Apple TV+ is All About Selling More iPhones
It’s another perk to joining the cult of Apple
It’s no secret that the iPhone has been struggling. Since 2016, iPhone sales growth has fallen off a cliff, and revenue was down 12 percent year over year in the third quarter. Apple has been adjusting its strategy to make up for a stagnating iPhone, but that doesn’t mean it’s given up on the product that made it one of the largest public companies by market cap in the world.
At the iPhone event on September 10, Apple unveiled the latest iterations of the iPhone: 11, 11 Pro, and 11 Pro Max. They have some new colors, upgraded cameras (with a sizeable new camera bump), slightly better battery life, and some other minor upgrades. In short, nothing too exciting. At least the iPhone 11, which is replacing the iPhone XR, will start at $699 — a $50 price cut from last year.
But before the iPhone took the stage, Apple spent some time on its other products, and the strategy it announced for Apple TV+, its new streaming video service, deserves special attention.
Services designed to bolster hardware sales
Apple made a pivot to services in recent years to keep investors happy by showing them it can generate revenue in other areas even if the iPhone isn’t growing in the way it once did. As part of that effort, it’s moved into music streaming, news and magazine subscriptions, gaming, and video streaming — in addition to the existing revenue coming from iCloud, iTunes, and the App Store.
The services and wearables segment — bundled together in Apple’s quarterly reports — now accounts for 19 percent of Apple’s revenue and will continue to be important moving forward, but hardware remains central to the Apple experience. When someone buys an iPhone, iPad, and Mac, they gain preferential access to the suite of software and services that makes Apple products so attractive — and the more hardware they buy, the better the experience becomes.
This new suite of services is ultimately designed to keep people in the Apple ecosystem while sucking a bit more money out of their pockets, boosting the revenue it takes from every customer since the influx of new ones is slowing. That strategy was made especially clear for TV+ when Apple finally announced its price at the iPhone event.
Analysts had been expecting a $9.99 launch price, but the company had a surprise: not only would it launch at half that price — $4.99 per month, undercutting its competitors — on November 1, but anyone who buys an iPhone, iPad, Mac, Apple TV, or even an iPod Touch will get a year of the service included. It’s yet another perk of being part of Apple’s club.
The iPhone must survive
The success of the iPhone over the past twelve years has been incredibly profitable for Apple and granted it immense market power. At the end of the third quarter, Apple had $210 billion sitting in the bank after yet another massive round of stock buybacks to enrich its well-off investors, but some of that money has also been going to content creation.
Apple upped its content spend to $6 billion, from an initial $1 billion, with some questionable spending decisions as it’s been reported that The Morning Show, starring Jennifer Anniston, Reese Witherspoon, and Steve Carrell, costs more per episode than the final season of Game of Thrones, despite having no dragons or ice zombies (that we know of). But the money doesn’t matter so much — Apple could keep funding content for decades and still have many billions left over. What matters is keeping people within the Apple ecosystem, getting them to spend more, and attracting new customers over time.
The more Apple products a customer owns, the more control Apple has over what they have access to on their devices, especially on iPhone and iPad where the experience is highly regulated by the company. The ability to easily access web-based alternatives and pirated content is restricted, but Apple is also able to make its own services more attractive than those of its competitors. Since it doesn’t need the revenue from TV+, it can make it free, but it also exempts its own services from the “Apple tax” charged for every third-party purchase or subscription in the Apple Store.
If you subscribe to Apple Music, it’s $9.99, but Spotify will cost you $12.99 through the App Store even though it’s $9.99 if you subscribe online. If you want to read ebooks, you can purchase them through the Apple Books app, but not through the Kindle app because Amazon would have to pay Apple thirty percent of every purchase. And you’ll soon be able to subscribe to Apple TV+ if you don’t get it for free, but Netflix subscriptions are no longer available through the app because of the cut demanded by Apple. This might be good for Apple, but it’s not fair to its users who have to jump through hoops if they prefer to use a non-Apple service.
Despite its troubles, the iPhone is still the core of Apple’s business. The ease of use made possible through designing the hardware and software to work seamlessly together has always been a key selling point, but Apple’s services are not better than those of its competitors. They’re just cheaper to use and easier to access once you’re inside the Apple ecosystem.
When Apple owned a sliver of the personal computer market, its bundling of software wasn’t much of an issue — there were plenty of other choices. But as a major player in smartphones and tablets, where its control of the operating system is far beyond what it ever achieved with the Mac, that’s becoming a big problem. Apple has so far escaped the kind of scrutiny placed on Google, Amazon, and Facebook, but it’s time for that to change.
