Nearly a dozen years after the introduction of the iPhone, Apple CEO Tim Cook took the stage in Cupertino, California, March 25, trumpeting a new era in which the first U.S. company to ever reach a trillion-dollar valuation would focus on services, not gadgets.
“For decades, Apple has been creating world-class hardware and worldclass software,” Cook said. “We’ve also been creating a world-class collection of world-class services. and that’s what today is all about.”
After announcing a Spotify-like service for newspapers and magazines that expands on its News app, a subscription streaming platform for video games and a new credit-card business, Apple got to the reveal the world had been waiting for — the introduction of a newly reinvented and significantly expanded streaming video platform that would rival those of Netflix and Amazon.
Instead of the typical hushed awe in the audience, though, what followed was a lot of head-scratching.
Sure, the star power was out in force at the Steve Jobs Theater, with Steven Spielberg, Jennifer Aniston, Reese Witherspoon, Steve Carell and Oprah Winfrey among the big names touting original series projects for Apple’s new subscription VOD service, Apple TV+.
But like the name, emerging months after the unveiling of the also-soon-to-launch Disney+, the celebrity appearances were not all that surprising. Ditto Apple’s larger TV strategy, Apple TV Channels, which seems derivative of the Amazon Channels model of aggregating subscription TV services into one centralized hub.
Apple has chased for the better part of the last decade the dying declaration of company co-founder Steve Jobs — to truly reinvent the TV-watching experience. But Apple’s big reveal fell flat for many observers.
Amidst all the fanfare, here are five things to consider as the streaming ecosystem evolves.
1 We’ve seen this movie before. In 2011, in the last month of his life, Steve Jobs told biographer Walter Isaacson that he had finally “cracked” the problem of reinventing the consumer TV experience.
Nearly eight years later, Apple finally had something to present. But it’s nothing that wasn’t already cracked.
The Apple TV app, which has been newly expanded beyond Apple’s mobile and OTT devices, and is the hub for the company’s broader video ambitions, is yet another digital TV ecosystem, designed to consolidate all of the user’s video services, channels and shows into one place, and surface the most relevant content using artificial intelligence.
And Apple has a lot of catching up to do here. According to Strategy Analytics, the Apple TV app currently reaches around 175 million addressable TV screens worldwide compared to around 900 million for Netflix.
The newly announced Apple TV Channels, meanwhile, is a subscription-TV aggregation platform, very similar to Amazon Channels, whereby the customer cobbles together an a la carte selection of services — HBO Go, Hulu, Amazon Prime Video and CBS All Access, just to name a few — and watches and pays for these services through the Apple TV app.
Notably, this aggregation strategy has proliferated across the video business, with Roku and Sling TV now practicing various iterations.
Apple notably includes linear pay TV services including Charter Spectrum, DirecTV and Optimum in the mix, as well as virtual pay TV services like Sony PlayStation Vue and fuboTV. But unlike Amazon Channels, Apple TV Channels doesn’t include the most popular streaming service of them all, Netflix.
Finally, Apple TV+ will be home to the company’s original series. With the first payload arriving this fall, Apple’s star-laden presentation was largely devoid of trailers — it was hard to tell if there was something actually interesting to watch here. There’s also the little issue of price: Apple didn’t say how much Apple TV+ will cost, or whether the SVOD service will also have non-original shows from third-party suppliers.
Here’s what we do know: Apple is debuting another monthly video bill, right as The Walt Disney Co. and WarnerMedia also crowd into a consumer market that’s already deemed saturated with subscription TV services.
2 The announcement was a yawner for competitors. With iPhone sales down 15% in the first quarter, there is a fear that the product may have run its course. In a research note, BTIG technology analyst Walt Piecyk predicted iPhone sales would decline 22% in Q2, its largest drop since June 2016 when it fell 23%, two years after the so-called iPhone 6 super cycle.
Enter the new revenue growth savior — streaming video.
Apple TV will become your digital cable company, as users can buy traditional pay TV packages from Charter and Optimum and streaming services like Hulu, Amazon Prime and CBS All Access through the Apple TV app. Apple TV Plus becomes low-rent Netflix, offering a handful of originals at an undetermined monthly price.
Morgan Stanley media analyst Ben Swinburne, who had nice things to say in a note to clients about the Apple TV Event, still couldn’t hide the fact that some people may have expected more from a company that prides itself on seeing things other people can’t.
“In aggregate, we view these as incremental rather than disruptive to the broader landscape,” Swinburne wrote in a research note to clients.
The launch adheres to one Jobsian TV premise — it does appear to make it easier to navigate between different apps and the iTunes library. And Apple CEO Tim Cook repeatedly drove home a privacy mantra, assuring the audience that Apple won’t track what its customers read, see or hear, meaning it caters to those averse to data mining.
