Apple Inc. (AAPL, Financial) unveiled its new video subscription services offerings that it hopes will help replace diminishing iPhone sales with other stable sources of revenue. The much-anticipated presentation was made at the company's headquarters and the centerpiece of the event was the rollout of its foray into the original content market. Apple will offer its original content service, called TV+, through its existing Apple TV app beginning next fall. Apple CEO Tim Cook views the new video services as an extension of Apple’s existing hardware and software products.
The company plans to expand its market share for original programming by making its Apple TV app compatible with non-Apple hardware. But for all the hype endemic to any major “product” announcement, Apple had little to show investors and consumers in terms of actual original content available, how it intends to compete with Netflix (NFLX, Financial) and what price the market will bear for its digital video service — a rather key omission, given the already competitive and overcrowded direct-to-consumer streaming services market.
Indeed, many would be forgiven for asking: where’s the programming? Trotting out Hollywood staples Oprah Winfrey, Jennifer Aniston, Reese Witherspoon and Steven Spielberg isn’t a substitute for a vast array of original content offerings, which Apple, at present, lacks. Given the company’s pretense at being a major player in the business, sufficient to compete with digital streaming giant, Netflix, it is simply astounding it has spent only $1 billion toward producing original content; Netflix committed $12 billion for new content offerings in 2018 and its efforts are immediately visible to any of its subscribers.
Some analysts contend Apple’s switch to subscription services will eventually be able to supplant its reliance on iPhone revenue because of its base of pre-existing users who are already wedded to the tech giant's ecosystem. This reasoning is rather specious. When it comes to entertainment subscription services, it matters not one whit the extent of Apple’s existing distribution channel of loyal users; what matters is the quality and depth of original content. Apple’s users also have easy access to Amazon’s (AMZN) Prime network as well as Netflix; all three competitors can be accessed through consumers iPhones. In the digital streaming market, content is king, not the breadth of a company’s user base.
Many analysts believe Apple can transfer its success as a pioneer in digital music toward becoming a player in the streaming market. However, the two markets are vastly different. Apple was the company that disrupted the entire music industry; at present, it is merely a Johnny-come-lately, bit player in the original content streaming market, where Netflix has been the undisputed king of the hill.
At present, given the number of legacy media and tech companies looking to compete in providing original content, costs for producing original entertainment has skyrocketed: companies have now been forced to outbid each other in terms of acquiring established and experienced traditional Hollywood entertainment producers and directors, as well as A-list stars. The original content distribution market is becoming congested. According to research from Walt Disney Co.’s (DIS, Financial) FX Network, there were 496 original content series in 2018. Netflix and Amazon are the drivers responsible for this surge in production.
Apple is going to need all the help it can get to establish a toehold. Yet, investors will have to search hard for any substantive differences between what Apple plans to offer and that which is currently available from Netflix, Disney and AT&T's (T, Financial) Time Warner.
With its planned multitiered and diverse offerings and cross-market capabilities, Apple is falling prey to the same potential pitfall as AT&T’s streaming video offerings as well as Disney’s subscription services. There are too many choices within each company and far too many disjointed moving parts: in addition to its regular Apple TV, the company will be offering TV+, its version of original content programming.
Late entrants to the streaming market are offering packages that are far too complex for consumers to understand what is being offered and what particular aspects of one streaming service distinguish it from another. Netflix is a simple entertainment concept for consumers to understand exactly what content is available and what original productions are in the pipeline. Apple may discover that consumers prefer the ease of one-stop shopping with Netflix.
Apple’s announcement indicates it currently is not equal to the task at hand for becoming a viable and dominant player in the video streaming entertainment sector. Netflix now has a commanding, and perhaps insurmountable, lead in the original content direct-to-consumer market. Apple has been slow out of the gate and its pedestrian presentation for entry into an already crowded video subscription business most assuredly did not leave Netflix quaking in its boots.
Disclosure: I have no positions in any of the securities referenced in this article.
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