On Thursday, six days before the third anniversary of Apple TV Plus’s launch in the Before Times, Apple will issue another quarterly earnings report and analyst call. It is entirely possible that, once again, Apple executives will say virtually nothing about Apple TV Plus, one of their most expensive public ventures in the months since.
Even by the standards of the notoriously secretive Apple, the enveloping radio silence around Apple TV Plus continues to evoke something like watching the Kremlin back in the bad old days of the Soviet Union. Kremlinologists would study the annual group photo of the Politburo to see who was still, literally, in the picture.
Also read: Apple TV Plus Sets Its First Price Increase, Now $6.99
In somewhat similar (if far less murderous) fashion, Apple watchers know very little about what the company is doing with its subscription streaming service. How many subscribers? How many free accounts through partners? How much revenue? How much is being spent on programming? How does the service fit into the larger picture for Apple’s Services business, or the overall company? When is break-even? What counts as a win?
Who knows? Three years in that’s, well, kinda weird.
That being said, the latest signs from the Cupertino Infinity Kremlin Loop suggest Apple is finally starting to take its little video hobby more seriously.
It’s about time. The array of Apple TV Plus programming still looks a bit more like one of those take-one, leave-one kiosks in front of your neighbor’s house than, say, the New York Public Library, or even the Poughkeepsie library.
But the shelves are filling out. And Apple TV Plus has certainly featured some keepers, like two-time Emmy best comedy winner Ted Lasso and Oscar Best Picture winner CODA. The Morning Show gave the service some early credibility and a few awards wins. More recently, shows such as Pachinko, Severance, Physical, The Shrink Next Door and Bad Sisters have broken through and become critical and audience winners.
Friday Night Baseball put Apple into the live sports business, and not incidentally, traditional video advertising. Both were big steps. A 10-year deal with Major League Soccer and persistent reports Apple is front-runner for NFL Sunday Ticket rights suggest sports will only become a bigger part of Apple’s plans going forward. Probably.
And beginning this week, Apple will start charging more for the privilege of watching all that goodness. I would suggest that’s important for a couple of reasons.
One, remember that Apple didn’t charge early subscribers anything for nearly two years after launch, because it just didn’t have enough shows to justify a fee. It felt like a big move summer before last when Apple finally began collecting money.
Second, deciding to raise prices now suggests Apple is feeling more confident about Apple TV Plus's value proposition.
The price hike hits new subscribers this week, rising $2 to $6.99, up 28%, though still cheaper than ad-free options of competitors. The six-service Apple One bundle that includes Apple TV Plus also will rise 10%. Apple must feel pretty confident subscribers won’t depart en masse, even with a price hike in the face of looming recession and industry-wide churn.
Raising prices also suggests Apple wants to start making money on its streaming hobby. Third-party estimates are that Apple spends $8 billion a year on programming, a lot of money, but less than half what Netflix spends.
Again, though, who really knows how big Apple’s programming budget is besides Tim Cook and Luca Maestri? Maybe a couple of formerly loose-lipped guys held in a gulag just outside Cupertino.
That said, squeezing another $24 a year in ARPU from 25 million or 30 million or 50 million subscribers (again, again: who knows?) will help close the gap between income and outgo.
Apple is showing one more sign it’s getting serious about Apple TV Plus: advertising.
Apple TV Plus is now the only major streaming service that doesn’t offer or plan to offer an ad-supported tier. That is, as Netflix’s formerly ad-averse Reed Hastings might say, leaving money on the table.
Apple may join the ad party, recent reports now suggest. In the meantime, it already has the Friday Night Baseball experience with ads, with more to come from MLS and any NFL rights in the future.
The company is also expanding advertising initiatives elsewhere among its zillion operations. First up are ads in the App Store, contextual slots tied to searches for a specific app. More search ads are on the way, and possibly Book and Podcast app ads too.
The step from all those ads to putting paid placements in the Apple TV/TV Plus interfaces is a pretty small one. Putting ads or sponsorships in and around shows would be a bigger lift, but again, what Apple learns from its sports initiatives makes that easier too.
Taken together, it all suggests that Apple is looking to make Apple TV Plus be more than a decorative onion dome at Kremlin Loop.
So why now? Because Apple needs new revenue and growth generators. Its long-time engine of dominance, the iPhone, still sells big, but post-pandemic and mid-recession sales of those and other hardware may not be quite as spectacular.
Apple is still a $2.4 trillion company. Its five-year effort to plump up its Services revenues has been hugely successful: the unit delivered $19.8 billion in revenue just in the last quarter. On an annualized basis, that’s roughly equal to Sony’s $83.7 billion market capitalization.
But, as they say, the things that got Apple here won’t necessarily keep it here.
It’s possible that, as Apple TV Plus matures into a substantive and profitable business, it might turn into one of the company’s big moon-shot bets, like the Mac and iPhone once were, and AR/VR Goggles and the Apple Car might become. Just don’t expect Apple to say anything about it. ▪️
