A year ago, Apple debuted a whole string of new services to a great deal of fanfare, beginning with Apple News+ which opened its doors in the spring, followed by Apple TV+ and Apple Arcade, which were announced at the same event in March, but didn’t become available to subscribers until last fall.
Then there was the revolutionary Apple Card, which rolled out last summer to those in the U.S., offering a zero fee credit card with unique iPhone integration, some decent cash back perks, and 0% financing on Apple products. While it’s something that’s not often thought of as part of Apple’s services business, it also contributes to the company’s services revenue — at least in theory.
Despite Apple’s strong efforts, however, it seems that out of all of the company’s services offerings, only Apple Music is actually generating any meaningful revenue, according to a new report by Bloomberg’s Mark Gurman. Of course, Apple Music has been at it for a lot longer — not only did it originally launch back in 2015, but it’s fair to say that Apple Music built on over a decade of success in the music industry that began with the original iTunes Store back in 2003.
In fact, Apple Music has repeatedly been breaking the kind of records that count — album sales numbers. As Deadline reports, this week Taylor Swift’s new album, folklore had a landmark opening this past weekend with 35.47 million streams on Apple Music within the first 24 hours, setting a new high for a pop album, and it’s far from the first streaming record that Apple Music has broken.
By contrast, while Apple TV+ has also been making waves, its success seems more limited to winning awards. This week Apple TV+ became the first-ever streaming service to win Daytime Emmy Awards in its first year of launch, taking home wins for Outstanding Children’s or Family Viewing Programming for Ghostwriter and Outstanding Single-Camera Editing for Peanuts in Space: Secrets of Apollo 10, and this is the latest in a string of awards that have broken new ground in the streaming industry — Apple’s The Morning Show racked up numerous nominations before the first season had even ended, with lead Jennifer Aniston taking home a Screen Actors Guild award and Billy Crudup walking away with a 2020 Critics Choice Award. In total, Apple TV+ content has racked up a total of 25 award wins and 71 awards nominations in only nine months of operation.
Unfortunately, all these wins don’t yet seem to be translating to actual revenue for Apple. As Gurman notes, the streaming service has yet to offer any “blockbusters” in terms of revenue, although by all reports Tom Hanks’ Greyhound seems to have come pretty close, and apparently had a positive impact on attracting new subscribers, although it remains to be seen how many will convert into paying customers, since the seven-day free trial would have been more than sufficient if they simply came to watch Greyhound.
In fact, this is really the problem that Apple TV+ is facing right now; when Apple debuted the service last fall, it offered a free year of the service to anybody who had purchased any new Apple product capable of viewing it, from an iPod touch to a MacBook Pro, in hopes that it would whet people’s appetites for Apple’s original content.
It was actually a solid strategy considering the relative dearth of content on the service at launch — Apple was opted for quality over quantity, and spent staggering amounts of money to make sure that it would have some of the best shows and movies available, and it’s continuing to do so with some extremely high-profile movie deals that are reportedly running well over $100 million to acquire and produce.
Despite this, however, analysts suggest that relatively few Apple customers have taken advantage of the free offer.
According to Bloomberg, analyst Toni Sacconaghi with Sanford C. Bernstein estimated earlier this year that fewer than 15% of eligible customers had actually signed up at that point. Of course, with the likelihood that there are at least a couple hundred million eligible customers — Apple sold an estimated 56.8 million units of the iPhone 11 alone in the first six months after its release — 15 percent still translate to a pretty substantial number of subscribers.
However, the open question is how many people will continue paying for Apple TV+ once the free ride is over, and of course that’s going to be largely up to how much compelling content Apple can continue offering, but it’s clearly not slowing down in its efforts to stay ahead of the game, and despite Sacconaghi’s comments that Apple should consider spending more on original content, it’s hard to see how the hundreds of millions it’s already spending to bankroll original shows and movies — Netflix spends twice as much for ten times more shows — isn’t already enough.
Several more optimistic analysts do expect that it will eventually grow into a $9 billion business and easily gain 100 million paying subscribers. These things simply take time, and Apple is usually pretty content to play the long game, and we really don’t think that Apple is worried about the success of Apple TV+.
The Apple Arcade and Apple News+ services are another matter entirely, however, and while Apple doesn’t release specific numbers for any of its services, several reports have suggested that Apple News+ has had a hard time gaining traction, and while Apple has poured a lot of money into Apple Arcade, a recent shift in strategy that’s pushing for more engaging titles would suggest that perhaps the gaming service hasn’t been doing as well as the company had originally hoped.
Apple News+ seems to be an even bigger mess right now, and in fact, among some publishers the entire concept has been a questionable idea from the beginning.
Apple News+ launched mostly as a subscription magazine service with only three actual newspapers on board — The Wall Street Journal, the Los Angeles Times, and the Toronto Star. Meanwhile, The New York Times vocally opposed the News+ service, and last month actually pulled out of Apple’s free News service entirely.
Likely as a result of all of this, Apple is trying a new approach here as well, with the debut of Audio News+, allowing subscribers to listen to a curated list of news stories from various publications, while at the same time adding more regional and local news coverage and several additional newspapers to its staple.
It remains to be seen whether this will be enough to save the beleaguered service, but as Bloomberg notes, publishers are still complaining about lower-than-expected income from the service, although unlike The New York Times, there don’t seem to be any others that are considering a departure just yet, as many likely feel that even if the service hasn’t lived up to their expectations, there’s no downside to continue to participate, especially for smaller publications who wouldn’t otherwise get this kind of digital exposure at all.
Apple’s Services Anchor
Meanwhile, the App Store remains the anchor for Apple’s services business, having generated $32.8 billion in the first half of 2020 just for developers, which means that with its 30% cut, Apple likely pocketed around $14 billion from that service alone — a significant chunk when you consider that Apple only reported $13.3 billion in services revenue for the first quarter of 2020.
Apple also still makes an estimated $10 billion solely from its search deal with Google — a sizeable chunk of money that the search giant pays it simply to remain the default search engine in Safari on the iPhone, iPad, and Mac. In fact, by most estimates this is Apple’s second-largest revenue stream, following by AppleCare, iCloud storage, and Apple Music subscriptions. While Apple TV+ is making more revenue than iTunes movie, music, and TV show sales, the money from Apple Arcade and Apple News+ doesn’t even make the chart in analyst reports.
Of course, as we noted earlier, Apple is one to play the long game, and it’s fair to say that it didn’t expect any of these services to grow significantly in the first year — the very fact that it’s giving away Apple TV+ so generously right now is good evidence of that. However, it’s a first step in preparing for a post iPhone era, and there’s no doubt that Apple expects all of these to become much bigger moneymakers in the next 3–5 years.