$2,000. "Apple has a golden opportunity to be relevant in the living room," he says. "They're not today."

Apple in recent years has held an event in September in San Francisco to tout new iPods. Munster believes Apple will do the same this year, focusing on music and the Apple TV relaunch.

Apple had no comment.

Munster thinks both Apple and Google have their work cut out for them.

"People don't want another box in their living room," he says. "Google as a separate box is a tough sell."

Of the 220 million flat-panel TVs projected to be sold in 2012, Munster believes that 65% will be Internet connected and that Apple could have 1.4 million of those with a new Apple TV set. That would add 3% to Apple's revenue in 2012, he says.

iPhone Hype Begins Again

Get ready for iPhone-mania 2.0.

On July 11, Apple will launch a zippier version of the iPhone starting at $199 with a two-year AT&T contract, down from $399. It will have built-in GPS for traffic directions, run on a speedy "3G" wireless network from partner AT&T and offer corporate e-mail support.

"Sales will explode," says Van Baker, an analyst at Gartner.

The iPhone — a combination phone/iPod and Internet device — first began selling last June. "As we arrive at the iPhone's first birthday, we're going to take it to the next level," Apple CEO Steve Jobs said Monday.

The $199 model can hold 8 gigabytes of music, photos and other media. A $299, 16 GB is available in a new color, white.

AT&T will be the exclusive U.S. distributor for another four years. One significant change: With the 3G version, AT&T said Apple will no longer receive a portion of monthly service revenue.

Instead, AT&T will fork out a substantial subsidy to help keep the price low. AT&T is hoping to drive mobile data usage and draw new subscribers.

While the subsidy — which telecom analysts peg in the $200 range — initially will put pressure on AT&T's profit margins, it could help push the iconic iPhone into the mainstream.

Jobs told USA TODAY that current iPhone customers can buy a new one and have their old plan morphed into a new two-year arrangement.

"This is a very positive move for AT&T, and it will gain share from Sprint and Verizon," analyst Tim Horan of Oppenheimer wrote in a note to clients.

While the iPhone has been a critical and consumer hit, Internet speed has been a chief complaint. The new phone uses faster networks that will dramatically improve mobile Web surfing.

Apple said it has sold 6 million iPhones. Tech analysts think it will meet its goal of 10 million by the end of the year. Over the next several months, Apple will roll out official sales in 70 countries, up from six.

In July, the company will launch the iPhone App Store on iPhones and the iPod Touch (like the iPhone, without the phone). It lets users easily download applications.

Getting such access to Apple customers "is phenomenal," says Andrew Erlichson, CEO of photo-sharing site Phanfare, which introduced an iPhone application Monday. "Power is shifting from the wireless carriers to the handset manufacturers."

Apple also introduced a new version of its $99-a-year .Mac backup service. Now called MobileMe, it automatically updates e-mails, contacts and other personal data across a computer and iPhone.