Apple Inc has been cobbling together a collection of expensive web video series (and a movie) as it makes its zillionth attempt to become a little more like Netflix and reduce its reliance on iPhone sales. This initiative has been underway for at least a year.
Sure, Oprah Winfrey’s agreement to team up with Apple is a big victory for the company and further validates the entertainment initiative that has also struck programming deals with heavyweights such as Steven Spielberg and Reese Witherspoon. Apple reportedly has a big budget — although it can’t match the wild spending of Amazon.com Inc or Netflix Inc in web video streaming — and its deep pockets and stellar brand have piqued the interest of many in Hollywood.
Nevertheless, it’s surprising how little the power brokers in the entertainment industry, and Apple’s stock owners, know about how the company’s entertainment initiative is going to work. It’s possible Apple itself doesn’t know.
Apple’s statement on June 15 that Winfrey’s “projects will be released as part of a line-up of original content from Apple” is literally the most specific thing the company has said so far about its ambitions in internet video. If you’re Winfrey, Spielberg or other superstars crafting entertainment for Apple, wouldn’t you want to know who Apple thinks the audience is and how it will reach your content?
It sounds as if Apple may want to limit its entertainment programming only to people who have iPhones, Apple TV or other Apple devices and to charge a subscription fee to watch the limited number of Apple programmes. Apple may also be considering a bundle of its services including web video, online news and its iCloud digital storage. Good idea!
That sounds like a way for Apple to make its own gadgets more appealing to potential buyers and to squeeze more money from the people who already own company devices. Apple Music has a similar strategic function for the company, and it has about 40 million paid subscribers.
Let’s say the potential subscriber base for Apple’s video programming is about the same size. This is debatable. Apple Music gives subscribers access to a huge selection of songs, while Apple’s potential entertainment service seems likely to have a small selection of the company’s own programming.
Would people like Winfrey want to limit their audience to a relatively small potential audience of tens of millions of people? For comparison, Amazon says it has 100 million Prime customers, many of whom have access to Amazon’s video service, and Netflix has 125 million paid streaming video subscribers.
Apple’s entertainment strategy also seems fuzzy so far. The company has nixed programmes with an edge and apparently prefers to stick to video entertainment with the mass appeal of a broadcast network — but likely without the corresponding mass number of possible viewers. Apple also hasn’t been a stellar tastemaker in entertainment so far, with middling web video series like ‘Planet of the Apps’ and a ‘Carpool Karaoke’ spin-off.
Investors are willing to be patient as Apple figures out what it’s doing in a new arena. And they have been excited about the potential for Apple to boost revenue and profit margins by dipping its toes into more subscription internet services like Apple Music.
But if Apple develops a Netflix-like video service, it won’t have the financial profile that Wall Street has come to expect from internet services.
Just look at Netflix’s skimpy Ebitda margin of 9 per cent in the last 12 months, compared with 31 per cent at Apple. Investors think Apple’s growing pile of revenue from selling apps, its own subscriptions and other internet-delivered products will boost the company’s profit margins.
A web video service doesn’t fit the bill.
Normally it wouldn’t be a big deal for a company of Apple’s size and profit power to experiment for a while in a new area. Apple’s reported $1 billion (Dh3.67 billion) budget for entertainment programming is a drop in the bucket for the company.
But Apple can’t afford the strategic distraction to flail around in entertainment without a highly focused mission and a clear sense of where it’s going and why. There is simply too much competition for consumers’ time and wallets.
Even Oprah can’t solve Apple’s entertainment riddle.
