Apple's TV Goal Becomes Clear: Sell More iPhones

Apple - Sept 10 - Screen Shot TV and Cook -H 2019

Everything about Apple’s foray into entertainment has been big, from the anticipation that mounted after it tapped veteran studio executives to oversee the effort to the boldfaced names it lured for its early slate of programming. But when the iPhone maker unveiled the launch plan for its TV+ subscription video service Sept. 10, it signaled that its Hollywood ambitions may not be as big as its need to sell more devices.

Apple CEO Tim Cook took the stage at the company’s fall product event, one that historically focuses on new iPhone models, to reveal that its long-gestating TV+ app will be available Nov. 1 for an industry-low $5 per month. That’s a third of HBO’s $15 streaming price, far less than Netflix’s ($13) and Hulu’s ($12) standard ad-free costs and below the $7 Disney is charging for its upcoming Disney+ service. 

And Cook expects that many people won’t pay anything for the service, at least not at first. Apple will give away a year of TV+ for free to anyone who buys a qualifying device, including an iPhone, Apple TV or Mac. That pricing plan indicates that Apple sees the slate of originals it has assembled from the likes of Steven Spielberg, J.J. Abrams, Reese Witherspoon and Oprah Winfrey as first and foremost an added perk for loyal Apple users.

It’s a strategy that media analyst Rich Greenfield, a partner at research firm LightShed, sees as similar to that of Amazon’s Prime Video, which has bet that John Krasinski as Jack Ryan will entice people to sign up for free two-day shipping via its Prime service. And like Amazon, Apple hopes to sell subscriptions to other video services through its interface. 

“All of these companies are trying to keep you in their ecosystem for as much time as possible,” says Greenfield, who estimates that some 200 million Apple device owners will have the ability to try out TV+ when it launches Nov. 1 in 100 countries. “If Apple can get people spending hours a week watching its content, they’re going to be more likely to buy its devices."

Physical products have long been Apple’s bread and butter, and though the company has seen slower iPhone sales as people hold onto their devices longer, it still earned nearly $26 billion in revenue from the division during the most recent quarter. Services, meanwhile, brought in less than half that, just under $11.5 billion, during the same period. It’s no wonder that shares of Roku, an Apple competitor in the hardware market, took a hit when Apple announced its pricing plan. 

Still, Apple has been aggressive about growing its services business, which houses software and subscriptions like Apple Music, Apple Pay and iCloud, as it seeks to hit $50 billion in annual revenue by 2020. This year alone, the company will launch three new subscription offerings, including News+ for news and magazine content, the forthcoming TV+ and gaming-centric Arcade. Offering exclusive or discounted content through these subscriptions is seen as one way to keep people buying more Apple products.   

Because entertainment is not Apple’s sole priority, it isn’t competing head-to-head with Netflix, though it will certainly go up against the streaming behemoth and other upstarts (see WarnerMedia’s HBO Max, Disney+ and Viacom’s recently unveiled BET+) for a share of people’s attention and access to their credit card information. 

Despite its low price — which includes access for up to six family members — Apple’s biggest challenge may be in convincing users that it has enough content to justify a subscription, even if the first year is free. While the iPhone maker has been competitive, shelling out billions for originals from top producers and casting them with a roster of A-listers, TV insiders say Apple is relying on its known brand rather than the appeal of any one star or show to help drive sign-ups. "This is trading on Apple's good name," says one veteran executive. "The thinking is that you already have a phone and you already like them, so you'll pay the $4.99."

TV+ will launch with just four scripted shows — Jennifer Aniston and Reese Witherspoon's The Morning Show, Hailee Steinfeld vehicle Dickinson, space drama For All Mankind and Jason Momoa-led genre play See — two unscripted projects and three kids programs.

Unlike Netflix and its all-at-once binge model, Apple is planning a weekly rollout for many of its series, with new shows dropping every month. While executives have assembled a robust pipeline of projects to release during the first year of TV+, the offering lacks what other services boast: a library of favorites like The Office and Friends that will keep subscribers engaged between originals releases. 

Disney+, for instance, will bow less than two weeks after TV+ and offer more than 600 episodes of The Simpsons on top of a library of Star Wars, Marvel, Pixar and Disney animated films. That's in addition to scripted originals like the Star Wars drama The Mandalorian and a new take on High School Musical

While a robust offering is important, buzzy originals have been shown to lure new subscribers; Hulu, for instance, saw a spike in subscribers when The Handmaid’s Tale became a sensation, and Netflix constantly refreshes its pipeline of new shows to generate interest and lure (and keep) its customers. It may only take one hit for Apple to become a must-subscribe for many who interact with Apple products and are used to consuming content like music, podcasts and news on the company’s platforms. “This is a long-term investment as Apple will need to fork out billions every year in order to refresh its content catalogue," says PP Foresight's Paolo Pescatore. 

Greenfield, meanwhile, suggests that Apple will use the first year of TV+ — when many people are getting the service for free — to release enough originals that it creates at least the appearance of its own catalog of shows, even though, barring a splashy library deal or buying a traditional studio, it won’t have nearly the same arsenal as its streaming rivals. “By the end of year one, they’re going to have a lot of content,” Greenfield says.  

Industry insiders caution that it could take time for Apple to establish itself amid an increasingly competitive environment where established entertainment companies like WarnerMedia, Disney and NBCUniversal are entering the direct-to-consumer space. "In this streaming era, it takes a long time for audiences to build," notes a veteran agent, "and in the history of television, it's rare that a show comes out of the box huge."