With a media event scheduled for March 25, Apple’s list of subscription services is about to grow from two — iCloud and Apple Music — to four, including Apple News Magazines and an Apple video service. Since many of the details have already leaked out, I’m wondering what Apple will charge for the new services, and whether people will be willing to pay for them.
Apple has a spotty track record on service pricing. Its most popular service, the data-syncing iCloud, has been around since 2011, but took until 2015 to settle into its current four-tier price structure: 5GB of free storage, 50GB for 99 cents per month, 200GB for $2.99 per month, and 2TB (1TB until 2017) for $9.99 per month. Before that, the company offered more tiers and higher price points, including $3.99 and $19.99 options that ultimately disappeared.
It’s unclear how many of Apple’s over 782 million iCloud users are paying customers. Despite years of complaints from even ardent Apple fans about the stinginess of iCloud’s 5GB free option, the company hasn’t budged on the limited capacity, seemingly to push customers into paid iCloud subscriptions. By contrast, Google’s competing service has long included 15GB of free storage, plus discounted annual subscriptions, which Apple doesn’t offer.
… at least, for iCloud. Apple’s second paid subscription service, Apple Music, has a more complicated pricing structure. After a free trial period, individual subscriptions cost $9.99 per month or $99 per year, the only annual discount Apple offers. College students can opt to pay $4.99 per month individually, or participate in a less well-known $14.99 family subscription plan that covers up to six total relatives; neither has an annual plan.
Looking at iCloud and Apple Music, one might conclude that Apple hasn’t seen much success with subscriptions priced higher than $9.99 per month — but that probably won’t stop it from trying with videos or news. In fact, I’d be very surprised if Apple didn’t make yet another effort to offer a $19.99 or even higher price option, either for an individual service or some sort of bundle.
My best guess is that Apple will launch its News Magazines service at $9.99 per month, the same pricing the underlying Texture service used before (and after) Apple bought it last year. Alternatively, Apple could risk losing existing Texture customers by hiking their prices, and since the service wasn’t exactly a huge hit before, I’m not sure that new customers will be willing to pay more than that for monthly access to news.
But there’s always the possibility that Apple starts with an “all you can eat monthly magazines” tier, then adds a pricier “all you can eat monthly magazines plus daily paywalled news” tier. This could give newspapers a way to make more money from the service — a reported sticking point to participation from the New York Times, Wall Street Journal, and Washington Post.
Apple’s video service pricing could similarly be complicated by incorporating certain standalone video services. On one hand, Apple plans to offer original content through the service, which it will want to monetize like Netflix, Hulu, and Disney — likely with a monthly fee in the same $6 to $13 range. Yet Apple is also hoping to resell video services including HBO, Showtime, and Starz, each of which sells separately for $9 to $15 per month.
That means Apple’s video service might need to appear in at least two tiers: basic and premium. To compete with Netflix, Hulu, and Disney for original content video subscription dollars, it needs an entry price around $9.99 — perhaps less, depending on the quality of its library. Apple may have signed some of Hollywood’s biggest names to create content for its service, but all it takes is one look at Carpool Karaoke, Planet of the Apps, or recent reports of troubled productions to question whether Apple’s shows will actually be worth paying for (like Netflix) or just free perks to be given away with other services (like Amazon Prime Video).
Then there’s the premium tier: If Apple wants to offer access to HBO, Showtime, and Starz, it can’t only charge $9.99 per month. Assuming that it launches with a basic tier, it’s going to need at least one if not multiple “step up” packages for these services — perhaps a $19.99 bundle with its own shows plus HBO or Starz, or a $29.99 bundle with a bunch of different video services. These prices assume, perhaps unreasonably, that both the service providers and Apple are able to reach compromises to make video bundles appealing to customers.
Bundling could and probably should go beyond just video; Apple fans (and financial analysts) have been expecting some sort of unified Apple service bundle for years. Since Apple prizes simplicity, the idea of paying one “get it all” fee for everything from music to iCloud storage to videos and news would make a lot of sense.
Once again, the problem is pricing. Even if someone is interested in Apple’s $10 music service, $10 data storage plan, $10 news plan, and $10 video plan, would she actually commit to paying $40 per month or $480 annually for it? Or would Apple’s right move be a $30 value package with all the services, providing value to those who buy the bundle and commit to getting some services they mightn’t care as much about with the ones they want?
There’s some (old) precedent for Apple to take the consumer’s side on pricing. Back in 2001, Apple literally redefined the music industry by mandating uniform 99 cent song and $9.99 full album digital prices, striking a perfect compromise between consumer preferences and musicians’ needs. Within years, seemingly unstoppable piracy eventually gave way to a norm of sustainable music purchasing.
But after digital song and album prices went up — a change Apple grudgingly facilitated — the industry stumbled again. Sales of music slipped, but over time, streaming grew as a replacement, thanks largely to aggressive pricing by rival Spotify. Today, Apple has around 50 million paid Apple Music subscribers, which is tens of millions below Spotify’s paid subscriber base, but still enough to be number two worldwide. Likely sensing potential trouble ahead, Spotify recently expanded its prior collaboration with Hulu, offering a combined music and TV subscription package for only $10 per month.
I’m not sure whether Apple would be content to be number two (or worse) in the video streaming world, but the potential is certainly there. It could have the best video, news, music, and data storage services in the world, but at the wrong price points, they won’t be anywhere near as widely adopted and influential as the iPod and iTunes Music Store were in their heyday.
Even though Apple’s customers represent a potential goldmine of recurring fees just waiting to be surfaced, the key to actually unlocking those funds (and boosting Apple’s service revenues by billions of dollars each quarter) is getting the prices right. Offering highly compelling services is a necessary but not sufficient step.
As the company’s recent price struggles suggest, there’s no guarantee that its initial numbers won’t turn off many people who tune in to the announcement. I’m personally hoping Apple has learned from its recent mistakes. Having held out on iCloud, cut my cable TV cord, and cut back on magazine subscriptions, I’m ready to open my wallet if the price is right. All Apple needs is a great bundle that appeals to my family and is worthy of recurring fees, and it will soon be in a position to either deliver that, or send me on the hunt for more reasonably priced alternatives.
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