Yesterday’s post talked about how Apple should execute a gaming-capable Apple TV.  Today, I’m putting my product manager hat on to sketch out in more detail what the end product can look like.  I don’t do it with a fanboy’s wishlist, but with what is realistic and practical for a good engineering team to achieve.

Be forewarned, this post is going to feel dense and maybe even boring if you’re not into this kind of thing.

On to gaming on Apple TV:

• What it is exactly — streaming device plus controller
• How it works — only show compatible content, with an interface similar to the current Apple TV and navigation by either controller or app
• How much it costs — $45 to make, $60 to sell

If Apple makes the product I am proposing, it could disrupt the entire game console market that Sony and Microsoft are currently racing to win.

In case you’re not familiar, Google’s Chromecast is a $35 dongle that you insert into your TV’s HDMI port.  This then allows your phone, tablet or computer to cast media content and certain apps to your TV, like Youtube.  (Technically that is not entirely accurate, but it’s a simpler way to understand the device so let’s go with it.)  Instead of a dedicated box with its own hardware components like the current $99 Apple TV, this implementation relies on hardware components of the mobile device you already have.

The Chromecast is limited in functionality because few apps are compatible with it.  Fortunately, with AirPlay Mirroring, a standard that ensures a game or app will project correctly to the TV, this isn’t as big of a problem with Apple.

You will need to download an Apple TV app to set-up the device — or better yet, Apple should bundle the app in an iOS update.  Once the iOS device (iPhone, iPad or iPod Touch) is connected to the TV, the dongle then automatically searches the device for all compatible media.  This includes games compliant with AirPlay and MFi, movies, music and apps.  Incompatible games and apps aren’t shown, so whatever content you play the experience will be great.

The interface can look just like the previous Apple TV but with the additional category of games.  It should also display the games, movies, music and apps you have locally stored on the iOS device that can play on the TV, in addition to all the streaming services like Netflix and Hulu that you’re already subscribed to.  Ideally, you won’t even have to log-in again.

Because the app interface is exactly like the TV interface, navigation should be simple and intuitive.

If you’re playing a game with Apple TV, accessing other functionality with the iOS device (like picking up a phone call) will pause the game.  This sounds clunky, but consider that playing games requires two hands, so if you’re not playing a game Apple TV does not need to run.  Moreover, technically, iOS devices may not even be able to handle multitasking with a memory-intensive game.  If watching a movie or listening to music on Apple TV however, you can use your iOS device to do other things while the movie or music plays on TV; multi-tasking with movies and music already works on Chromecast.

The controller can also fully navigate the Apple TV.  It connects with the iOS device via Bluetooth or can be plugged in via the Lightning port.  It will of course be MFi compliant, a standard Apple specified to ensure games work correctly with a controller.  There are actually a few 3rd party MFi controllers for iOS devices on the market already, and more will be on sale soon.  See one example below:

How cool would it be to play a Sonic game that you purchased for your iPhone…on your TV with a good gaming pad?  It would be awesome.

Even though third party controllers are available, Apple should still include a controller with Apple TV to ensure a good gaming experience out of the box.  It is not unlike including headphones with iPhone.

Now let’s talk cost.  According to IHS, an Xbox One controller costs $15 to make; this is a high quality controller, so let’s say Apple’s version will cost the same.  There’s speculation the Chromecast costs $30; assume we can use similar hardware to actually cast games via AirPlay Mirroring.  So in total, the new Apple TV would cost $45 to manufacture.  With a respectable 33% margin, Apple can sell the Apple TV direct for $60.  (Or more likely, $59.)

While the Apple TV does rely on an iOS device, consider there are over 800 million of them already.  Even if only a quarter of those have the Lightning port, that’s still a very large potential market.  The Playstation 3 only ever sold 80 million units worldwide.

If the user experience is good, $60 can be disruptive to console games — especially with iOS’ enormous library of games.  Asphalt 8, Infinity Blade 2 and Dead Trigger 2 look amazing on the iPhone 5S and the iPad Air, and there is a treasure trove of classic console games like Final Fantasy and Street Fighter that would work great with this Apple TV set-up.

With games like the above working on your TV for just $60 — the price of one console game! — in addition to all the usual streaming media options and a good game controller, many will have less reason to buy a $400 games console.

This new Apple TV would be a Day 1 purchase for me.