Why Apple’s Streaming Strategy Is Such a Head-Scratcher

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“There’s not much there there,” analyst Bruce Leichtman says

Apple’s nascent streaming service Apple TV+ has confounded industry watchers since its launch last November: a tech giant attempting to build a streaming platform from scratch with top creative talent and content. Left brain, meet right brain. While this is certainly Apple’s most significant foray into the streaming landscape, and into filmed entertainment content, the company has been at it for a long time. Under Steve Jobs, Apple famously tried to crack streaming TV 14 years ago with the iTV streaming box. So why does it still feel like Apple is on the outside looking in on an increasingly competitive space where the rules already have been set? “They’re clearly experimenting.” said Bruce Leichtman, president and principal analyst at Leichtman Research Group. “That said, they’re not used to not being a leader in their category… It’s a tremendous mistake to try to compare it to Netflix or even (Amazon) Prime Video. They’re more like competing in a high school state championship rather than the Super Bowl.” Others have noted the service’s slow start. “Despite their marketing efforts, Apple TV+ is being streamed in only 5% of streaming homes, which speaks to the limited content offering and lack of library,” MoffettNathanson analysts Michael Nathanson, Robert Fishman and James Caceres wrote in a report to investors. “Truth is, those who expected that the fourth quarter 2019 launch of both Disney+ and Apple TV+ would immediately inflict significant damage (yes, like a war) to the market structure were a bit premature in their prognostications.” Apple TV+ had some early success, nabbing three Golden Globe nominations for its premier series “The Morning Show” — though it failed to garner a win. The show’s lead, Jennifer Aniston did, however, win the Screen Actors Guild award. Short of that win, the service simply hasn’t made a splash compared to its competitors, or any impression in the marketplace that reflects a company of its size and means. During its recent fourth-quarter earnings report last month, Apple remained relatively mum on what is arguably the tech giant’s most significant product launch in years. Only after one analyst on the company’s quarterly call prompted Apple CEO Tim Cook and CFO Luca Maestri to expound on the service beyond saying it was off to a “rousing start.” “Since we launched the service very recently, the amount of revenue that we recognized during the quarter was immaterial to our results,” Maestri said. D.A. Davidson analyst Tom Forte asked how the company is “gauging success” for Apple TV+: critical acclaim, revenue or even just the “number of consumers who are using the service”? “We are primarily measuring ourselves on the number of subscribers,” Cook replied. “As you can tell, from the way that we launched the product, it started with a very aggressive price at $4.99 in addition to our bundle, where if you buy pretty much any Apple device, you get a year for free. We’re very focused on subscribers.” Apple executives didn’t, however, divulge the number of subscribers — though even those numbers might be suspect. Like many services, Apple TV+ offers a free trial period, but unlike many, Apple’s free trial is for a full year when customers buy certain Apple products or, in seemingly rarer cases, take a laptop or other products in for repairs. (Disney+ has a similar deal offering a free one-year subscription to Verizon customers who sign up for an unlimited wireless plan or 5G home internet). While Apple did not divulge any sort of Apple TV+ subscriber numbers, during Disney’s first-quarter conference call, CEO Bob Iger said roughly 20% of its subscribers were a result of its deal with Verizon and 50% came directly from the Disney+ service itself. Disney is using the garden-variety approach to launching and promoting its streaming service, goosing subscribers by pulling in a third-party partner to widen the pool. Apple, on the other hand, is acting as its own third-party partner, dangling Apple TV+ in the face of virtually anyone who shells out money to the company. But it’s unclear to what extent, or even if, the promotion has worked. “They were interested in launching before they actually had enough content to support the service, hence they made it free so nobody would/could complain,” Wedbush analyst Michael Pachter wrote in an email. “They have a year to come up with a lot more content, and if they have enough to support their modest pricing, they will get a lot of subscribers (similar to Apple Music). If not, then they won’t see any traction. Come back to me in six months.” Moffett Nathanson research firm teamed with market research and consulting company HarrisX and found that Apple TV+ users who access the service via that promotion made up roughly 50% of their subscribers. It seems pretty clear Apple is simply dipping its toes in the water of the streaming content pool. The company, which has some $207 billion in cash on hand, dedicated $1 billion to content at the onset, but bumped the investment up to $2 billion. Apple could have outspent all of its competition. This is a company that had no library of filmed content to speak of — outside of a licensing deal with the indie film company A24 — that’s chosen to craft a content service from scratch. By comparison, Netflix is expected to spend upwards of $17 billion on content this year. And while other services such as Disney+, HBO Max and Peacock more closely resemble Apple’s content spend, those are services backed by companies with a slew of shows people already want. Apple TV+ launched with some 13 original series and films, which as Leichtman points out, barely puts the service on the map. “There’s not much there there,” Leichtman said. “It helps them get a foot in video streaming, allows them to understand the space a little more, but does this experiment add much value to a trillion-dollar company? No.” Even if the public doesn’t know much, Apple clearly likes what it’s seeing from the experiment so far. The company doubled down earlier this year, signing an exclusive five-year deal with former HBO boss Richard Plepler’s new production company Eden Productions, which will create TV series, documentaries and feature films for Apple TV+. Plepler is a big deal not just for Apple, but in the world of prestige TV — one of the most significant figures in what has been dubbed the modern Golden Age of television. He had a storied three-decade tenure with HBO, helping the network earn a whopping 160 Emmys and climb to the top of the industry. During Plepler’s tenure, HBO greenlit critically-acclaimed hit series like “Game of Thrones” and “Veep.” Yet Apple TV+’s virtual lack of impact at this point has been no surprise to industry experts. At this point, Apple TV+ is seen as little more than a companion service — an add-on — for Apple to entice customers to buy new iPhones, iPads, MacBooks or any number of Apple products, which is what the company really wants. “Where they go from there,” Leichtman said, “is kind of up in the air.”