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Apple’s Hollywood moment draws intense interest and skepticism

Apple’s Hollywood moment draws intense interest and skepticism
CEO Tim Cook, shown in September, is expected to announce details of Apple's streaming service at an event Monday in Cupertino, Calif. (Karl Mondon / TNS)

Hey Siri, call Steven Spielberg.

Since Hollywood caught wind of Apple Inc.’s entertainment ambitions several years ago, filmmakers and studio executives have been wondering exactly how the iPhone maker will delve into the streaming video market — and whether it can dominate in the crowded and fast-growing arena.

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The tech giant has spent the last two years securing deals with show business royalty such as Spielberg, Oprah Winfrey and Reese Witherspoon to create a lineup of programming to compete with Netflix Inc., Amazon.com Inc. and Walt Disney Co.

Apple’s streaming plans have been cloaked in characteristic secrecy. The company is expected to finally provide answers Monday morning when Chief Executive Tim Cook takes the stage at the Steve Jobs Theater in Cupertino, Calif. There, he will pitch Apple’s new streaming video strategy to a crowd of celebrities and studio executives.

There is intense pressure on Apple to deliver.

Filmmakers, writers and producers have been hoping that Apple would become a big buyer of premium content, filling a gap in an industry that is experiencing a wave of consolidation and disruption. (Just this month, 20th Century Fox, one of the oldest movie and television studios, was taken over by Walt Disney Co. in a $71.3-billion deal driven by Disney’s desire to charge aggressively into streaming.)

But people familiar with the effort say Apple’s Hollywood foray has suffered from inevitable growing pains and exposed a culture clash between Silicon Valley and the legacy studio business. Some filmmakers have complained that the tech company’s cautious approach to content could hinder its ability to compete with the likes of Netflix. And while Apple is a clear leader when it comes to selling consumer products, entertainment production is a relatively new business for one of the world’s most valuable companies.

“There is a lot of catch-up, obviously,” said Kelli Richards, a former Apple executive who is now CEO of All Access Group, a digital music and entertainment industry consultancy. “They are just so far behind at this point with Netflix and Amazon.”

Apple, whose entertainment operations are building a growing presence in Culver City, brings deep pockets, an intensely loyal customer base and the credit card information of hundreds of millions of iPhone users. The company is expected to spend $1 billion to $2 billion a year on its original content efforts and has roughly two dozen shows in production or development.

Despite Apple’s reputation as a technology pioneer, many industry veterans and analysts remain skeptical of its move into original productions.

“Even if they’ve been an emperor of the consumer landscape, at least from the content perspective, they are on the outside looking in,” said Daniel Ives, a managing director of equity research for Wedbush Securities. “That’s not a position they are used to.”

Apple declined to comment or make its executives available for this story.

The content push comes as Apple is under pressure to find new ways to grow its business beyond its flagship iPhone, which represents more than 60% of its $265 billion in annual revenue. Sales of the device have been declining as smartphones have become more widely adopted. While Apple has introduced new products over the years, like the Apple Watch and wireless headset AirPods, both are considered accessories to the iPhone and none have eclipsed the smartphone’s sales. The company also faces challenges in a key market — China — as the U.S. and Chinese governments have clashed over tariffs.

Meanwhile, services, a category that includes Apple Music, have been a bright spot. Apple wants to grow its services business, run by Eddy Cue, to roughly $50 billion in revenue by 2020, compared with $37 billion in fiscal 2018.

Popular original series from Hollywood could accelerate growth. To that end, Apple in 2017 brought in former Sony TV executives Jamie Erlicht and Zack Van Amburg to guide the original content effort, reporting to Cue.

But Apple is also a late entrant in the streaming wars. Los Gatos, Calif.-based Netflix, which has about 140 million paid subscribers, will spend an estimated $15 billion on content this year. Hulu and Amazon also have aggressively expanded their entertainment offerings, while Disney and AT&T Inc.-owned WarnerMedia are ramping up their own streaming services to launch later this year.

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While Apple has a long history of being a distributor and seller of music, books and movies, it has had limited experience producing original video content. Apple previously barely dipped its toe into programming, with its “Carpool Karaoke” offshoot and the lackluster “Planet of the Apps.” And several years ago the company pitched studios a proposed online subscription TV service for users of its set-top boxes, but it faltered.

