How important does Apple want to be in the media?

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AVIOLIN SET Sadly, Jon Stewart, an American comedian, makes a mock appeal to viewers. “Each year, thousands of hours of high-quality content go unread,” he says earnestly. “Because good, hard-working people … don’t know how to find Apple TV+. “

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The world’s most valuable company can afford a few jokes at its expense. In the past year, the tech colossus raked in $ 366 billion in revenue, a third more than in 2020. On January 3, its market capitalization briefly exceeded $ 3 trillion (see chart 1) . The mere billions he is investing in media, including a new television show hosted by Mr. Stewart, are pocket money for the Silicon Valley giant.

Yet some 300 miles (480 km) along the coast in Hollywood, where executives laughed at the big tech dilettantes of the North, Apple isn’t messing with the media. Although it lags well behind Netflix and others, Apple has enough cash to weather the increasingly costly streaming wars that threaten to bankrupt other players. One question keeps rivals awake at night: what does Apple want from show business?

Apple became a big fan in music when it launched iTunes 21 years ago this week. It took a cut in song sales and moved hundreds of millions of iPods for people to listen to. Later, iTunes also sold movies, and the company hoped to make the same model work on television, where the market is an order of magnitude larger than music. But pay for downloads has been replaced by all-you-can-eat subscriptions, launched by Spotify in music and Netflix in TV. Unlike downloaded music or movies, subscriptions can be easily moved between platforms. Thus, Apple, seeing few opportunities to lock consumers into its devices, abandoned the streaming revolution.

Today, he’s back in the media game, and with more force than Mr. Stewart’s joke suggests (see graph 2). Apple Music, launched in 2015, is the second-largest streamer after Spotify. Apple TV+, which has now been in existence for two years, is the fourth-largest video service outside of China by number of subscribers, according to Omdia, a data company. Over the past two years, Apple has made smaller media bets, including Arcade, a subscription gaming package, News +, a publication bundle, and Fitness +, which offers video aerobics classes. There is talk of an audiobook service later this year.

Like Amazon, another tech giant with wiggle room in the media, Apple has been able to roll out its offerings faster in more countries than most of its Hollywood rivals, which have had to build direct-to-consumer businesses to start from nothing. And it can afford to be generous with free trials: less than a third of Apple TV+ subscribers pay for the service, says Omdia. He’s had a few hits, most notably “Ted Lasso,” which won a series of Emmy awards in September. But a back catalog is missing, resulting in high customer churn rates. Smaller competitors like Paramount + (which is part of Viacom SCS) and Peacock (from CNBUniversal) have new limited offerings but libraries that are decades old.

Old-media companies have been intrigued by Apple’s intermittent outings in their territory, which at times seem half-hearted. Winning in streaming mostly depends on the splurge on content. But deep-pocketed Apple spent just over $ 2 billion on movies and TV in 2021, compared to $ 9 billion from Amazon and $ 14 billion from Netflix, estimates Ampere Analysis, a research firm. He doesn’t care much about marketing his efforts. And although medialand has cooed executives that Apple has poached, such as Jamie Erlicht and Zack Van Amburg of Sony and Richard Plepler of HBO, Silicon Valley insiders say Apple is keeping its own tech techs on other projects.

Indeed, as Hollywood frets about Apple’s next move, many Silicon Valley residents wonder why it’s in the media. Neither market is a big deal for the world’s most valuable business. The entire global recorded music industry had sales of $ 22 billion in 2020, which is less than what Apple achieved just by selling iPads. In about a month, Apple generates as much revenue as Netflix in a year. Apples TV business depends on buying shows, rather than extracting rents from other people’s creations like it did in the iTunes era (and still does in its app store). And the “lock-in” effect on consumers is small, since Apple’s main media services are available on all platforms.

Apple’s renewed interest in the media can best be explained by the transformation of the corporate scale, which radically changes the calculation of worthwhile side-projects. Fifteen years ago, when Netflix started streaming, the billions involved in running a movie studio would have represented nearly a double-digit share of Apple’s annual revenue. At the time, executives from Silicon Valley were flying to Los Angeles, thinking, “We have a big checkbook, we could buy a bunch of content,” said Benedict Evans, technical analyst and former venture capitalist. “And they were going to have their first meeting in LA. And the folks in LA would tell them the price ”—when the tech people came home. In 2021 Apple TVThe estimated content budget of + represented 0.6% of the company’s turnover: “play money”, as Mr. Evans puts it.

The cost of running a studio can therefore be justified by modest profits for Apple. Streaming subscriptions may not lock people down as strongly as iTunes purchases, but Apple’s various services continue to create “meat hooks” on customers, making them spend more time with their devices and making a bit of a mess. more embarrassing to leave the Apple ecosystem, says Nick Lightle. , a former Spotify executive. The iPhone itself, which generated $ 192 billion in sales last year, or more than half of Apple’s total revenue, is sold as a subscription, says Evans. Anything that lowers the churn rate of iPhone subscribers, however small, is likely to pay off.

The media also do good marketing. Producing films with Steven Spielberg and Tom Hanks strengthens Apple’s premium brand. Partnerships with pop stars keep it cool. And at a time when Silicon Valley is under attack for monopoly practices, invasion of privacy, subversion of democracy and more, Apple is producing podcasts worthy of Nobel Prize winner Malala Yousafzai and teaching kids fitness routines. . Few companies can consider a film studio to be a branch of public relations. A $ 3 billion company can.

“Apple is not playing the same game as many of its others [media] competitors, ”says Julia Alexander of Parrot Analytics, another data company. For one-rounders like Netflix, this is an uncomfortably asymmetrical competition. Yet Apple’s broader priorities can cripple its media ambitions as well. Apple TVthe lack of + library could be solved by purchasing someone else’s library; the company has been touted as a potential buyer of small studios like Lionsgate as well as giants like Disney. But Apple may hesitate to provoke the US Federal Trade Commission (FTC), which targets Silicon Valley. “If you are Apple and the FTC look at big tech, the last thing you want to do is make a huge acquisition, ”notes Ms. Alexander. Lina Khan, the FTCTech bashing chief examines recent $ 8.5 billion purchase from Amazon MGM Workshops; it doesn’t matter if the target is a relative tiddler in a fragmented market. As companies vie for control of the next highs in tech, from decentralized Web3 to virtual reality, catching the attention of regulators by buying old TV episodes could be a strategic mistake.

As long as they continue to help sell its devices and rebuild its brand, Apple will continue to invest in its multimedia services. It will cost more: Global spending on video content will exceed $ 230 billion in 2022, according to Ampere, almost double what it was a decade ago. As smaller competitors overspend and give up, Apple’s position may even grow stronger. But given its greater ambitions in other sectors, Apple should be content in the media to stick to its role as a supporting player.

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This article appeared in the Business section of the print edition under the headline “The Accidental Tycoon”


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