Apple TV+ launches with a bang and a whimper

It has been interesting and even amusing to observe the jostling over pricing of the big four emergent streamers as they ready their offerings for market, that is Apple, AT&T, Comcast and Disney. The six-month launch season for these four has begun with the release of Apple TV+ on November 1st, followed 11 days later by Disney+, with Comcast’s Peacock coming in April 2020 and finally AT&T’s HBO Max a month after that. Although clearly firing at each other, they are all targeting the elephant that was already in the room, Netflix, as well as Amazon Prime Video to a lesser extent with its different business model. There will then be a big six under the collective acronym of Canada (Comcast, Apple, Netflix, Amazon, Disney, AT&T).

Apple, Comcast and Disney in particular have focused on price as a way of gaining market share. Disney was first to declare by setting its US sub at $6.99 a month or $69.99 a year, making sure it comfortably undercut Netflix which actually raised the price of its standard plan by $2 to $12.99 a month. But now Apple TV+ has come in at $4.99 a month, forcing Peacock into a reappraisal. Peacock had already indicated it would offer both ad-supported and subscription tiers but is now under pressure to ensure the latter is competitive with the other new players. That may mean promoting the AVoD version more strongly as an alternative model, which soundings suggest will have significant appeal among lower income groups even in more affluent countries like the US.

HBO Max is the only one that does not feel under pressure, setting its price the same as the existing HBO Now streaming service at $14.99 a month. The logic there is that HBO Now already has 9 million subscribers who will all be able to switch to HBO Max for the same price and enjoy access to twice as much content.

Apple CEO Tim Cook described Apple TV+ as different from anything else out there, but this is a stretch because in each aspect it is the same as at least one of the others. He may have been referring to the fact that coming with a clean slate it would offer only original content, whereas Netflix and Amazon also carry licensed syndicated shows such as Mr. Robot or the Big Bang Theory. Yet original content is increasingly a necessary differentiator for all the streamers as they pare their content back to their own domains in an increasingly fragmented streaming ecosystem.

In terms of business model, Apple could claim some uniqueness, although it has essentially aped Amazon’s approach in its own context. For both companies, video is almost a lost leader towards the greater goal of becoming the portal of choice for all things digital. Both then could be said to have evolved their video strategies around services rather than content, unlike the others.

Amazon it is true offers paid-for channels within Prime Video, but these are mostly external services where the added premium merely covers the particular subscription cost. For example, HBO Now is available as an Amazon channel for the usual $14.99 a month. Otherwise all content is free to Amazon Prime subscribers, so the revenues come from driving subscriptions to that rather than directly. Indeed, Amazon indicates it really does view video as a lost leader because it claims that the more content its Prime subscribers watch, the more other services they consume, including retail products.

Apple’s approach to video is rather similar, except that the goal is to drive sales of devices first and then ultimately additional services beyond video. After all, there are already 1.4 billion active Apple devices in the world, so that is a huge ready audience to target with Apple TV+. Although nominally paid for at $4.99 a month, Apple is bundling the TV service free not just to new subscribers, but anyone owning a device, even a refurbished one. So, Apple TV+ is free to all its user base. Furthermore, existing subscribers of some services that are not confined to Apple devices, such as Apple Music Student, get the TV service bundled free with their sub, in that case again for $4.99 a month in the US.

Apple is certainly hitting the ground running in terms of original content, coming in with a $5 billion a year budget. Although that is less than Amazon on $7 billion this year and well below Netflix on $14 billion, it far exceeds what those two spent in their first year of original content production.

But then Apple cannot afford the luxury of ramping up slowly given that all its big rivals already have substantial content arsenals. Its new originals have elicited mixed reviews, but judgements over the overall quality are missing the point, which is more about building quantity quickly across an array of genres at this stage. Given the pricing model, Apple TV+ will gain traction almost whatever the content and there will be time to start making award-winning productions that gain the sort of accolades that build reputation for quality as well as quantity, as Netflix has succeeded in doing.

For the other four members of Canada, that is Comcast, AT&T and Disney, besides Netflix, there is not the luxury of making content a lost leader. Their strategy then must focus on content and they will stand or fall on the engagement that drives. Of these, Comcast, AT&T and to an extent Disney also have existing pay TV services that they will want to continue drawing from even as they decline and manage the change to greater streaming dominance.

There are differences within even these three. Both AT&T and Disney are clearly placing D2C and streaming at the core of their strategy, in the former case not least because its traditional pay TV base is hemorrhaging subs. Disney on the other hand lacks a strong direct pay TV presence with its ESPN sports channel distributed via other services. In India, Disney’s Hotstar is a streamer, while ESPN’s center of gravity is shifting to the ESPN+ OTT version.

Comcast then is the odd one out in clearly wanting to avoid cannibalizing its existing cable base in the US, although its European operation Sky has indicated that its subscribers will be migrating from DTH to online over time. Comcast also has its NBC Universal library of content which it still wants to sell via other outlets, in contrast to Disney and AT&T’s WarnerMedia. Both of these have pulled content from Netflix, WarnerMedia having taken Friends off for example to make it available exclusively on HBO Max, at least in the US with the situation less clear in some overseas markets.

It is hard to see this degree of fragmentation persisting, or all six members of Canada surviving in their current form over the next five to 10 years. We can expect consolidation as at least one slips behind the curve in the brutal streaming wars to come.