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Apple's TV subscription has 'limited pricing power' at launch, analysts say

Daniel Roberts
Senior Writer

Apple trotted out a parade of Hollywood stars to unveil its Apple TV+ subscription service on Monday in Cupertino, Calif., including Oprah, Steven Spielberg, Steve Carell, Reese Witherspoon, Jennifer Aniston and JJ Abrams.

It still wasn’t enough to impress everyone.

A number of analysts are sounding skeptical notes on Apple’s ability to sell subscriptions to a new TV service when Apple has no successful track record with creating original television.

Apple reportedly spent $1 billion on original content in 2018 (compared to Netflix’s $12 billion) and has more than 20 original shows in the works with the aforementioned stars, plus M. Night Shyamalan, Kumail Nanjiani (“The Big Sick”), Ewan McGregor, Viola Davis, and Charlie Day and Rob McElhenney (“It’s Always Sunny in Philadelphia”).

But Apple’s two original shows it has tried so far, both in 2017, were not hits.

“Planet of the Apps,” a tech competition show judged by Jessica Alba, Gwyneth Paltrow, Will.i.am, and Gary Vaynerchuk, was canceled after 10 episodes. “Carpool Karaoke: The Series,” a spin-off of the popular recurring segments from “The Late Late Show with James Corden” (without Corden), got two seasons but was widely panned by critics.

Apple did not disclose how much Apple TV+ will cost – the consensus expects it to undercut Netflix’s $12.99 entry price tag. Jefferies Group, in a research note on Tuesday, said it will have to be a lot cheaper than Netflix to get much traction, especially in an era when consumers may already feel over-subscribed to digital subscriptions.

“We see limited pricing power given the small content library at launch,” Jefferies analysts write. “And if Apple is playing the long game here it could pressure financials for years. How much can they charge?... It would likely be substantially below Netflix ($12.99) and Disney+ (TBA), formidable competition with deep libraries.”

Nomura, in a note, points out that if the price is $10 per month, it would take 8 million subscriptions to achieve $1 billion in sales, and thus, “We assume profitability will be low.”

Apple CEO Tim Cook (L), Oprah Winfrey (C) and Steven Spielberg stand for a photo before an event launching Apple TV+ at Apple headquarters on March 25, 2019, in Cupertino, Calif. (NOAH BERGER/AFP/Getty Images)

On the other hand, while all the focus and buzz may be around Apple’s forthcoming originals, the Apple TV Channels section is separate from Apple TV+ and will be a host for other content providers like Amazon Prime, HBO, Showtime, Hulu, CBS All Access, and Starz. (Netflix will not be included, making Netflix vs Apple the second marquee battle in the streaming wars, along with Netflix vs Disney.)

But Jefferies points out, “This is just a new way to package the same business Apple already does today.”

Indeed, the Apple TV physical device, much like the Roku box, has long been a host for the apps of other streaming content providers. The new part is Apple charging a subscription fee, so the onus is on Apple to add value. In other words, it cannot just be a host.

Across the board, analyst notes that came out on Tuesday cited disappointment over Apple not sharing the subscription price, and disappointment that the service will not launch until fall. Bank of America wrote, “Given some of these services are not available until the fall, it is surprising that Apple chose to schedule this event in March.”

One month before the March 25 Apple event, analysts at KeyBanc were pessimistic, writing that Apple’s video strategy was “likely to remain uninspiring... sub-scale, years behind key competitors, and lacking in meaningful differentiation.”

Now that the event has happened, KeyBanc is still bearish.

There are two possible paths for Apple TV+ with consumers, KeyBanc writes in a new research note: Either Apple “will be able to aggregate enough long-tail content to drive significant subscription volume,” or “the lack of marquee content will fail to attract subscribers and Apple's services will remain modest in impact to both Apple and the broader industries. At the moment, we believe the latter is more likely in each of the service areas Apple announced today.”

Wells Fargo, in a note, concluded similarly: “Apple’s push into original content leaves us/investors with more questions than answers.”

Daniel Roberts is a senior writer at Yahoo Finance and closely covers streaming tech. Follow him on Twitter at @readDanwrite.

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