Apple Inc. became a colossus by redefining gadgets including the smartphone, the tablet and the smartwatch. As it takes aim at Hollywood, it is working from a very different script.
On Friday, the company plans to launch the Apple TV+ video service, its contender in the battle between media and tech giants for people’s streaming dollars. Apple TV+ is slated to start with nine programs, including a buzzy drama about television news called “The Morning Show” featuring Jennifer Aniston, Reese Witherspoon and Steve Carell. Other offerings include “See,” set in a future when humans lack sight, and “Snoopy in Space,” for children.
Apple’s enormous size, $100-billion cash hoard and fat profit margins mean it can afford the costs of developing and distributing new content. And the more than 900 million iPhones and 500 million other Apple gadgets in use world-wide give it an enormous, built-in base of potential TV+ customers.
But entertainment takes Apple well outside its wheelhouse, and much about its approach to the streaming wars departs from its usual strategy.
Apple is used to charging far more for its iPhones, iPads and Macs than rivals do for their products. It controls its own ecosystem of hardware and software products and carefully rolls out new versions of its gadgets once a year at most.
With TV+, Apple is charging less than competitors and pushing its service aggressively on other platforms. A company accustomed to hits is entering a world where TV shows and movies fail with regularity. And the secretive Silicon Valley titan is contending with critical scrutiny in Hollywood that far exceeds the business’s importance to Apple’s bottom line.
Critical reviews of the offerings on Apple TV+ have been mixed. Time said “The Morning Show” lacks the depth and spirit of top TV shows, while New York Media’s Vulture called it a “glossy, largely compelling new series.” Hollywood-focused Variety’s critics found fault with other Apple shows, saying none was “stellar enough to justify someone buying in to a whole new streaming service.”
An Apple spokesman declined to comment.
“Honestly the world should give Apple a little leeway,” said “See” executive producer Francis Lawrence. “Nobody can be perfect 100% of the time.”
Hollywood is central to Chief Executive Tim Cook’s effort to refashion Apple as a services company as sales have slowed for its original products. Sales of its bread-and-butter iPhone fell 14% for the fiscal year ended in September, dragging the company’s total revenue down 2% to $260.17 billion.
The hardware heavyweight, though, has a threadbare entertainment library. So its service will cost $4.99 monthly for subscribers and will be free for a year with the purchase of a new iPhone, iPad or Mac.
Netflix Inc., which charges $12.99 a month for its most popular service, pioneered the category and offers more than 1,500 shows and 4,000 movies. Walt Disney Co. will charge $6.99 for Disney+, which launches 11 days after Apple’s offering, with popular franchises such as “Star Wars.”
And WarnerMedia, a unit of AT&T Inc., said Tuesday it will charge $14.99 a month for HBO Max, set to launch next year with classics such as “Friends” and original fare.
Apple struck deals to make its Apple TV app available on Roku and on smart TVs from Samsung Electronics Co.
Mr. Cook called the offering a bold move during a Wednesday call with analysts. He said the price is aggressive because Apple wants as many people as possible to view the shows. “This allows us to focus on maximizing subscribers,” he said.
Apple is also rolling out its programming in a way that straddles Netflix’s all-at-once strategy with the one-episode-a-week style of HBO and others. Initially, it will offer three episodes of some shows, such as “For All Mankind,” about the U.S. space program in a world where Russia landed first on the moon, and add a new episode each subsequent week. Others such as “Dickinson,” about a young Emily Dickinson, will be available in their totality.
Apple is famously fastidious about its brand. So far, its slate of shows features themes of resilience and aspiration. The focus—combined with an aversion to over-the-top gratuitous sex, violence and language—has led some Hollywood creators to question if Apple TV+ will be as risqué as Netflix, FX or HBO, whose programs often embrace the underbelly of culture and society.
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To be sure, in entertainment the definition of a brand is often fluid, especially if the shows designed to fit that brand fail to catch on and a show that doesn’t becomes a success.
“You’re not allowed to go into this without pretending you have a brand, but then your brand becomes whatever your hit show is,” said producer Mike Royce, whose credits include “Everybody Loves Raymond” and the reboot of “One Day at a Time.”
If Apple can amass 50 million subscribers for TV+, about as many as it has for its music-streaming service, it would add $3 billion in annual sales, estimates Toni Sacconaghi, an analyst with Bernstein Research. That steady subscription revenue would help reduce iPhone dependency—though it is tiny compared with Apple’s $250 billion in total annual sales.
Apple also wants to draw viewers to its TV app and encourage them to subscribe to other services, such as Starz and Showtime, that can be accessed through the app, according to people familiar with the strategy. It gets a 30% cut of other subscriptions initially.
The business strategy is being fashioned by Peter Stern, who joined Apple in 2016 after overseeing strategy at Time Warner Cable Inc. Last year, the Yale Law School graduate was promoted to oversee Apple’s video, news, books, iCloud and ad-services businesses. He has looked for ways to bundle services and directly market subscriptions, people familiar with the strategy said.
The company unveiled one offer Wednesday, with actor Hailee Steinfeld, who stars in “Dickinson,” announcing on Instagram that TV+ will be free to college students who subscribe to Apple Music.
Apple’s decision to bundle TV+ with sales of its gadgets will hurt its hardware business for financial reporting purposes but help services, because it reduces a $699 iPhone sale by $60—the annual cost to subscribe to TV+—which will be recognized as services revenue, analysts say.
In the future, though, TV+ can serve as a marketing tool that deepens the appeal of new iPhones with incremental features, Mr. Sacconaghi said. “They now have something they can use to help maybe iPhone or other product demand,” he said.
Write to Tripp Mickle at Tripp.Mickle@wsj.com and Joe Flint at joe.flint@wsj.com
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2019-10-31 09:40:49Z
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