Two weeks ago, Michael Pachter, an analyst at Weedbush Morgan, laid out a case that would see Apple transforming its just-good-enough-to-stay-afloat Apple TV into a full-fledged gaming console. Building on the immense popularity of the iPhone as a handheld gaming device, Pachter predicts that it’s only a matter of time before Apple makes a play for gaming in the living room.

I think Apple has a deliberate strategy. They want to see what they can do with the handhelds (iPod Touch and iPhone) first, then move into console games. Apple TV is the device that they can turn into a console, and they have essentially the same goals as Microsoft–to turn Apple TV into an entertainment and Internet hub. If they can get enough iPod users to download games, it’s a natural that they can ultimately convince a large number of these users to buy a game-enabled Apple TV. I’d guess a 2012 or 2013 launch… I’m not sure how Apple would proceed initially. It’s possible that they open the architecture and go for an Apple TV “App store” to allow anyone to develop games. We’d get cool stuff like World of Goo or Geometry Wars, but probably not super cool stuff like Gears of War until they bought a few developers… What Apple cares about is getting into the living room, and an Apple TV with games has a higher likelihood of succeeding than an Apple TV without.

Wow. That’s certainly a lot to digest, and it seems that Pachter has taken a rather simplistic approach in addressing the complex and often times unpredictable world of gaming. Developing a successful gaming platform isn’t nearly as straight forward or simple as Pachter makes it out to be, and while Apple may certainly try to leverage gaming as a means to make a push into the living room, there are a number of challenges and considerations it needs to be keenly aware of.

Why gaming is popular on the iPhone

All games and gaming platforms are not created equal, and it’s astounding how frequently analysts tend to lump all gaming discussions under the same umbrella.

Games are undoubtedly the most popular app category on the iTunes App Store and this is in large part due to the fact that games on the iPhone and iPod Touch are more or less like the mini-games you would ordinarily waste a few minutes on while browsing around the web. The reason people enjoy gaming on the iPhone is because many of the games are simple and can often be played in quick spurts, as opposed to the more intensive and drawn out titles commonly found on the Sony PSP and Nintendo DS. There are, of course, a number of console style iPhone games, but by and large, the surprising success of gaming on the iPhone is the result of games like Flight Control and Flick Fishing, both of which are iTunes best sellers that require basically little or no instruction, and can be played for either 2 minutes or 2 hours.

The point is, people who play games on the iPhone aren’t really “gamers” in the true sense of the word, and that’s an important distinction people need to be acutely aware of when discussing any possible and potential future gaming initiatives from Apple.

The viability of gaming with an Apple TV

The success and popularity of gaming on the iPhone makes a similar app store for games on the Apple TV seem like an obvious idea. But living room console gaming is an entirely different monster, and Apple would have an incredibly tough time taking on Nintendo, Microsoft, and Sony all at the same time.

Unlike many of the other markets Apple competes in (the MP3 player market, the smartphone market), companies in the video game world actually innovate and churn out pretty solid products that customers are happy with. Apple’s bread and butter, though, is entering a stagnant market and spicing it up a bit, but when it comes to video games, spice is already the name of the game.

To get a better idea of Apple’s chance for success should it decide to turn the Apple TV into a gaming platform, it makes sense to explore the two different approaches to gaming Apple would have to choose from. Specifically, Apple could turn the Apple TV into a serious gaming platform, similar to the Xbox 360 and PS3, or it could angle it as a fun and laid back platform, much like the Nintendo Wii. Unfortunately for Apple, both choices pose a number of challenges.

1. Apple TV vs. the Xbox 360 and PS3

Competing against the Xbox 360 and PS3 seems like an idea doomed from the start. Both are mature platforms that offer a deep repository of games and features that the Apple TV would have a difficult, if not, impossible time keeping up with.

Take the Xbox for example. Microsoft may not know how to make an MP3 player, but it’s Xbox division is pretty on the ball. What makes the Xbox so great is that the system is so much more than simply a gaming platform. In addition to playing games and DVD’s, Microsoft’s Xbox live service allows users to download game demos, while also giving them the ability to stream HD movies and purchase games online. One of the more appealing things about the Xbox live service is that it lets users play games either against or with other Xbox live users across the world. Xbox live has been around for almost 7 years, has a simple and easy to navigate user interface (though some might say it was copied from Nintendo), and should see a number of improvements by this fall, such as the ability to stream 1080p movies via Netflix.

How in the world can the Apple TV compete with that? Why would a serious gamer even consider an Apple TV gaming device when there’s not really much Apple can do to differentiate it from the consoles that are already out there?

2. Apple vs. the Nintendo Wii

A more sane approach would have Apple position the Apple TV against a gaming platform like the Nintendo Wii. Much like gaming on the iPhone, gaming on the Wii is extremely popular precisely because it attracts a different breed of gamer. The Wii won’t sell you on its graphics but rather the fun gameplay achieved through the use of its accelerometer enabled controller. While serious and in-depth video game titles are indeed available for the Wii, it’s the “soft” titles like Wii Sports and Mario Kart that push systems out the door. As an example, Madden ’09 on the Wii might not have killer graphics, but the joy derived from using the controller to mimic football movements more than makes up for that fact in the eyes of many Wii owners.

Given Apple’s relative inexperience when it comes to gaming, positioning the Apple TV against the Wii would seem to make the most sense, at least on paper. But again, Apple would encounter a number of significant roadblocks. Nintendo is a video game juggernaut, and the success of the Wii has not only surprised analysts, but has put a significant dent into sales figures for both the Xbox 360 and the Playstation 3. As far as we can tell, there’s nothing that Apple can offer with an Apple TV app store that could rival what’s already available for the Wii.

Conclusion

The battle for the living room has been going on for years now, and no company has quite figured out how to deal a fatal blow to everyone else in the marketplace. Sales of the Apple TV have been brisk, but ultimately disappointing relative to the other products Apple typically sells. It’s no coincidence that Steve Jobs refers to the Apple TV merely as a hobby.

The Apple TV undoubtedly has a lot of potential, and it may very well become a standard device in living rooms across the country, but we sincerely doubt that turning it into a gaming console will have anything to do with it. When it comes to serious gaming, the Xbox and PS3 would destroy the Apple TV, and when it comes to more laid back iPhone style gaming, the Nintendo Wii is already out to a commanding and arguably insurmountable lead. Gaming on the go is completely different from gaming in the living room.

If Apple wants to control the living room, it makes a lot more sense for them to build an Apple branded HDTV, as has already been rumored.

And as a final point, Steve Jobs has even noted that the market for game consoles is relatively puny when measured against the market for other devices like smartphones and MP3 players, let alone HDTV’s. Why would Apple go after a market that isn’t that big to begin with? Why would it set its sights so low? That’s simply not Apple’s style. Apple doesn’t try to just get on base, it trys to hit the ball out of the park every time it steps up to the plate. The Apple TV is currently a hobby, and transforming it into a gaming console would do nothing to change that fact.

On the flip side, an Apple branded HDTV with Apple TV functionality built right (and perhaps the ability to download basic mini-games) could potentially be a major move by Apple. And that’s the only move that Apple really knows how to make. Why go for gaming in the living room when you can make a move for the entire living room?