As Apple Bets More on Its Services, Who Benefits?

Tim Cook - 2017 Apple Product Launch - Getty - H 2018
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The company is focused on growing iTunes, Apple Music, iCloud and Apple Pay.

An Apple TV show on a Samsung TV?

The iPhone maker, which has a history of keeping consumers within its ecosystem of devices and apps, figured in several announcements at the Jan. 7-10 CES consumer tech show that indicate it is opening up its walled garden, including letting Samsung pre-install iTunes on some TV sets. Apple also has OK'd Samsung, Sony, LG and Vizio to use its AirPlay technology, which allows video on an iPhone, iPad or MacBook to be simulcast onto a TV screen.

These pacts come as iPhone sales have slowed — Apple disclosed in early January that fiscal first-quarter revenue could come in as much as $9 billion lower than previously forecast. Facing pressure to find new ways to make money as customers hold on to devices longer, the company is focused on growing its services business, which includes iTunes, Apple Music, iCloud and Apple Pay.

In early 2017, CEO Tim Cook pledged to double quarterly services revenue from $7.17 billion by 2020. For this reason, notes Wedbush analyst Daniel Ives, Apple "looked in the mirror and realized distribution of iTunes and its broader services needed to be on third-party hardware."

With $10 billion in fourth-quarter services revenue, Apple is well on its way to achieving Cook's goal, and its premium video offering, expected to launch as soon as this summer, could supercharge the segment.

Although the company has yet to reveal how shows like Steven Spielberg-produced Amazing Stories and Little America from Kumail Nanjiani will reach consumers, suggestions have included bundling them with other Apple services or using them to upsell customers to subscriptions to other TV channels.

Apple may want to make these shows exclusive to its devices as long as possible, but a quest to grow its services segment could lead it to look for the largest possible audience. That's where its deals with TV manufacturers could be helpful. Notes Carmel Group's Jimmy Schaeffler, "It's worth more now to get the huge volume of income from sales of content on all those other devices than it was for Apple to say, 'No, it's mine, and I won't share.'" 

While a pact with a rival like Samsung was unfathomable a few years ago, says Ives, "Apple needs to drive its services flywheel going forward, and Samsung's presence in living rooms around the world is a powerful one that Cook and company are well aware of. Apple is not going to be able to do this alone, and this partnership speaks to the changing landscape for Cupertino in 2019 and beyond." 

A version of this story first appeared in the Jan. 16 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.