Handicapping Apple TV+'s Potential

Given that the ultimate consequences are deadly serious — at least for the giants already in or about to dive into the streaming business — the industry’s obsession with handicapping their relative chances is starting to resemble a compulsion, like being hooked on video games.

Among the coming entrants, Disney+ and Apple TV+ seem the objects of greatest speculation at present. Not surprising, since they’re both debuting next month, whereas NBCU’s Peacock and WarnerMedia’s HBO Max won’t make the scene until next April.  

Just to illustrate, let’s focus here on Apple TV+. A person could get mental whiplash from the divergent takes being offered by various analysts and pundits.

Apple TV+ has two obvious advantages out of the gate: a global device-user base of over 1 billion, and the intense loyalty of Apple brand lovers.

And to build a base for the SVOD, Apple is pricing it, at least initially, at a very competitive $4.99, and offering a year’s free subscription to anyone buying a new iPhone, iPad, Mac, or Apple TV.

Its compatibility with its own iOS devices (iPhones, iPads, MacBooks, Apple TVs) and, through a partnership, Samsung Smart TVs, will give it a potential addressable base of more than 70 million households in the U.S., or 57% of all online households in the country, according to a new report from IHS Markit Technology.

While many products would envy that kind of reach at launch, it actually represents a limitation when compared with reigning SVOD champ Netflix, which can reach 95% of U.S. online households, and Disney+, which is expected to address 92%.

Netflix and Disney+ are available on a much broader set of platforms. (Disney+ lacks smart-TV partnerships, but its availability on Android devices is expected to be a big growth-driver.)

“Although Apple is the largest smartphone brand in the U.S. market and plans to offer free access with hardware purchases, the company would need to widen its device distribution to compete with OTT players that are now available nearly universally,” observed Fateha Begum, principal research analyst at IHS, in an analysis on the firm’s site.                           

To vie for the main TV screen in the household, Apple will need to make Apple TV+ available on third-party devices, including competitors’ digital media adapters, Begum says.

Apple TV+ is expected to be made available on Roku and Fire TV devices and Sony, LG and Vizio smart TVs sometime after its launch. Roku has just announced the availability of the Apple TV app on its devices, the prerequisite for adding TV+. Samsung, Vizio, LG and Sony smart TVs are reportedly poised to support AirPlay 2, enabling iPhone and iPad users to stream content from the devices directly to TV screens.

“By opening up to other platforms, Apple TV+ will see its addressable base increase by 24%, to 87 million U.S. households,” according to Begun. “This will improve Apple’s position, but the company will still be at a disadvantage compared to competitors who can address the entire U.S. market of 124 million online households.”

Then we have a report from Wedbush analyst Daniel Ives that’s more focused on the global picture. Ives thinks Apple’s approximately 900 million iPhones globally could push Apple TV+ to 100 million subscribers within three to four years, and “disrupt roughly 10% of Netflix’s target customer base within the next 12 to 18 months.”

Netflix had 151.5 million paid subscribers worldwide as of the end of the second quarter, and projected adding 7 million in Q3 (Q3 will be reported tomorrow).  

Wedbush recently raised its target price for Apple from $245 to $265, “implying 15% upside, and raised the prospect that $15/share in sum-of-the-arts valuation could come from bullish TV Plus sub estimates,” Seeking Alpha reported on Oct. 11.

That was “the latest in a series of target boosts this week for Apple,” reported the site, which added that sell-side analysts are rating it “outperform,” on average, and that it has a Quant rating of “very bullish.

Then there’s a recent analysis by Adam Epstein in Quartz. Epstein writes that Apple is marketing the streaming service as “a carefully curated, prestigious offering with numerous A-list celebrities in its fold (Oprah Winfrey, Reese Witherspoon and Steven Spielberg, to name a few).”

But he adds that the marketing for its “buzziest” original series, “The Morning Show,” starring Witherspoon, Jennifer Aniston and Steve Carrell, “has been all over the place," and given a “sky-high per-episode cost rumored to be higher than that of 'Game of Thrones,'” could “alienate future A-listers” if it’s not a big hit.

Apple’s brand loyalty “won’t automatically translate from tech to Hollywood,” he writes, asserting that in addition to “iffy” original content, Apple’s lack of content licensing agreements thus far, and lack of a deep content library akin to Disney’s or other competitors, is another potential growth-limiter.

Apple TV+’s subscriber numbers are bound to be big, simply on the basis of whatever percentage of the hundreds of millions expected to buy Apple devices in 2020 sign up for the service, Epstein notes. Adding in those who actually pay the $4.99, estimates of subscribers vary widely, from about 20 million by the end of 2020 to 120 million, he points out.

“So Apple’s number will be big, but it won’t tell us much. We won’t know for a while (at least another year or two) how many of those subscribers signed up organically because they liked the product, versus how many of the millions of free customers just forgot to cancel.” A strategy similar to that used for Apple’s launch of the Spotify competitor Apple Music, he adds.

Epstein’s wait-and-see attitude is hard to discount. After all, although Netflix has been around for 22 years, shifts in consumer habits and the competitive landscape are just two of a number of unknowns for Apple -- and even video veterans like HBO.

On the other hand, historically, underestimating Apple has not proven wise.

One factor that’s been cited as a liability for Apple is that it doesn’t have an in-house production company.

This week, Apple announced that it’s forming an in-house studio with Spielberg-Hanks Production, with its first exclusive original series, “Masters of the Air,” to be executive produced by Steven Spielberg and Tom Hanks.

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