What Will It Take For Apple To Succeed In The Streaming Video Business?

by Trefis Team
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Apple (NASDAQ:AAPL) is likely to unveil its new video streaming service at an event held in March, according to a report from Bloomberg. The new offering, which could launch sometime in the summer, is likely to be Apple’s most high-profile services launch since Apple Music was introduced in 2015, and comes at a time when Apple is counting on digital services to drive growth with sales of its major hardware products cooling off. However, Apple is entering a crowded market, with multiple players ranging from tech giants to media companies competing for share. In this note, we take a look at what it would take for Apple to succeed in the market.

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Apple’s Has The Cash And Has Been Amassing Talent. Will A Hit Show Follow? 

While Apple has a large installed base of devices and strong tech backing to drive its streaming foray, the quality of content will ultimately decide the uptake of the service, and early examples of Apple’s original TV content have been relatively underwhelming. The company’s Carpool Karaoke series was critically panned, while its Planet of the Apps show was also relatively poorly received. However, Apple could come up with a hit. It has shows lined up with big Hollywood players including Reese Witherspoon and Jennifer Aniston, with an executive team of highly-regarded Hollywood veterans with deep industry relationships overseeing its streaming plans. The company is apparently looking to create a niche for itself, sticking to family-oriented fare, focusing on high-quality shows with a broad appeal, unlike many other streaming players which offer edgier content.

The company apparently earmarked about $1 billion for content spending in 2018. While this is well below the estimated $12 billion that Netflix spent in 2018, Apple could scale this up significantly considering its massive cash holding. While original content could make up a meaningful part of the titles, we expect Apple to tap into programming from other media players as well. For instance, there is a possibility that Apple could buy libraries of content from smaller studios such as MGM or Lionsgate.

What Revenue Model Will Apple Follow? 

Although it’s not clear what business model Apple will follow for the streaming offering,  it’s likely that the company will make it a paid service with a monthly subscription, potentially offering an initial free trial, as it did with Apple Music. We expect that the service will be largely platform-agnostic, working with smartphones and streaming hardware from various platforms, as it would broaden its reach – although we expect that Apple users will be the biggest initial drivers of the service. To be sure, it could take a few years for the service to scale up and gain significant traction. If we assume that Apple prices the video services at $7.50 per month (Netflix HD starts at $13 and Hulu’s Ad supported tier now starts at $6), while garnering about 50 million subscribers by 2022 (less than 5% of its total device installed base), the service could add about $4.5 billion to the company’s top line. There is also a possibility that Apple could eventually bundle multiple services offerings (music, video streaming, and the rumored News subscription service) into a monthly package, along the lines of Amazon Prime, to improve customer loyalty.

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