It is one of the most bold and bold bets in the company's history. The costs of making its Apple TV + streaming service a success will be huge. And there is a ton of competition that is deeply embedded there.
For Apple TV + to be a game referee for Apple, it will need to compensate for those lost iPhone sales. That means it will need to bring billions of dollars – possibly tens of millions of dollars – in a highly cost-intensive business.
There is one problem, however: It has Netflix, Amazon, HBO Now, CBS All Access, and it has a collection of other streaming services to challenge.
What Apple is against
But the US, where the audience of Apple's largest and loyal audiences, is saturated. Only 1.5 million new Netflix subscribers of the last quarter came from the United States.
So that's what Apple faces.
"While Apple can submit a larger list of original content than Amazon and Netflix during their respective launches, it could be argued that the streaming market has reached level [of] Saturation and consumer fatigue in the US, "said Colin Gillis, an analyst at Chatham Road Partners." Apple is late for the party. "
It's not a no-sum game: Many people subscribe to multiple services. Dan Ives, an analyst at Wedbush, predicts Apple's new service will win 100 million subscribers over the next three to five years.
It helps that Apple already has a huge audience – 1.4 billion iOS active devices worldwide. It also seeks to distinguish itself from the competition by welcoming privacy and making its content friendly to the family.
And Apple doesn't just rely on its current supporters: It will make Apple TV + available to non-Apple customers, which is a huge deal.
Apple doesn't often open its walled garden. Most notably, Apple made a Windows version of iTunes in 2003 (over Steve Jobs's objections), according to biographer Walter Isaacson). That made the iPod an international feel, establishing Apple for its mega iPhone success.
How to measure success
Apple has managed to sell subscriptions, apps, films and other services to iPhone customers. Apple's services business, which included App Store, Apple Music, Apple Pay and iCloud, came with sales of $ 37.2 billion last year.
Apple TV + has the potential to grow the business of those services a lot. In a note to investors on Monday, Ives said he believed Apple TV + "will play a vital role in the growth of services in Wales." [Apple] for years to come. "
But streaming is probably not a big enough business to offset the slowdown in iPhone sales on its own. Apple said that most of its growth in service last year came from licensing, the App Store and AppleCare – not its streaming subscriptions, like Apple's Apple $ 10 a month.
Gillis estimates that Apple Music has 56 million subscribers, but only 10% to 15% of Apple's revenue services contributed. That means Apple Music is only 1% to 2% of Apple's overall revenue. Apple TV + may not do much more.
Apple may need to do more than fill a dentist. The company made $ 166.7 billion in iPhone sales last financial year. If iPhone sales remain on track with the first quarter of 2019 financial, Apple could lose $ 25 billion in iPhone sales. In this financial year, which started in October, Apple's iPhone sales have already fallen by $ 9.1 billion from where they were a year ago.
Compare that with Netflix, which made a total of $ 15.8 billion of revenue last year. That company had to spend a ton of money to get there: Its gross profit was only 10%. The apples gross profit was 38.3% last year.
"Apple's new video service isn't going to be a Netflix killer," Gillis said. "Apple is still the iPhone company."