Apple Is Compensating For Being Late To The Party!

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When Apple Inc. (NASDAQ: AAPL) revealed the price of Apple TV+ at Steve Jobs theatre, the very first reaction of most of the people attending the event was – WOW! Yes, Apple did surprise everyone with the jaw-dropping price of its video streaming service, which has a bit different content offering from other OTT players, likes of Netflix and Amazon Prime Videos. Apple TV+ promises to offer exclusive TV shows and movies, something that can’t be streamed by any other streaming service provider.

Never before Apple tried to play the price card to cut the competition, be it services or devices segment. This time, however, Apple seems to have employed a different strategy, which is no less than a surprise.

Does it mean that Apple is falling into the trap of becoming a part of a crowded market and lose the shine of being a company known to offer a premium experience? Let’s take a deep dive to understand what’s Apple up to with its unusual move.

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Apple TV+: Eyes On Pole Position

Apple has promised to offer all-original content in 4K quality with Dolby Atmos support at just $5 per month. The increasing popularity of online video streaming content has attracted the eyeballs of Apple, which is desperately trying to end its dependency on iPhone – the cash cow that accounts for a lion’s share of Apple’s quarterly revenue.

For the last one year, however, Apple has started focusing on its service offerings due to the declining sales of iPhone and increasing competition from Chinese players, besides its arch-rival Samsung. In the last five years, between fiscal Q3 2014 and Q3 2019, Apple’s iPhone revenue share has declined from 52.76% to 48.2%. It is also the first time since the launch of the iPhone in 2007 when the quarterly revenue contribution of iPhone dipped below 50%.

At the same time, the increasing revenue from service offerings has apparently convinced Apple’s management to strengthen its services arm further. The soaring popularity of online video streaming services attracted the eyeballs of Tim Cook and Team. The global video streaming market is estimated worth $125 billion by 2025, clocking 19.6% CAGR in the next six years. But to claim the lion’s share of the market, Apple needed to have an out-of-the-box strategy to compete with the dominating players, mainly with Netflix, Amazon Prime and Hulu.

Offering all original content has its own merit and advantages, and Apple wants to cash in on it with Apple TV+.

Late To The Party?

Apple is well aware that the success of Apple TV+, offering all original content, depends on the validation and acceptance by users. And, until the company has a huge library of original content that could keep subscribers glued, it can’t afford to attract any kind of criticism, be it related to the price or the frequency of content.

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The arch-rival and the leader in the on-demand video streaming space, Netflix is also bullish about producing original content. Last year, the company spent $12 billion in originals. This year, considering the competition is bound to intensify after the debut of Apple TV+ and Disney+, Netlfix has reportedly parked $15 billion for originals.

The market leader Netflix is estimated to accounts for a whopping 87% of the total US OTT subscriber base by the end of the year. Amazon Prime, on the other hand, too enjoys 53% penetration while Hulu will close the year with a 41.5% share of the OTT subscribers base in the US. It’s important to note that a sizeable share of the OTT subscriber base in the US has subscribed to multiple OTT platforms.

Hence, to eat into the market of Netflix or Amazon Prime, Apple not only needs to take a hit on the price but also need time.

Price of Apple TV+: All About Market Acquisition

The unusual pricing strategy of Apple TV+ is a testimony of Apple’s acceptance of being late to the party. To catch the attention of video streaming subscribers in the US, and worldwide, Apple found no batter way than offering Apple TV+ at a throwaway price.

Besides, Apple is also offering a free subscription of Apple TV+ for one year to all the customers buying a new Apple device. This way the company has employed an aggressive acquisition strategy to strengthen its market presence in no time.

Undoubtedly, just like Netflix, Apple needs to invest billions of dollars to buy an exclusive license of compelling content every month. But, all of these strategies to penetrate the market will continue to make a big dent on the company’s revenue book for the next few years. For a company like Apple which is sitting on a hoard of cash reserve, however, losing money on Apple TV+ in a bid to acquire market must not be a concern at all.

While Apple may be confident about its strategies build to counter dominating players of the on-demand video streaming industry, we need to wait for consumers’ reaction and market response to Apple TV+.

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