On November 1, Apple launched its much anticipated streaming service aptly named Apple TV+. The service enters a competitive consumer landscape with offerings from the likes of Netflix, Amazon, Hulu and HBO already clamoring for subscribers. This is in addition to a packed line-up of new entrants slated to hit the market with Disney’s offering landing later this month as the most anticipated of the year.
While the market is becoming increasingly crowded, what is being lost in much of the “streaming wars” horse race analysis is the reality that not every entrant is competing for the same crown.
For Netflix, the streaming wars are life or death. For Disney, it’s about futureproofing the business and ensuring its incredible IP sustains its value in a changing media ecosystem. For Amazon, it’s about making Prime stickier. For Apple, however, streaming is really more of value add play — a vehicle for the world’s most valuable company to continue its evolution away from a pure hardware company into a services business.
This is a playbook Apple has effectively deployed in the past and one we are already beginning to see take shape as it competes in the streaming landscape. One only needs to look back at the Apple Music launch to understand the strategy. By building an ecosystem for Apple hardware users to seamlessly integrate music into their digital life, Apple managed to overtake Spotify’s subscriber growth in the U.S. and ultimately reach more than 60 million subscribers (and growing) for its music service. According to the most recent quarterly earnings released last week, Apple’s services business alone is growing at more than 20% annually — surpassing $12 billion in the latest quarter.
Just as Jeff Bezos once famously said that every time an Amazon original wins a Golden Globe it helps the company sell more shoes, with Apple News+, Apple Music, Apple Arcade, and now Apple TV+, Apple is building ever deeper connections into every aspect of the consumer content experience that will pay dividends far beyond the streaming wars.
As Apple TV+ enters the market this month it does so with three advantages likely to bolster the network effects of Apple’s already strong content services business. Overnight, Apple TV+ will be available on more than 900 million mobile devices globally. The sheer magnitude of its mobile distribution is an advantage no other streaming provider can counter today. This is particularly important as mobile has become a key growth accelerant for streaming. Where I would argue Roku is winning the battle for the connected living room, Apple will capture mobile streaming. The average streamer today spends more than six hours each day on their phone, and more than two hours of that time is spent consuming all forms of mobile video. Just as with Apple Music, the allure of combining all digital content — from music to games to video — in one seamless mobile offering is compelling. And the network effects are clear. As the services become stickier, so too does the device preference.
Apple’s second strength is the price point. At $4.99 a month, Cook and Co. came to play by undercutting every other subscription based competitor in the market. Perhaps far more strategic is the company’s offer for every new Apple subscriber to access Apple TV+ free for one full year. When 45% of U.S. adults have yet to join any streaming service, remaining on the sidelines of the video evolution waiting for a reason to dip their toes in, Apple’s free trial provides is a chance for millions of users to try out the platform while Apple builds out its content pipeline.
The third pillar of the Apple strategy is the sheer enormity of resources Apple can pour into making this work. No studio in the world has a war chest anywhere close to what the company can pump into the effort. While these advantages are impressive, they do not guarantee entirely smooth sailing ahead. Apple faces clear challenges on the content and competition front that should not be ignored. Content, and specifically a lack of it, is a major challenge. Where other streaming services offer thousands of television shows and movies, Apple TV will launch with just a dozen shows and one original movie. This massive disadvantage is a key reason many analysts believe Apple will dip into its coffers and make a large studio acquisition in the next 12 months to accelerate its content game.
The second headwind is simply one of timing and competition. Half a dozen new entrants will join the streaming race in the coming months, with the most anticipated offering following on the heels of Apple’s launch. Disney+ will enter the market on November 12 and has a content lineup with something for nearly every home (certainly every home with children). Recent polling shows consumers are twice as likely to sign up for Disney’s offering than Apple’s.
While it may be too late for Apple to dominate the streaming space, it is important to remember that it doesn’t need to win the streaming wars to succeed. Apple’s strategy is markedly different from nearly every other player as it focuses on doing what it does better than anyone else in modern history: building a consumer friendly, sticky ecosystem that leverages a massive installed base and unmatched consumer loyalty.
Can Apple build this into a nice business? Of course it can. But rather than look at just streaming, the real race to watch is Apple’s shift into services.
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