Apple poised to enter the streaming service arms race
San Francisco — Apple looks to begin a fresh reinvention on Monday as it rolls out Hollywood stars for its new streaming television service, part of a broad shift of direction for the California technology giant.
Having seen a pullback in the once-sizzling smartphone market, Apple will seek to diversify by getting deeper into the television business and with the likely launch of a subscription news service.
The iPhone maker, which has officially been mum on its plans, is expected to bring in Jennifer Aniston, Reese Witherspoon and Star Wars director JJ Abrams to a launch event at its Silicon Valley headquarters.
“It seems fairly obvious they are launching a new video service,” said Techsponential technology market analyst Avi Greengart.
Big questions to be answered include how compelling content will be; how much the service will cost; and what makes it unique in an increasingly crowded streaming television market. “If the content is compelling enough, people will subscribe,” Greengart said. “This is not new, but it is hard to do well.”
The event comes with Apple under pressure to diversify its revenues amid sluggish growth in smartphones, which have delivered the bulk of Apple’s profits for the past decade. While iPhone sales remain enviable, growth has stalled. Meanwhile, the money Apple takes in from selling services or digital content has climbed.
The Cupertino-based company recently stopped disclosing iPhone sales numbers with quarterly earnings releases and has taken to stressing the money-making potential of selling services, apps, music, movies and more to the millions of people using its devices.
The new service will be “a pivotal step for Cupertino in further driving its services flywheel and entering the ‘streaming content arms race’ which is clearly starting to take form”, said Daniel Ives of Wedbush Securities in a research note. Ives believes Apple’s services business will be “worth roughly $400bn on a standalone basis”.
In streaming, Apple is taking on not just Netflix and Amazon but some of the biggest names in the media-entertainment world. Walt Disney has announced its new streaming service, Disney+, will launch this year, as will another from WarnerMedia, the newly acquired media-entertainment division of AT&T.
The new entrants, with more expected, could launch a formidable challenge to Netflix, which has about 140-million paid subscribers in 190 markets, and to other services such as Amazon and Hulu. These rivals are coming into a segment that has been transformed by the spectacular growth of Netflix and a growing movement by consumers to on-demand television delivered over internet platforms.
Subscriptions to online video services globally climbed 27% last year to 613-million, eclipsing cable television subscriptions for the first time, according to the Motion Picture Association of America.
Apple is also widely believed to be set to launch a subscription news service described as a “Netflix for news” with partners in the media world. A New York Times report said that the Wall Street Journal would be part of the Apple service, which is likely to cost $10 a month, but that many news organisations, including the prestigious New York daily and the Washington Post, were balking at Apple’s demand for a 50% slice of revenue. According to Bloomberg News, the website Vox would also be part of the Apple News effort.
The move comes amid deepening woes for the news sector, which is facing a difficult transition to the digital world, where few people want to pay for information and advertising is problematic.
Along with investing some of its considerable war chest in original shows, Apple could try to spice up its streaming service by adding in benefits such as access to its music library or online storage capacity at iCloud.
Amazon uses that kind of tactic, making its video service available as part of Prime subscriptions, which include free shipping on purchases from the e-commerce colossus and loyalty programme discounts at its Whole Foods grocery shops.
For its video service, Apple may be investing as much as $2bn a year in original content, says BTIG Research analyst Richard Greenfield, but that will be less than Netflix and some others. A big question is whether Apple will offer its content free for its device owners and how it will work with third-party television services, according to Greenfield.
Laura Martin, an analyst with the research firm Needham & Co, said Apple’s prospects are strong as it shifts from being a “product” company to an “ecosystem”. She said in a research note Apple can count on 900-million people with at least one Apple device to feed this ecosystem of services, which includes Apple Pay, music and other digital content.
“Apple’s business model is essentially a subscription business model,” Martin said. “Apple's access to more than 900-million unique users globally, most of them among the wealthiest individuals in the world, plus its culture of creating hardware and services with proven commercial appeal makes it well positioned.”