While some are pointing to Apple’s long-awaited streaming video service as a key element in replacing lost iPhone income with Services revenue, at least one major analyst is skeptical.
Predicting that Apple will charge $15/month for the service, Jefferies analyst Tim O’Shea says the company faces two big challenges – and even the best-case forecast doesn’t help the company that much …
In an investor’s note seen by Business Insider, O’Shea says that the there are two keys to success in streaming video. First, original content – in which Netflix has excelled. Second, access to content from the big studios and networks. Apple, he argues, isn’t well-placed to achieve either of these things.
Apple’s spending a fraction of what Netflix is spending on original shows and movies, meaning that at least at first it will likely be far more dependent than the streaming video giant on third-party content. But the company’s plans to take a 30% cut on revenue may not sit well with many Hollywood studios and networks, he said.
“It’s hard see how those economics fly,” O’Shea said.
Even before the launch of Apple’s video service, Netflix has been trying to avoid having to pay the similar commission Apple charges app store developers for subscriptions that come in through their iPhone apps. Netflix instead has been encouraging customers to sign up for its service via its web site.
Apple could find it hard to sign up customers to its own video service if too many production companies balk at offering shows and movies through it. Already Netflix has balked at being a part of Apple’s service and HBO has yet to commit to it, CNBC reported.
“There are only a handful of players that make content that matter,” O’Shea said. “If you lose one or two of them, it makes your service much less attractive.”
O’Shea acknowledges that Apple’s huge customer base and ecosystem does leave it well-placed to attract subscribers, with the rapid growth in subscribers to Apple Music showing the potential. But even if Apple’s streaming video service became bigger than Netflix, it still wouldn’t help that much, he suggests.
O’Shea estimated that if Apple’s video service had 250 million subscribers in 2023, it still would account for only about 5% of the company’s revenue that year — and wouldn’t make up for its declining smartphone sales. By point of reference, after offering streaming video for 12 years, Netflix has 139 million subscribers.
“It’s going take a long time for this type of service to really move the needle,” O’Shea told Business Insider.
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