Skip to the content

Apple Looks to Content to Strengthen its Service Proposition

According to reports, Apple is intensifying talks with producers to acquire original scripted material for TV shows and movies. This is not new, reports of Apple dialog with Hollywood have been circulating for years, but does it indicate a stronger interest in exclusive content as a services differentiator, or signal a major strategic push into filmed entertainment as a precursor to a much bigger Apple TV play?

For some time, Apple has been releasing music-related original programming such as Taylor Swift’s 1989 world tour and exclusive interviews with top artists like Adele. The firm’s first venture into original production outside the music arena will be a TV series, announced in March 2016, starring entertainer in association with veteran producers Ben Silverman and Howard T. Owens. This will focus on apps development and the app economy and, although it will undoubtedly be entertaining, the piece will clearly also play a role as marketing collateral for the Apps Store and Apple’s developer programs. Eddie Cue, Apple SVP of Internet Software and Services is previously reported to have said that it did not signal broader ambitions in TV and movies and content will be carefully selected to fit with Apple’s business like Apps Store and Apple Music.

Apple’s Internet Services business has continued to grow strongly in the last few years, rising 22% to $24.35 billion in FY 2016 (although this was boosted by a $548 million windfall payment from Samsung relating to a patent infringement lawsuit). However, growth has come primarily from the Apps Store, Apple Care, Apple Pay and licensing services - iTunes growth has flattened as competing streaming services have hit transactional entertainment market growth, notably Spotify (music), Netflix and Amazon (video).

Apple Music, launched in 2016, is Apple’s answer to Spotify (and other streaming services, including newly launched Amazon Music) and now counts over 20 million paying subscribers. A priority for the company will be to secure and grow Apple Music to defend its overall share of the digital music market and strategic moves will almost certainly include a widening slate of exclusive artists and original filmed entertainment (this path was followed by MTV 20 years ago to reduce its reliance on canned music videos). 

Apple has hinted at major plays in television for several years but in practice has just continued to build the portfolio of content distributed on Apple TV, including major streaming services like Netflix, Amazon, HBO Now and Hulu. Apple has elected thus far not to directly compete with these major SVoD brands, who distribute across the widest possible range of personal and TV-centric devices, including Amazon’s own Fire TV DMA. Futuresource estimates that over 20 million Apple TV boxes are currently in active use worldwide, a big number perhaps, but only a small fraction of Apple’s 600m+ base of iPhone users. 

In the absence of an Apple-branded SVoD service per se, third party brands like Netflix on Apple TV will almost certainly generate a small commission for the company and iTunes remains the default destination for EST or VoD amongst Apple users.

During the last 3 years Netflix and Amazon (and to a lesser extent, Hulu) have taken a leaf from HBO’s book and have become locked into a spending ‘arms race’ on original series to attract and retain subscribers. If Apple wanted to make a major play in production and SVoD, it could have made a play for Time Warner, acquiring both a leading studio and HBO in the process. However, despite reports of Apple interest, the company chose to pass, leaving AT&T trying to buy the company (this deal is currently under regulatory review, it is conceivable that Apple could step in if it is blocked). The decision to pass on TimeWarner strongly suggests that the latest reported Apple tactical moves into original production look to be aimed more at strengthening businesses like Apple Music, rather than a major new assault on the filmed entertainment market.

About the author

Mariia Konovalova

About Us

Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.