Apple (AAPL) declared the ecosystem war in full effect yesterday. Apple, Disney (DIS) , and Netflix (NFLX) are not only battling for streaming viewers but something more at this point. That was my big takeaway from the event yesterday. The most intriguing aspect is that these companies are coming at it from a very different front.
Apple is using a products approach to pull potential subscribers into its system. By lowering prices on products like the iPhone and iPad along with increasing offerings in the wearables category, Apple wants to lure subscribers into Apple TV+ and Apple Arcade through ease and familiarity. Disney, on the other hand, is using theme parks, cinema, and even traditional cable TV to attract subscribers into Disney+ streaming. Netflix has opted to use the purity and experience route. We were here first, and we've proven ourselves already.
I understand there is a lot of excitement around Apple TV+ but it will be similar to Netflix in that it draws success from original content. Disney holds the advantage of a strong library to pair with its original content. It's bringing brands well-known to viewers. Apple will rely on big household names to entice viewers on giving it a chance. That is risky, but only to a degree. By offering up a year free of Apple TV+ with new product purchasers, Apple has given itself a full year to obtain feedback, establish hits, and utilize viewing data to leverage a more successful year two. It's creating stickiness by essentially eating most of the costs associated with Apple TV+. No subscriber cost, no cancellations.
Of course, there will be paying subscribers, but expect a low "churn" rate due to the freebies. Disney opted to go with the discounted three-year plan for D23 members that worked out to just under $4 per month, so while you'll hear the media tout the $4.99 per month cost for Apple versus the $6.99 cost for Disney, it's not entirely accurate. Once you break things down, assuming a good number of folks took Disney up on the three-year deal and a similar number of folks take up Apple on the one year included (free) deal for Apple TV+, we see the three year total cost is more like $120 for Apple TV+ and $141 for Disney+, so the difference is more likely to fall somewhere between $0.75 and $1.00 rather than $2.00 per month. Given Apple must prove its original content, I believe that's a fair discount.
The odd man out feels like Netflix. Per CNBC, here's a breakdown comparing services:
- Apple TV+ - $4.99/month (free for a year with purchase of new device)
- ESPN+ - $4.99/month
- Hulu w/ads - $5.99/month
- CBS All Access - $5.99/month
- Disney+ - $6.99/month
- Starz - $8.99/month
- Showtime - $10.99/month
- Hulu (no ads) - $11.99/month
- Netflix (most popular plan) - $12.99/month
- Amazon Prime Video - $12.99/month
- HBO - $14.99/month
The odd man out feels like Netflix. Folks going after HBO, Starz, and Showtime likely have a very specific reason. Most of those who I personally know have Amazon (AMZN) Prime Video because they are using Amazon Prime for shipping and the streaming is an added bonus. While I feel many will use multiple services in the early going, eventually we'll see subscribers pairing down their number of subscriptions. If Netflix doesn't cut costs, it may become a victim of simply being too high priced compared to the others. I figure their runway to be through 2020, but without any changes to their service or pricing, I have real concerns there.
The other chatter came from Apple Arcade. This service will offer 100 exclusive games from the start at $4.99 per month. I love the thinking here, but without multi-player games, Apple Arcade will underwhelm. Multi-player is needed to entrench users in the ecosystem, otherwise, you will simply wind up with the casual gamer or the parent using Arcade as an affordable "babysitter." In short, it won't spur revenue enough to impact the bottom line. There's absolutely potential here, but don't get excited until we see multi-player games, and more than one. A viral hit wouldn't hurt nor would offerings that could serve up an eSports rumbling, and eventual gaming competition.
Overall, I love the potential of the subscription services Apple is bringing to market, but I don't feel the company will begin reaping benefits until 2021 at the earliest. Investors need to have patience, but this is a solid strategic move by the company.