Apple (AAPL) is all set to launch Apple TV+ with a bang, and it’s leaving no stone unturned. The company is collaborating with third-party platforms to expand the subscriber base for Apple TV+. It’s also spending massively and has already crossed its planned budget for original content.
Efforts to expand subscriber base
Apple is undoubtedly banking on its ecosystem of 1.3 billion iOS users to justify this pricing. However, it’s also aggressively pushing for the expansion of its subscriber base. Apple has gone a step further and made the services available on third-party platforms as well. Ahead of the Apple TV+ launch, the Apple TV app is launching on Roku (ROKU) devices starting on October 15. Now Roku users will also be able to access Apple TV+ starting on November 1. This is a smart move given the looming competitive pressure from Netflix (NFLX) and Disney+ (DIS).
Fateha Begum, the principal research analyst at IHS, said, “The company would need to widen its device distribution to compete with OTT players that are now available nearly universally.” Begum added, “By opening up to other platforms, Apple TV+ will see its addressable base increase by 24%, to 87 million U.S. households.”
The terms of Apple’s deal with Roku aren’t clear, so it’s difficult to understand whether Roku plans to take a portion of the subscription revenue earned on its platform.
Apple is also offering three months of free Apple TV+ streaming to Emmy Magazine subscribers. The special offer lasts for seven days. After the trial period, the plan will automatically renew at the standard monthly price of $4.99.
Apple TV+ to debut with high-profile original content
Apple had initially planned to invest $1 billion in original programming. However, reports indicate that its budget crossed $6 billion this summer. Its flagship drama, The Morning Show, starring Jennifer Aniston and Reese Witherspoon, alone commands a budget of $300 million for two seasons. The Hollywood Reporter indicates that Apple has already spent $240 million on another show, See. Apple has high expectations for these shows. Vice presidents Jamie Erlicht and Zack van Amburg believe that See could be as epic as Game of Thrones.
In comparison, Netflix’s (NFLX) original content and licensing budget is $15 billion for 2019.
Several shows such as Dickinson, Little America, Home Before Dark, and For All Mankind already have the go-ahead for second seasons. All these shows will debut with the launch of Apple TV+ on November 1. However, Spielberg’s reboot of Amazing Stories won’t be one of the launch shows, as it’s been delayed due to creative differences.
Apple has been heavily involved in content creation, which has also caused some issues. The company is ensuring that all its shows are in line with Apple’s brand image. A report by BuzzFeed News late on October 11 indicated that in 2018, Apple told developers of original Apple TV+ shows to avoid content plans that could depict China critically.
Last week, Academy Award–winning director Alfonso Cuarón signed a deal to develop new shows for Apple TV+. This was a significant victory for Apple over its competitors, who were also in the bidding war to rope in the director.
Apple TV+ to be a crucial revenue driver for Services
If Apple TV+ is successful, it will become one of the key revenue drivers for Apple’s Services segment. In 2016, Tim Cook announced his ambitious plan to double the company’s Services revenue to about $50 billion by 2020. Daniel Ives of Wedbush estimates that Apple could win 100 million TV+ subscribers by 2023. He predicts that the streaming service will contribute $7 billion–$10 billion in revenue by 2023. This estimate implies that Apple TV+ will be responsible for about 15%–20% of the company’s Services segment revenue.
A challenging road ahead
While Apple is making all efforts to deepen its penetration in US households, IHS analyst Begum thinks it has a long way to go. There are 124 million US households, and Netflix already has access to 95% of them, while Disney+ can reach 92% of them.
Another analysis by Adam Epstein in Quartz revealed that original shows can’t win the entire battle for Apple TV+. Apple’s lack of content licensing and its relatively narrow content library could be severe growth impediments.
Apple is a cash-rich company, so its lavish spending on Apple TV+ is understandable. At the end of the third quarter of fiscal 2019, Apple had $210.6 billion in cash. But what about its Apple TV+ pricing strategy? Is a subscription cost of $4.99 per month sustainable considering the budget of the shows it’s producing? Goldman Sachs has already expressed its skepticism about the platform’s pricing.
We’re interested to know whether Apple plans to raise the initial subscription fee in the future. Apple also needs to strategize well and look beyond just the existing iOS ecosystem to expand its subscriber base.