Background information
How Apple TV+ is changing its strategy
by Luca Fontana
Apple TV+ – marketing in Netflix’s clothing
5.12.2019
Translation: Jessica Johnson-Ferguson
Pictures: David Lee
Apple TV+ is upon us. The new kid on the streaming scene has spent a whopping six billion dollars on its original productions to date. What appears to be mindless money burning actually works. But it’s not what you think.
So how can Apple's six billion dollar marketing trick – disguised as a streaming service – possibly work? Especially considering that new Apple customers get the service for free for a year, as our reader Marco_CH commented in my Apple TV+ review [/en/page/apple-tv-plus-ist-it-really-so-bad-14390#comments]:
I purposely bought a new iPhone to get Apple’s streaming service for free for 1 year. I sure outsmarted Apple. No way am I paying for such little content :D
Let's do the maths.
Step 1: Attract large customer base
To put this into perspective: On average, a «Game of Thrones» episode from season eight cost 15 million dollars.
In Apple’s case, additional sales are those generated by the sale and rental of their on-demand range. Apple TV+ is a mere extension of Apple TV – that’s the on-demand range, not the box, which has the exact same name.
In other words: every Apple TV+ subscriber is also a potential Apple TV customer – and vice versa.
Ta-dah! There’s that customer base for you.
Step 2: Secure customer base in the long run
I think we all agree that it’s unlikely the company will convince all iPhone purchasers to stick to Apple TV+ after their trial year is up.
However, the company has one year to convince as many customers as possible to stay on board – with good content and a steady stream of new shows. I’ll bet you that, a year from now, there will be a lot of cliffhangers in the series. A very low subscription price of five dollars per month – or six francs here – also helps. Focusing on quality instead of quantity may also be a clever strategy.
- Apple sharpens its profile as a quality streaming service.
- Apple manages to set itself apart from Netflix and Prime by offering a small, carefully selected choice of series and films.
- Apple avoids overwhelming its subscribers with a huge selection that contains few really good movies but many mediocre movies and series.
Today, Apple is still miles away from this kind of dream scenario. Their selection is too small to be taken seriously. And must-see content such as «Stranger Things» or «The Boys» – to name but a few examples from Netflix and Amazon Prime – is still missing. However, the chosen strategy of keeping the selection small but high in quality, like «See» or «For All Mankind», is promising.
Step 3: Increase the price
As soon as Apple is sure of its customer base, subscription prices will go up. Having said that, the current subscription price of five dollars a month already pays off for Apple. Let’s assume that all of the predicted 70 million iPhone customers will keep their subscriptions. This corresponds to an annual revenue of 4.2 billion dollars. And that’s not including the millions of customers who will buy another Apple device.
That's just a numbers game. A possible scenario. Undoubtedly, Apple must have thought through dozens of scenarios. And concluded that the risk was worth it.
So it doesn't seem impossible that Apple will secure a subscriber base in the millions over the next few years by means of low subscription prices and elaborately produced series.
Step 4: The mathematics behind it
Above, I hypothesised about 4.2 billion in revenue without a price increase. After all, the budget for the first few documentaries and one or two seasons per series was 6 billion dollars. The remaining difference could be partially covered by income generated by purchase and rental fees for the remaining on-demand content available on Apple TV. The rest by Apple device sales boosted by Apple TV+ and other services.
And there it is. The marketing trick: boosting sales of Apple devices.
For Apple's big advantage is that it does things differently to Netflix. Apple is still a company that predominantly sells iPhones. On top of that, sales of Macs and iPads are on the rise, as are revenues generated by Apple Store and Apple Pay Services.
How does Apple TV+ fit in?
Apple TV+ is the next logical step in Apple's drive to control the value chain of the entire entertainment industry: from hardware to software and the content streamed on it. All that’s missing now is camera equipment. This suggests that it's only a matter of time before Apple provides the infrastructure for Hollywood.
Netflix is a different story. Their streaming service is not a marketing tool but the business model itself. The company needs to generate profits from subscription revenues, otherwise Netflix is doomed. But not Apple. Apple's core business is selling iPhones, iPads, iWatches and Macs.
Apple TV+ only plays the role of the most expensive customer loyalty programme of all time.
Luca Fontana
Senior Editor
Luca.Fontana@digitecgalaxus.chI write about technology as if it were cinema, and about films as if they were real life. Between bits and blockbusters, I’m after stories that move people, not just generate clicks. And yes – sometimes I listen to film scores louder than I probably should.
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