[ad_1]
Apple (NASDAQ: AAPL) Investors and consumers were surprised by announcing prices for its subscription video-on-demand service, Apple TV +, at its September event. The streaming service will only cost $ 4.99 per month for US subscribers, and Apple will even offer a free year to anyone buying a new Apple device.
It's a price well below competitors like Netflix (NASDAQ: NFLX), AT & Tof (NYSE: T) HBO now and even Disneyof (NYSE: DIS) Disney + coming soon, although Apple would have spent about $ 6 billion in original content for the service that will be aired over the next year. This places its original content spending on par with Netflix's and well above its competitors like HBO or Amazon (NASDAQ: AMZN) First.
Source of the image: Apple.
Why does Apple offer Apple TV + at such a low price? There are at least three main reasons for this strategy.
1. scale
Apple TV + will come out a few days before Disney + and a few months before AT & T to launch HBO Max. Several other media companies are also planning to launch new streaming services next year, and the market is becoming more and more crowded.
Apple's service is significantly less robust than that of the competition. Netflix buys billions of dollars of third-party content. AT & T, Disney and Comcast spent hundreds of millions to buy the rights to some of their most popular content. Apple TV +, on the other hand, will only offer originals, but it does not have the track record of a media center like HBO that charges a premium for its content.
Thus, the price of $ 4.99 per month is essentially to offer consumers an offer difficult to refuse. Or, in the case of the estimated 70 million consumers planning to buy an Apple device over the next few months, an offer that's literally impossible to refuse. Apple will have tens of millions of "subscribers" by the end of the year thanks to its promotion and hopes to prove that Apple TV + is worth $ 4.99 a month after 12 months of supply of big-budget productions on his new iPhone, iPad, and the owners of Apple TV.
Ultimately, Apple TV + should benefit from a scaling down than most competitors. To the extent that it buys the rights on all of its content instead of licensing it, Apple may experience a high marginal revenue from new subscribers as long as it covers the costs of its content. It's relatively unique compared to its other services.
2. Apple TV channels
Another reason why Apple positions Apple TV + as a complement to services such as Disney + or HBO Now rather than a replacement is because Apple is also trying to sell these services. Apple TV + will be part of the Apple TV app, where the company will also sell subscriptions to Apple TV channels such as HBO.
In this sense, Apple TV + is a loss leader that encourages customers to subscribe to higher margin services, such as Apple TV channels.
Image source: Apple
Amazon has experienced notable success in selling content from other media companies. Amazon's channels generated revenues of $ 1.7 billion last year, which could reach $ 3.6 billion next year. It channels users to these channels via its Prime Video service and Fire TV hardware.
Apple TV + gives Apple half of the Amazon equation that it lacks. Combined with its massive installed base, Apple TV + could generate higher subscription revenues through the sale of its competitors' content.
3. Sale of equipment
Apple's decision to bundle a year of new video service with every new hardware sale is a smart marketing tactic. This should help Apple sell more devices in the short term because consumers love to get a deal.
But this subscription of $ 4.99 a month has the power to induce existing subscribers to buy another iPhone or other Apple device when upgrading their hardware later. And that's where the real value could come from. While Apple TV + will be available on other devices, users will get the most out of the service via the Apple TV app and by subscribing to Apple TV channels. This is a locking mechanism used by Apple to retain its customers at $ 5 at a time.
While Apple has become more interested in services over the last few years, it still generates most of its revenue and hardware sales. In the end, using Apple TV + as a way to sell more hardware will generate more revenue than selling a slightly more expensive subscription.
It does not have to be forever
One last note regarding Apple TV's low prices is that the company has made no commitment to keep prices low. Apple currently uses Apple TV channels and hardware sales to subsidize the cost of its streaming content, but as Apple TV + evolves, the technology company can seize the opportunities that it offers. to him to increase his investments in the content and increase the price of the service.
This is the same strategy that Netflix has used over the last six years with a good success rate. If Apple manages to produce some of the best TV series available, it will have no problem justifying an increase in price once the viewers are hooked.
[ad_2]
Source link