Following Apple’s announcement yesterday (Monday 25 March) of its Apple TV+ streaming service, Cyrus Mewawalla, Head of Thematic Research at GlobalData, has warned the company’s journey towards internet TV services faces a bumpy ride:
“Apple’s move marks a major shift in the company’s focus from hardware to services. But video streaming is a market where the dominant leader, Netflix, is entrenched. With limited content and no control of hardware, Apple’s TV streaming service will struggle to reach Netflix’s 150m global subscriber level. If it reaches 56m – the number of subscribers Apple Music claims – that would generate services revenues of just 3% of Apple’s total top line, assuming a price point of $10 per month.
“Success in the TV streaming market will depend on two factors: content and user experience.
“Securing a decent catalogue of content will cost Apple billions. It generates $64bn of free cash flows per annum, and currently spends at least $1bn per annum on original programming content. But Netflix’s budget is $13bn. Content acquisition could rapidly blow a big hole in Apple’s cash mountain well before it generates any TV streaming profits. As for user experience, Apple won’t launch its own device and instead will stream onto its competitors’ hardware: TV sets made by Sony and Samsung and streaming devices made by Amazon and Roku. But the problem is how it can ensure a great user experience if it doesn’t control the hardware.
“Microsoft has shown that opening up your digital ecosystem can reap rewards, but whether an open strategy will work for a company whose raison d’etre has been seamless integration between its proprietary hardware and software, is the big question.”