Apple TV+ is here. Can it compete with Netflix and Disney?
Apple is known for its billboards and television ads that boast the caliber of its iPhone cameras, but these days, the company is hawking something new — TV shows that launch Friday on its streaming service, Apple TV+.
The Cupertino, Calif.-based tech giant has gone to great lengths to promote the new streaming app, considered its biggest service debut since Apple Music in 2015. The company is betting that its Hollywood foray will reduce its dependence on flagging iPhone sales.
Television and digital ads touting series including Jennifer Aniston and Reese Witherspoon’s newsroom drama “The Morning Show” and Ronald D. Moore’s space epic “For All Mankind” have cost Apple at least $20 million since September, according to an estimate by ad analytics firm MediaRadar. Apple has also posted billboards in L.A. featuring new shows including the coming-of-age drama “Dickinson,” starring Hailee Steinfeld as the famed poet.
On Monday, Aniston and Witherspoon displayed their morning news hosting chops on ABC’s “Good Morning America” before taking questions from “GMA” anchors Robin Roberts and George Stephanopoulos about their collaboration on the program.
In perhaps its boldest promotional gambit, Apple is literally giving the service away to customers. People who purchase an Apple device are eligible for a free yearlong subscription to Apple TV+, which will normally cost about $5 a month. Students who subscribe to streaming music service Apple Music for $4.99 a month will also get access to Apple TV+ included.
The freebies, analysts said, represent an aggressive move by Apple to take on Netflix, Walt Disney Co., AT&T’s WarnerMedia and others in the streaming video market, where competition is getting increasingly fierce.
Apple TV+ is launching less than two weeks before Disney unveils its much-anticipated Disney+ service, powered by popular entertainment brands including “Star Wars,” Marvel and Pixar. At a major investor event at the Warner Bros. studio lot in Burbank, WarnerMedia on Tuesday detailed plans for its HBO Max service, which will debut in May.
“They’re going pretty aggressively on the promotional side just to get people in, and they’re hoping a year from now you’ll continue to sign up,” said Evan Niu, senior technology specialist at the Motley Fool. “Apple’s very aware that they’re coming from behind in streaming video, compared to Netflix and Disney.”
Though it’s a newcomer to Hollywood, Apple enjoys serious advantages in the entertainment business, including ample cash reserves and a loyal network of more than 900 million mobile phone users. Apple TV+ is going after potential customers with a low price of $4.99 a month, which is less than the $6.99-a-month Disney will charge for Disney+ and the $12.99 a month Netflix charges for its most popular plan.
But Apple also faces daunting challenges, including mixed early reviews for its shows, an absence of popular library content and a minimal track record producing shows.
“The Morning Show” and “See,” a sci-fi epic starring “Game of Thrones” actor Jason Momoa, have received uneven reviews so far. And rivals have spent billions not only to create original content but also to lock down the rights to such popular oldies as “Friends,” “Seinfeld” and “The Office.”
Apple will launch with nine programs, led by “The Morning Show,” for which Apple paid more than $200 million for two seasons. ,
Its programming strategy is led by veteran TV executives Zack Van Amburg and Jamie Erlicht, who joined from Sony Pictures Television two years ago.
The executives say they are focused on high-quality original content. Apple is expected to initially spend $1 billion to $2 billion annually on its original content efforts, a fraction of the $15 billion Netflix is projected to spend on content this year, but similar to Disney’s programming investment for streaming. The Burbank entertainment giant expects to spend more than $1 billion on original content in 2020, increasing to about $2.5 billion in 2024.
“The stage is set for a truly exciting debut,” Apple Chief Executive Tim Cook said about Apple TV+ in a call with investors. “It’s a gift to our users, and from a business point of view, we’re really proud of the content.”
The company on Wednesday reported revenue of $64 billion in its fourth quarter, up 2% from a year ago, due to an increase in sales of iPads, wearables and services such as Apple Music. Net income declined about 3% to nearly $13.7 billion, compared to a year ago.
Apple shares were virtually flat Wednesday, falling 3 cents to $243.26. The stock’s value has increased more than 50% so far this year, according to Factset.
Like other tech companies that have waded into Hollywood, including Facebook and Google’s YouTube, Apple has experienced some struggles. Apple’s growing pains in the content business were on display last year, when the company frustrated some creatives by asking them to edit shows to become more family friendly, according to people familiar with the matter. Apple in September scrapped a dark Richard Gere drama, titled “Bastards,” over concerns about the show’s depiction of vigilante justice, according to the Hollywood Reporter.
“No one says the best movies come from Apple today,” said Todd Krizelman, chief executive of MediaRadar. “They have a real deficiency in terms of changing perception that they are a place where you should go to watch your content.”
Nonetheless, many analysts are expecting impressive results from Apple TV+, noting the company’s vast mobile network and its avid fan base.
Morgan Stanley analyst Katy Huberty, in a recent research report, estimated that Apple TV+ could attract 136 million subscribers by 2025, representing 11% of Apple’s user base. At that level, the service would generate nearly $9 billion in annual revenue. By the end of fiscal 2020, Huberty projected Apple TV+ will have nearly 11 million paid subscribers, as well as 23 million people who redeem the free trial offer, giving it a big running start.
Huberty, who has a buy rating on Apple’s stock, wrote that Apple’s pricing and bundling strategy will be key to its early success. An estimated 250 million Apple devices will be sold in the next fiscal year, including Apple TVs, iPod Touches, iPads, iPhones and Macs. They will come with the option to receive the service for free.
“This aggressive approach came as a surprise to the market and makes the service a viable ... competitor,” Huberty wrote in the Oct. 22 report. “The key questions from here are: How big can TV+ get, and how will it impact the Apple financial model?”
Apple customer loyalty will also be a major factor, as it was with Apple Music, said Wedbush Securities analyst Daniel Ives. Wedbush, which has an “outperform” rating on Apple stock, predicts Apple TV+ will grow to 104 million subscribers by 2023, despite the initial dearth of content.
“Apple recognizes it’s now or never in terms of jumping into the deep end of the pool with streaming,” Ives said.
The streaming service is part of a broader revamp of Apple’s approach to entertainment. The company this year began phasing out iTunes in favor of its Apple Music and Apple TV apps. Earlier this year, Apple launched a new version of its TV app, which centralized subscriptions to Hulu, Amazon, HBO and other streaming services into a streaming hub for consumers on Apple devices. Netflix is not a partner on Apple TV’s app.
Apple’s services business, which includes the new Apple Card, Apple Music and Apple News+, is expected to exceed $50 billion in sales by 2020, hitting the goal set by Cook.
Kelli Richards, a former Apple executive who is now chief executive of digital music and entertainment industry consultancy the All Access Group, said Apple’s main goal is not to become the next Netflix, but rather to draw more people to use Apple devices and stay in its software ecosystem.
That means Apple’s success may be less dependent on the quantity of its shows, compared to Disney and Netflix.
“They live or die with the content and their business models,” Richards said of Apple’s rivals. “For Apple, this is one more spoke on the wheel with their ecosystem.”
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