Apple looks to begin a fresh reinvention on Monday as it rolls out
Hollywood stars for its new streaming television service, part of a
broad shift of direction for the California technology giant.
Having seen a pullback in the once-sizzling smartphone market, Apple
will seek to diversify by getting deeper into the television business
and with the likely launch of a subscription news service.
The iPhone maker, which has officially been mum on its plans, is expected to bring in Jennifer Aniston, Reese Witherspoon and Star Wars director JJ Abrams to a launch event at its Silicon Valley headquarters.
“It seems fairly obvious they are launching a new video service,” said Techsponential technology market analyst Avi Greengart.
Big questions to be answered include how compelling content will be;
how much the service will cost; and what makes it unique in an
increasingly crowded streaming television market. “If the content is
compelling enough, people will subscribe,” Greengart said. “This is not
new, but it is hard to do well.”
The event comes with Apple under pressure to
diversify its revenues amid sluggish growth in smartphones, which have
delivered the bulk of Apple’s profits for the past decade. While iPhone
sales remain enviable, growth has stalled. Meanwhile, the money Apple
takes in from selling services or digital content has climbed.
The Cupertino-based company recently stopped disclosing iPhone sales
numbers with quarterly earnings releases and has taken to stressing the
money-making potential of selling services, apps, music, movies and more
to the millions of people using its devices.
The new service will be “a pivotal step for Cupertino in further
driving its services flywheel and entering the ‘streaming content arms
race’ which is clearly starting to take form”, said Daniel Ives of
Wedbush Securities in a research note. Ives believes Apple’s services
business will be “worth roughly $400bn on a standalone basis”.
In streaming, Apple is taking on not just Netflix and Amazon but some
of the biggest names in the media-entertainment world. Walt Disney has
announced its new streaming service, Disney+, will launch this year, as
will another from WarnerMedia, the newly acquired media-entertainment
division of AT&T.
The new entrants, with more expected, could launch a formidable
challenge to Netflix, which has about 140-million paid subscribers in
190 markets, and to other services such as Amazon and Hulu. These rivals
are coming into a segment that has been transformed by the spectacular
growth of Netflix and a growing movement by consumers to on-demand
television delivered over internet platforms.
Subscriptions to online video services globally climbed 27% last year
to 613-million, eclipsing cable television subscriptions for the first
time, according to the Motion Picture Association of America.
Apple is also widely believed to be set to launch a subscription news
service described as a “Netflix for news” with partners in the media
world. A New York Times report said that the Wall Street Journal would
be part of the Apple service, which is likely to cost $10 a month, but
that many news organisations, including the prestigious New York daily
and the Washington Post, were balking at Apple’s demand for a 50% slice
of revenue. According to Bloomberg News, the website Vox would also be
part of the Apple News effort.
The move comes amid deepening woes for the news sector, which is
facing a difficult transition to the digital world, where few people
want to pay for information and advertising is problematic.
War chest
Along with investing some of its considerable war chest in original
shows, Apple could try to spice up its streaming service by adding in
benefits such as access to its music library or online storage capacity
at iCloud.
Amazon uses that kind of tactic, making its video service available
as part of Prime subscriptions, which include free shipping on purchases
from the e-commerce colossus and loyalty programme discounts at its
Whole Foods grocery shops.
For its video service, Apple may be investing as much as $2bn a year
in original content, says BTIG Research analyst Richard Greenfield, but
that will be less than Netflix and some others. A big question is
whether Apple will offer its content free for its device owners and how
it will work with third-party television services, according to
Greenfield.
Laura Martin, an analyst with the research firm Needham & Co,
said Apple’s prospects are strong as it shifts from being a “product”
company to an “ecosystem”. She said in a research note Apple can count
on 900-million people with at least one Apple device to feed this
ecosystem of services, which includes Apple Pay, music and other digital
content.
“Apple’s business model is essentially a subscription business
model,” Martin said. “Apple's access to more than 900-million unique
users globally, most of them among the wealthiest individuals in the
world, plus its culture of creating hardware and services with proven
commercial appeal makes it well positioned.”
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