What’s Apple’s Streaming Strategy? Think of It as Content as Catnip

With the launch of Apple TV+, the tech giant is using pricey shows with big stars to get consumers hooked on the Apple TV app

It’s hard to grasp how Apple—albeit, one of America’s most successful companies—expects to compete in the streaming wars when it’s offering a fraction of the viewing choices of competitors like Netflix, Disney, HBO, and Comcast.

Apple TV+ launched November 1 in the U.S. and 100 other countries with only eight shows and one documentary (two more series, Truth Be Told with Octavia Spencer and M. Night Shyamalan’s Servant, are set to premiere in the next few weeks). It plans to make about six movies a year, while its hour-long showcase program, The Morning Show, had just three episodes available at launch. More content is coming, with at least 30 shows in development with high-profile talent attached, but it will still be far less than what competitors are producing: Netflix, by contrast, offered about 2,400 hours of new content in 2018; Disney’s streaming service, Disney+, just launched with at least 127 hours, and promises thousands more; HBO Max will draw on over 10,000 hours of content; and Comcast/NBC’s Peacock will draw on a library of over 15,000 hours of movies and TV shows.

So what is a company known for smart products and clever marketing doing? It turns out that what’s driving the rest of Hollywood isn’t what is driving Apple.

In 2015, with an eye to the day even the iPhone could be outdated, Apple CEO Tim Cook set a goal to increase revenue from services; moving into TV entertainment is one way to do that.

“Now they have to fill the house with furniture—and that’s content.”

“There was recognition about 12 to 18 months ago that the window was closing to become a streaming player,” says Daniel Ives, managing partner of Wedbush Securities. “That’s why they decided to dive into the deep end of the pool into streaming with an underlying goal to tap into the installed base they have that no other company has—including 90 million iPhones worldwide. That’s why they have built it, and now they have to fill the house with furniture—and that’s content.”

Apple has been trying to break into TV since at least 2007, when it launched its first streaming device, Apple TV, which plays iTunes downloads and offers access to services including Hulu, Netflix, and Amazon Prime. It launched a dedicated TV app in 2016, which it gave a major upgrade earlier this year. For the first time, the app became useful for customers beyond those who own an Apple device. It also became available on televisions manufactured by Sony, LG, Vizio, and others, with more deals expected to be announced.

Apple set an initial programming budget of about $1 billion for Apple TV+, which it quickly blew through. That’s still a small amount for a company with annual revenue of $265 billion. The result is programs like The Morning Show, set behind the scenes of—you guessed it—a network morning show. Apple went all out, spending $15 million per episode—$300 million for two ten-episode seasons, including $2 million pay per episode each for stars Jennifer Aniston and Reese Witherspoon, according to The Hollywood Reporter.

Some outlets called those salaries “shocking,” but Apple needed the celebrity power to attract attention. The company’s spending on original programming is expected to rise to $6 billion a year by next year, according to the Financial Times of London.

“They’re using the new shows as catnip,” says a Hollywood executive who has done business with Apple. Once Apple TV+ is sampled, the real goal is to get the consumer to discover their easy-to-navigate user interface. They want consumers to embrace watching TV through the Apple TV+ app.

“Apple likely sees a big opportunity to give cord cutters some of what they lose when they give up cable—while recreating the TV model for the next decade as cord cutting goes mainstream and cable companies lose their grip on the industry,” CNET predicted in March. “If Apple can provide a unifying interface, billing structure, and a way to access a ton of content across phone, tablet, computer, and TV, then it will have something worth consumers’ time and money.”

“This is a typical Apple service business,” says the Hollywood exec, explaining that Apple reportedly gets a 30 percent commission when customers sign up for other streaming services through the Apple TV app.

To draw consumers, Apple priced the new service at a reasonable $4.99 a month. Apple is also giving away a free year to anyone who purchases an Apple iPhone, iPad, Mac, or Apple TV box, and to paying subscribers to Apple Music’s student plan ($5 per month).

“That’s why pricing was so important out of the gate,” says Ives. “They had to aggressively price it and bundle it [with a free year of service] with the purchase of a new iPhone or other Apple device. Apple’s advantage is that it has the distribution and ecosystem.”

Despite the big spending, reaction to the service’s first big show has been mixed. A critic for Rolling Stone praised the stars but called The Morning Show “a well-polished snore, a prime example of how throwing money at a problem… isn’t inherently the best way to solve it.”

To lead its charge into TV, nearly a year ago Apple recruited Sony TV veterans Jamie Erlicht and Zack Van Amburg, who have built a small team. The Apple TV execs are an active presence as shows are produced—and reviews of their performances are also mixed.

“They give a lot of notes, generally bad notes,” says a Hollywood producer working with them. “They’re not great on following up on them, so they’re not particularly dangerous.” The producer also shrugs off Erlicht and Van Amburg’s chops as hands-on show creators: “Those guys were salesman. They weren’t particularly creative.”

Beyond statements already made by Cook, an Apple corporate spokesperson declined to address the small library, the high cost of programming, or whether the real goal is to get consumers to use their portal as the way they watch TV in the future. Stay tuned and never count out a company with access to about $200 million in cash to keep its business growing.

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