Apple has made its bet the most daring of all time. This may not be enough



Tim Cook & Co. get into the show. Steven Spielberg and Oprah Winfrey, stars of big names, highlighted Monday the company's eagerly anticipated entry into the streaming video market. Apple (AAPL) will produce its own movies and TV shows for a subscription service available on Apple devices and other streaming gadgets, including: Roku (ROKU). The service will be available this fall, but Apple has not said how much it would cost.

It is one of the boldest and most daring bets in the history of society. The success of its Apple TV + streaming service will be huge. And there is a ton of deep-rooted competition.

Apple needs this to work. The iPhone accounted for almost two-thirds of the company's revenue last year. But iPhone sales have stagnated since 2015 and dropped by 15% in the last quarter of 2018, when the Chinese market collapsed.

For Apple TV + to be a game changer for Apple, it will compensate lost sales on iPhone. This means that it will generate billions of dollars – potentially tens of billions of dollars – in an extremely expensive business.

There is however a problem: Netflix, Amazon, HBO Now, CBS All Access, and many other streaming services to process.

Against Apple

Netflix (NFLX) is by far the largest and most successful streaming company: it has 139 million paid subscribers and is available in more than 190 countries. It continues to grow too. He added nearly nine million subscribers in the last quarter of 2018.

But the United States, where Apple's biggest and most loyal public lives, is saturated. During the last quarter, 1.5 million new Netflix subscribers came from the United States.

Amazon (AMZN) Last year, it had more than 100 million Prime subscribers, most of whom have access to the company's Prime Video streaming service. Hulu has 25 million subscribers. (AT & T (T) holds a 10% interest in Hulu through WarnerMedia, which is also CNN's parent company.)
WarnerMedia, which already offers HBO Now, has announced plans to launch another streaming service later this year. Disney (DIS) Fox's new acquisition is generally expected to build on its new acquisition to produce its own streaming service. And that's part of the dozen "meager deals" that broadcast live TV shows from Google, Sling TV, Sony, Hulu and AT & T.

So, that's what Apple is facing.

"Although Apple can introduce a larger list of original content than Amazon and Netflix during their respective launches, the streaming market has probably already reached a record level. [of] The saturation and fatigue of consumers in the United States, "said Colin Gillis, an analyst at Chatham Road Partners. Apple is late for the party. "

This is not a zero sum game: many people subscribe to several services. Dan Ives, an analyst at Wedbush, predicts that Apple's new service will have 100 million subscribers over the next three to five years.

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It is useful that Apple already has a huge audience: 1.4 billion active iOS devices in the world. It also tries to differentiate itself from the competition by integrating privacy and making its content suitable for families.

And Apple does not just rely on its existing fans: it will pass Apple TV + to non-Apple customers, which is a big problem.

Apple does not often open its garden surrounded by walls. Apple has created a Windows version of iTunes in 2003 (despite the objections of Steve Jobs, according to biographer Walter Isaacson). This has made the iPod an international sensation, configuring Apple for its mega success

How to measure success

Apple has managed to sell subscriptions, apps, movies and other services to iPhone customers. Apple's service activities, which include the App Store, Apple Music, Apple Pay and iCloud, generated sales of $ 37.2 billion last year.

This is a ton of money: this single quarter would be enough to occupy the 83rd place in the Fortune 500 ranking of last year.

Apple TV + has considerable growth potential for the service sector. In a note to investors Monday, Mr Ives said he thought Apple TV + "would play a vital role in the growth of services to [Apple] for the coming years."

But streaming is probably not enough to offset the slowdown in iPhone sales. Apple said that essentially the growth of its services last year was related to licenses, the App Store and AppleCare, and not to its streaming subscriptions, such as Apple Music at $ 10 a month.

Gillis estimates that Apple Music has 56 million subscribers, but accounts for only 10% to 15% of Apple 's service revenue. This means that Apple Music only accounts for 1% to 2% of Apple's overall business figure. Apple TV + may not be much better.

Apple may need to do more than fill the gaps. The company achieved $ 166.7 billion worth of iPhone sales in the past year. If iPhone sales continue on the same trajectory as the first quarter of fiscal 2019, Apple could lose $ 25 billion in iPhone sales. During this fiscal year, which began in October, Apple's iPhone sales have already decreased by $ 9.1 billion from their level of the previous year.

Compare that to Netflix, which generated only $ 15.8 billion in total revenue last year. This company had to spend a ton of money to get there: its gross margin was only 10%. Apple's gross margin was 38.3% last year.

"The new Apple video service will not be a killer of Netflix," said Gillis. "Apple remains the iPhone company."


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