Apple TV + has a low price, but a small range makes it a difficult sell

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Nothing in the technology is more covered than the annual unveiling of the iPhone. But last week, Apple had a broader mission: to introduce new phones while demonstrating that the company's new service business could also thrive.

Apple

(symbol: AAPL) launched its event on Tuesday with trailers for new TV shows and video games that will be part of the company's upcoming Apple TV + video streaming service and its Apple Arcade platform, based on on a subscription. The first game was a remaster of a 1981 classic, Frogger. One of the television shows played Snoopy, the character who appeared in 1950.

The shows and games seemed to be going well, but the nostalgia of Apple seems strange in that it targets a public cutting the cords millennium (and younger).

For investors, however, the only thing that mattered was the price of the Apple TV +, at a surprisingly low price of $ 4.99 a month. The company will also offer this service free for one year to anyone buying a new iPhone, iPad, Apple TV or Mac.

Shares of streaming rivals quickly made the headlines: investors then felt that Apple's commitment to streaming posed unanticipated risks to competition.
Netflix

(NFLX) ended the day down 2.2%.
Disney

(DIS), about to launch its own Disney + streaming software, also lost 2.2%.

Netflix is ​​only growing by 10% over the year, behind all major indices, against 39% for Apple. This is not the iPhone, which no longer excites anyone. On the contrary, investors are extremely optimistic about Apple's service strategy. And that could end badly.

Although the $ 4.99 monthly price for Apple TV + looks attractive, it may not be so much once consumers have determined the number of emissions offered by the service. Apple's press release lists nine programs to offer at launch. The company did not answer my question about whether it was the whole list, but it's safe to assume that Apple would have mentioned more programs if they were ready.

The small product line makes the Apple TV + look more expensive than the competition. Netflix offers about 5,800 shows and movies, according to Flixable. Its streaming packages start at $ 8.99 a month for the basic package and at $ 12.99 a month for high definition streams. Disney +, which debuts at $ 6.99 a month on November 12, will feature approximately 7,500 television episodes and more than 500 films in its first year of the year, according to investor day organized by Disney in April.

Bernie McTernan, an analyst at Rosenblatt Securities, believes that the lack of compelling content from Apple TV + will limit its appeal.

"Disney has the content and the brands. Apple TV + does not have that, "he says." We do not expect much service with respect to Disney's and Netflix's wallet and viewing. "

The low price of the Apple TV + and the free trial for some customers could hurt the vaunted profitability of Apple. Rod Hall, an analyst at Goldman Sachs, wrote Thursday that the Apple TV + trial would likely have a "big negative impact" on profit margins and earnings per share. In a rare case, Apple rejected the assertion: "We do not expect the introduction of Apple TV +, including the accounting treatment of the service, to have a significant impact on our financial results."

But the most important point remains. Entering the world of television content could become messy. Investors need to remember that Apple's first foray into the original video did not go well. In 2017, the company launched a show for Apple Music subscribers called Planet apps. Barroncriticized it as a 47-minute advertisement for its own products.

While the most exciting broadcasts of other services are mature offers such as The iron ThroneApple focuses on family-friendly offers. "Each original Apple TV + delivers a unique story, a fresh perspective, and a powerful message to entertain, connect, and inspire cultural conversations," said Zack Van Amburg, Apple's Global Head of Video, in the press release. .

It's a good feeling. The problem is that cultural inspiration does not necessarily lead to eyes.

At the same time, Apple's financial prowess may not have made a difference by hiring top talent. Friday, the Hollywood Reporter told J.J. Abrams had signed with
AT & T

(T), WarnerMedia, refusing a broader financial offer from Apple. According to the report, Abrams has been hesitant about Apple's weaker distribution model and its lack of sources for creating new content.

Apple has not responded to a request for comment regarding Abrams.

The prospects for the Apple at will Apple Arcade do not look much brighter. Industry analyst Serkan Toto of Kantan Games is skeptical about the new business model, saying most casual gamers play multiple games at once. The industry has created many high quality free games, as highlighted in this column last week.

If Apple's service offerings do not take off, the interest of investors will return to its core business of smartphones. And the prospects for the new iPhone remain mediocre.

The new Apple phone models – iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max – offer faster processors, improved camera quality and longer battery life, but the form factor and the design are almost identical to previous models, which will likely limit upgrades this year. .

Pierre Ferragu, an analyst at New Street Research, estimates that the company will miss Wall Street sales estimates for this year's holiday quarter.

"The demand for the iPhone is today extremely low, while Apple is extremely aggressive in terms of price and promotion," he said. "Apple is probably entering one of the weakest iPhone cycles in its history."

Write to Tae Kim at [email protected]