Some details and theories about Apple’s streaming plans have begun to emerge. Analysts have estimated the service could charge $8 to $15 a month, but Apple may initially offer its content for free for Apple device users.

Along with original shows, Apple is expected to offer subscriptions to other streamers through its own app, making it similar to Amazon’s Prime Video Channels platform, which allows users to sign up for premium channels like HBO, Starz and Showtime. (Netflix CEO Reed Hastings on Monday said it would not make its content available on the Apple service, citing competition.) Apple is also expected to launch a subscription service for news. Some analysts have predicted the company will bundle music, video and news into one subscription.

“The TV app becomes your home hub for everything you want to watch,” said BTIG analyst Rich Greenfield in a recent research note.

But the company’s trademark secrecy, which is typical when launching a new device such as an iPad or Apple Watch, has frustrated some partners, who are used to information flowing more freely between producers and distributors. Those involved in Apple shows haven’t been told when or how their productions are expected to debut.

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“The bar is so high,” said a prominent producer who requested anonymity to protect relationships. “At this point, people just want to know what it is.”

Some people familiar with Apple’s programming say the company is being overly cautious by avoiding programming with gratuitous violence, sex or anything that shows the nefarious side of technology. Rather than seek out boundary-pushing programs like Netflix’s “13 Reasons Why,” Cook is said to prefer family-friendly material that can be shown on screens in Apple retail stores without offending customers.

Apple’s methods and tastes have caused headaches for some shows. An expensive untitled drama about a morning TV show starring Steve Carell, Witherspoon and Jennifer Aniston suffered delays in preproduction. The showrunner was replaced over disagreements about the direction of the script, according to people familiar with the matter who were not authorized to comment.

Apple also replaced Bryan Fuller and Hart Hanson as producers of its upcoming reboot of Spielberg’s 1980s broadcast anthology series, “Amazing Stories.” The producers favored a darker version of the show, sources said.

People familiar with Apple’s operations said Cook and Cue take a hands-on approach to approving content and that Erlicht and Van Amburg — who at Sony shepherded such shows as “Breaking Bad ” — have less autonomy than traditional programming heads.

“There is micro-managing and an overemphasis on star power and the names behind things,” said one source who requested anonymity to speak to protect relationships.

Further, analysts have questioned how much video streaming will benefit Apple’s main business. While Amazon uses popular shows such as “The Marvelous Mrs. Maisel” to improve customer loyalty for Amazon Prime, and Netflix depends on shows like “Russian Doll” to entice subscribers, Apple’s use for content is less clear. Goldman Sachs analyst Rod Hall estimated in a recent research report that a new video streaming service will only have a slight effect on Apple’s profits.

“While new video and/or news products might help to increase iPhone stickiness, they seem unlikely to make much of an impact on Apple’s bottom line,” Hall wrote.

Apple could supercharge its efforts by buying a smaller studio, like Lionsgate, Metro-Goldwyn-Mayer Studios or A24. For now, though, Apple appears determined to grow its content business internally.

Gene Munster, a managing partner with venture capital firm Loup Ventures, says he thinks Apple’s gradual approach could work, especially if it has good content.

Apple has a long history of dominating product categories by not being the first to come up with the idea, but being the best at creating and marketing those products. Already, Apple has been able to generate more than 50 million paid subscribers to its streaming music platform, Apple Music, despite joining the category in 2015, seven years after rival Spotify entered the market.

Among the most anticipated shows in the works is a J.J. Abrams-produced true-story drama starring Jennifer Garner. There’s also Golden State Warriors star Kevin Durant’s “Swagger” and a series featuring Hailee Steinfeld as the poet Emily Dickinson. In a high-stakes effort, the company is also working with Skydance Media on an adaptation of Isaac Asimov’s “Foundation” saga, which is expected to be Apple’s gamble on a “Game of Thrones”-esque series. Also underway is a thriller series with M. Night Shyamalan.

Apple has landed a new animated series from the Peanuts cartoon franchise as well, and a multiyear agreement for several films from A24, the New York studio behind the Academy Award-winning movie, “Moonlight.”

“I think people will check it out,” Munster said of Apple’s new service. “It’s a hit-driven business .… You’re never too late to be an entrant.”

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