At its recent key note event, Apple officially announced its entrance into the video streaming service competition. The biggest surprise, though, was that the service, called Apple TV+, will be priced cheaper than most popular streaming platforms like Netflix, Disney+, Amazon Prime Video, Hulu, and HBO. The reveal sent shockwaves through the media industry and even caused a few rivals’ stock prices to instantly fall.
Apple TV+ is set to launch November 1, 2019 in over 100 countries and will be priced at $4.99 a month, undercutting many of its rivals. Additionally, if you buy a new Phone, iPad or Mac, you can get TV+ free for a year. Being that this is just a net $60 perk, it won’t be much of an incentive to drop thousands on a new Apple product, but this will definitely help ramp up TV+’s subscriber count in the first year, a very important success metric.
Unlike its competitors, Apple can afford to price TV+ at a lower cost because streaming isn’t its main revenue stream. The company generates a majority of its profits from hardware sales, raking in over $46 billion in sales revenue from iPhones, iPads, Mac Books just in Q2 2019. Apple can afford to break even or even take a slight loss on TV+, as long as the service helps boost sales of its products. From a competitive standpoint, the more you control, the more well off you are. Apple will own the content, the distribution, and the products consumers stream on. For the competition who are just purely content players, their income comes from ads and subscription fees. Funny enough, Apple gets a percentage of the fees for every download of these streaming apps. Vicious.
Why is Apple getting into the content when it has no established history in it. Pure diversification. The company’s long time golden goose, the iPhone, has seen sales decline by 20% globally, a concerning sign for a company that, at one point, seemed invincible. As mentioned before, TV+ could help drive attention and sales across all products. By creating an entire Apple ecosystem (this is what Amazon is doing), you can “trap” consumers and feed them Apple products and services. If a customer watches TV+ on Apple devices that they paid for with the Apple credit card, they could also sign up for additional third-party streaming apps, like Showtime, CBS All Access, and Starz, and the company would get a cut of the service fees. All this sounds reasonable, but what about the actual content?
The streaming TV space is highly competitive with an overwhelming amount of options for a consumer to choose from. Netflix is the most popular with 150 million global subscribers, followed by Amazon Prime Video at 100 million subs, and Hulu at 28 million subs. Disney just announced its new streaming service set to launch in November and there is already expectations that it will become one of the most popular apps available. However, a person can only watch so much content in a day, so all these players are battling for viewing time. This is where content is crucial. Netflix strategy is to offer a gluttonous buffet of things to watch, concentrating on quantity over quantity. Disney will have a leg up due to the proven quality of its movies and shows. HBO doesn’t have as nearly as much content, but what it puts out is always critically acclaimed. Ultimately, if the content isn’t there, nobody is going to subscribe.
“Our mission is to bring you the most compelling stories from the best minds in TV and film…”Tim cook, CEO, Apple
Apple is supposedly spending $6 billion to produce original content with 9 titles launching in November and with ultimately a total of 30 titles a few months after. In comparison to Netflix which spent $15 billion on content in 2019, Apple seems to be investing in quality versus quantity. They inked deals with some very big names like Steven Spielberg, Reese Witherspoon, Jennifer Aniston, Steve Carell, J.J. Abrams, and Oprah. But the company hasn’t stated if there was going to be non-original content available.
After the announcement of TV+, shares of Netflix, Roku, and Disney dipped, as shareholders felt that Apple could be a serious threat. Disney’s stock fell just 2.76% and Netflix dipped 3.25%, but Roku felt the hardest punch with shares falling 12.62%. Roku’s dramatic fall is rooted in the fact Apple is cutting into their main product, hardware. At the end of the day, Apple can push TV+ to its hundreds of millions of customers with a push of button, just like it did with its music streaming app, Apple Music. This helped catapult that business to the top of the market.