Can Apple Compete With Netflix (and Should It Even Try)?

Netflix on iPad with Earpods and Popcorn Credit: Riccosta / Shutterstock
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With Apple’s announcement of its video-streaming service now officially just around the corner, analysts and pundits are starting to weigh in with thoughts on what form the service will actually take, and what Apple’s ultimate ambitions for it should be.

There’s no doubt that Apple’s video service is going to be important, or maybe even crucial, to its bottom line — as iPhone and other hardware sales start to slow, the typically forward-thinking Apple is looking to the future in a variety of ways, and the recurring revenue from online services like Apple Music, iCloud, and of course its upcoming initiatives in video streaming and news, is going to become increasingly relevant. In fact, Apple as much as said so two years ago, when it set a goal to grow its services business alone to the level of a Fortune 100 company.

Although half of Apple’s services revenue today comes from the App Store and its Google search engine deal, most analysts suggest that’s already beginning to decline, making it an ideal time for Apple to pursue new markets by unveiling the video streaming service that has long been in the works. However, most analysts are suggesting that the company has a lot of catching up to do in order to even begin to reach the levels of incumbent players like Netflix.

Attracting Subscribers

According to a new report by Wedbush, Apple can realistically hope to reach 100 million subscribers by 2024, but this would still pale in comparison to Netflix, which is rapidly approaching 150 million subscribers and currently boasts an acquisition rate of around 2–3 million new subscribers per month.

If Apple executes with minimal speed bumps and aggressively acquires content given the company’s massive installed base and unmatched brand loyalty we believe reaching 100 million subs in the medium term (3 to 5 years) is a realistic goal that could translate into a $7 billion to $10 billion annual revenue stream over time for Apple and further cement its installed base and halo effect.

Wedbush Analyst

While subscriber numbers for even Netflix will presumably plateau at some point, even if the company were to continue at half of its current growth rate, it could easily reach 200 million subscribers before Apple even logs its 100 millionth.

The bigger question, however, is how much raw subscriber numbers matter to Apple — a company that has traditionally been less concerned about market share than profitability. Likewise, Apple’s investors are generally only concerned with the company’s bottom line, so if Apple can produce significant profits from a smaller subscriber base, it’s still going to represent an overall win.

Apple’s Original Content Strategy

Apple has also been aggressively pursuing new original content deals, some of which are incredibly ambitious and could therefore have huge payoffs. However, some have raised concerns that the company still isn’t spending enough money in this area compared to its competitors, suggesting that it’s already starting from behind.

[Apple] is definitely playing from behind the eight ball in this content arms race with Netflix, Amazon, Disney, Hulu, and AT&T/Time Warner all going after this next consumer frontier investing significantly more dollars ($20 billion combined and counting per annum) on content.

Wedbush Analyst

What seems to be clear, however, is that Apple is taking a more curated, boutique-style approach to the type of original content that it will be offering. While companies like Netflix try to create mass-market appeal by investing in every possible type of programming, Apple is clearly not only being more choosy about the deals it signs, but also in fact trying to draw a line in the sand on the very type of content that it will be offering.

Apple’s not Netflix and it isn’t going to be. There’s nothing wrong with Apple’s executives having a clear vision about what the vibe of their content should be. For Apple’s video service to be successful, it should be a set of programs that fit a particular worldview. The best networks have an identity and their programmers know exactly what it is.

Jason Snell, Macworld

Comments last week by AT&T’s new HBO chief Bob Greenblatt that “Netflix doesn’t have a brand” created a furor of discussion on exactly how strange that statement is, considering that, as John Gruber points out, Netflix has basically become a verb. However, a counterpoint by Jason Snell made a salient point that Netflix doesn’t have a defined brand. In other words, people know what Netflix is, but they don’t know what Netflix means.

If you really sit down and think about it, this is a good point. Netflix is a well-known place to get content, but it lacks an “identity.” To put it another way, if Netflix disappeared tomorrow and was replaced by another company that offered the same huge library of content, would anybody really miss “Netflix”?

Apple, on the other hand, is a company that has always cared deeply about its brand identity. In fact, this is likely the very reason that the company is trying to create a strong focus on family-friendly content — while offering a way to differentiate itself from competitors, it also aligns with at least part of the core image that Apple has always tried to convey.

Further, despite revolutionizing technology in several areas over the years, Apple is actually a very pragmatic company. It makes little sense trying to compete with Netflix, especially in the short term, and Apple knows this. In a situation like this, it’s to Apple’s advantage to create a catalogue of original content that will appeal to a loyal group of viewers who share the same preferences rather than trying to create a more “vanilla” service that’s trying to be everything to everyone.

But There’s More To It…

It’s also worth keeping in mind that while Apple’s original content will undoubtedly form the core of its new video streaming service, the offering is expected to go well beyond that. By all reports, Apple is working to release a subscription bundle that could potentially provide access to premium channels such as Starz, CBS, Showtime, and HBO, and possibly even Disney, for which Apple would receive its typical 30 percent take of subscription revenue.

This represents a significantly different approach from Netflix, which simply licenses content directly and streams it as part of its own service. While Apple’s approach hasn’t yet been tried on a larger scale, and at least some partners are still hesitant to participate, the company is banking on drawing customers who are suffering from “subscription fatigue” who would welcome the idea of paying a single monthly subscription fee for a collection of premium content channels. Apple is also promising that its partners will be able retain their branding on the content that they provide, rather than having it get lost in the homogenous landscape of the Netflix catalogue.

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