Swinburne added this all represents an incremental but not a “step function competitive threat” to Amazon Channels, Roku or even cable operators like Comcast that already have been integrating Netflix and other streaming services to their set-tops. And in trying to be hardware, aggregator and publisher at once, the Apple TV enhancements may give the company a place in all three segments, but “it is unclear if it is a leadership position in any at this point,” Swinburne wrote.
3 Big stars may not be enough. Apple TV+ will have more than 30 original shows from heavy-hitting Hollywood names — Steven Spielberg, J.J. Abrams, Oprah, Sesame Street, et al. — but star power alone might not be enough to combat the sheer volume of content pouring from its competitors. Netflix executives have said the company was on track to unveil 700 original programs in 2018, and there is no guarantee that any of Apple TV+’s shows will connect with viewers.
Spielberg is resurrecting Amazing Stories, an anthology series based on the nearly 100-year-old pulp comics that he first tried with NBC in the 1980s. Reese Witherspoon has joined forces with Jennifer Aniston and Steve Carell for a fictional inside look at morning news programs called The Morning Show. Oprah plans to work on two new documentaries and expand her popular Oprah’s Book Club via the service and J.J. Abrams and musician Sara Bareilles have teamed up to produce a romantic comedy, Little Voice. Big Bird helped introduce a new kids show, a Sesame Street spinoff titled Helpsters.
There is no indication that Apple TV+ will stop at 30 originals, and it has an experienced team of programmers, including veterans Jamie Erlicht and Zack Van Amburg, whom Apple hired from Sony Pictures in 2017 to oversee all aspects of content. “We don’t think Apple will face huge challenges in hiring even more executives and talent,” Piecyk wrote, adding that former HBO chairman and CEO Richard Plepler, “seems like an ideal fit.”
Still, according to Business Insider, a Morgan Stanley investor note said that “Apple TV+ may be in the red for years before it hits a critical mass of users to make it sustainable on its own merits.”
Apple is said to be setting aside about $2 billion for Apple TV+, but even that may not be enough. Netflix spent about $13 billion on content in 2018. Amazon has reportedly earmarked about $5 billion for content to fuel its Prime Video service and has emerged as a partner with the New York Yankees on the $3.5 billion purchase of regional sports network YES Network from Fox.
“What other streaming channels have found is that there is a certain level of content tonnage needed to build a product that scales beyond a few million subscribers in the U.S. and that volume — as measured by hours of quality content — is needed,” Swinburne wrote.
Apple certainly has the money, with about $130 billion in net cash and $65 billion in annual free cash flow, and it already spends about $16 billion per year on research and development. Does it have the will to spend more?
4 Apple TV is an app — not an actual TV. Apple’s strategy in regard to content has always been underpinned by hardware sales. It got into the digital music business nearly 20 years ago to build a market for the iPod — a business that transitioned nicely to the iPhone, which became a global consumer phenomenon when it was launched in 2007.
With the expansion of the Apple TV app to Samsung, LG, Sony, and Vizio smart TVs, as well as Roku and Amazon Fire connected TV devices, Apple is vastly expanding its market for video services.
But no longer are the iPhone, iPad mobile devices, and the Apple TV connected streaming box, the exclusive home to the Apple TV app.
The Apple TV service, which controls only around 15% of the connected TV market compared to more than 50% combined for Roku and Amazon Fire, may be most affected.
With the Apple TV 4K pricing starting at $180 — compared to $30 for a base Roku model — it’s hard to imagine that Apple’s connected TV device will be anything for than a niche product going forward.
The move to open up the Apple TV environment to the smart TV market does seem timely. The TV app that comes with a buyer’s new flat screen has the “pole position” to the home relative to all the competing services relegated to the app store.
5 The most innovative news wasn’t video. While the streaming announcements commanded all the attention, the more innovative strategies were perhaps found in the other services Apple announced last week. The $9.99 a month Apple News+ adds a selection of “curated” content from more than 300 magazines, as well as some popular subscription digital platforms like Vulture, to a service that had been confined largely to newspapers.
Critics immediately pointed out that within the smorgasbord, subscribers only got a smidgen of available content from platforms like The Wall Street Journal, and they were still better off subscribing directly to these publications. Perhaps they’re missing the big picture here. Spotify and Pandora have, after all, succeeded nicely by offering users a curated selection of songs, not albums.
With Apple Arcade, Apple is getting into the market for Netflixstyle delivery of video games. It’s not beating competitors like Google, but it’s least getting a platforms to the App Store before all the market share is taken away.
Finally, by inking sweet deals with Goldman Sachs and Mastercard, the Apple Card seems likely to be successful simply because there’s no better credit-card deal on the market anywhere. Indeed, the enticements of no annual fees and no late fees — not to mention a fancy laser-etched titanium card that augments a digital version that rests within the Apple Wallet — is bolstered by ample cash rewards. This includes bonus rewards for purchases made at the Apple Store.
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