Can Apple’s $1bn make any impact on programming?

The Wall Street Journal report that Apple is going to invest $1 billion annually on original TV content and in an attempt to climb aboard the perceived success of Netflix and Amazon, has raised more questions than answers.

The fact that Amazon is increasingly moving into the slam-dunk guaranteed success of sports exclusivity is a sign that ‘money is – almost – no object’ in the race for subscription impact and potential success.  Netflix hasn’t followed Jeff Bezos/Amazon into sports rights as yet, but never say never.

But Apple’s commitment seems considerable. The WSJ says that Apple could be positioning itself to commission up to 10 high-profile TV drama/comedy series. Certainly, the electronics giant has hired some heavyweight creatives to oversee its efforts starting with two Hollywood veterans from Sony Pictures Television (where series such as Breaking Bad, Better Call Saul, and dozens of other extremely popular shows were/are made) is a good first step.

Investment bankers JP Morgan, in a recent report, says that Netflix will invest $7 billion in 2018 on content, while Amazon Prime coughed up $4.5 billion this year on shows such as The Grand Tour, The Man in the High Castle and Mozart in the Jungle.

Apple also last year signed up Gwyneth Paltrow and Will.I.Am as Executive Producers for content, and this included its Planet of the Apps competition series. The critical view on the series, which first aired in June, was “dull”, and described as ‘Dragon’s Den meets The Voice’.  In other words, even with a cast-iron team – plus Silence of the Lambs and Westworld star Anthony Hopkins – there’s no guarantee of success. Apple is having a slightly better time of its Carpool Karaoke series, with rights bought from James Corden’s production.

But get the mix right and there’s no reason why the next Game of Thrones (cost per episode is said to be $10 million) couldn’t come from Apple. After all, $1 billion is about half of what HBO spent last year, and its output regularly produce TV hits. The same applies to Netflix, where programming such House of Cards and Stranger Things has generated phenomenal viewer loyalty and a slew of valuable awards.

Investment bank Morgan Stanley says that Netflix’s $11 billion-worth of programming assets has translated into a market value that is greater than the net book value of programming for well-established players such as Viacom, Discovery, AMC Networks and Scripps combined.

Netflix will have some 110 million subscribers by the end of this year, but now has to start working even harder to convince potential subscribers in non-English speaking countries that it can also supply local hit programming. The Financial Times recently quoted a report from RBC Capital Markets which compares an estimated 1 billion pay-TV subscribers worldwide to around 150 million who pay for Internet TV today. In a “dramatic secular shift away from linear TV”, RBC says, “these numbers could meet.”

That’s the potential prize, for Netflix, Amazon Prime and maybe Apple. As researchers at MoffettNathanson said in a recent note to clients, “The future has arrived” and that ‘future’ means cord-cutting and a shift away from traditional viewing, and even conventional subscribing to pay-TV bundles. MoffettNathanson says that the Q1 losses in the US of some 732,000 subscribers from traditional pay-TV is but the start of an accelerating process.

Apple will need far more Carpool Karaoke hits to start making an impact on Netflix or Amazon. But Apple is hiring executives “aggressively” say reports from Los Angeles. Time will tell, of course, as will consumers. The risk is that viewers will realise that they can watch Netflix plus Amazon Prime – and probably Apple – for far less than their cable TV subscription. They’ll have to fund an OTT supply, but could be saving a ton of cash, even when adding in access to network TV.

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