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Apple Showtime Feels Like a Re-Run

Iain Morris
3/26/2019

Apple's big "showtime" reveal late Monday contained few major surprises on the TV side. Netflix had already broadcast its non-involvement in the platform last week, while analysts had already figured out Apple would attempt to be the "aggregator" the rather fragmented TV market could use. Following a recent TV deal with Samsung, they had also correctly guessed at moves to further open the still-cloistered Apple ecosystem.

But like an overhyped movie, what eventually emerged from behind the curtain has left those same analysts feeling underwhelmed. Tony Gunnarsson, a senior analyst with Ovum who spoke with Light Reading at some length in advance of this week's update, says there is not enough to distinguish Apple TV+, as the service is called, from existing video offers.

"I was expecting Apple to announce a more innovative single platform for all things video," he said in comments emailed to Light Reading this morning. "But the new Apple TV app with Apple TV channels (third party and linear TV), iTunes integration and Apple TV+ looks a whole lot like Amazon Prime, which comes with the same -- Amazon Prime channels, Amazon Instant Video and Amazon Video."

He is not the only analyst with a downbeat review of Apple's latest offering. "Heading into this event it was unclear exactly what Apple would announce and it is now clear it intends to build a true Netflix competitor, and they don't come cheap," said Timothy O'Shea at Jefferies in a research note. "We see limited pricing power given the small content library at launch, and if Apple is playing the long game it could pressure financials for years."

Since the passing of Steve Jobs, the marketing genius who founded the company, Apple has grown used to this kind of reception whenever it has taken the wraps off a new product. And so it has become increasingly dependent on the iPhone, a device that accounted for about 60% of total company revenues in the final quarter of 2018 -- before Apple started concealing those details -- and one that consumers are no longer as desperate to buy (especially in China, where, it seems, they are turning to gadgets from Chinese rivals instead).

In the absence of exciting new gadgetry, the TV announcement had attracted lots of attention because it represented a big shift for Apple into services, a relatively small but fast-growing part of its business. Anything to do with services puts a smile on the face of the typical investor because margins tend to be fatter and revenues are recurring. iPhones are good business only if Apple can persuade existing customers to buy new models -- something it is now struggling to do. A TV customer, on the other hand, pays out every month, unless one day he decides to quit.


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But taking on major TV powers like Amazon and Netflix was never going to be easy. Both those companies serve millions of customers globally, and their services are available on any device with a screen. Objecting to Apple's tough line on revenue-sharing arrangements, Netflix had withdrawn its service from Apple's billing system before this week's news. Amazon Prime is already what many would describe as a TV aggregator.

Gunnarsson is not wholly negative, though. "The best news for Apple is that they are finally opening up the ecosystem so that you will be able to view Apple TV across different devices including third-party smart TVs and Amazon Fire TV devices," he says. O'Shea also draws attention to the various attractive components of the new offer. "The Apple TV app will integrate content from Apple TV+ with iTunes, HBO, Amazon Prime Video, Showtime, Hulu and broadcast TV and cable channels," he says.

The trouble, as far as the Jefferies analyst is concerned, is that all this just seems like a new way of packaging up what it already does through its app store, where its 30% cut of subscription revenues was too much for Netflix. Apple certainly has the financial muscle to fund more of its own content, and it has projects on the go with big movie and TV names like Steve Carell, JJ Abrams and Oprah Winfrey. But it currently spends only about $1 billion annually on its originals, versus the $12 billion that Netflix showers on new content each year. Bulking out its library could mean settling for smaller profits.

"Besides the content, Apple TV+ sounds pretty much like 'another streaming service,'" says Gunnarsson. "Exclusive content, no ads and download functions. Well, that just like Netflix, isn't it?"

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— Iain Morris, International Editor, Light Reading

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