The Calculus of Streaming Success: How Media Companies Like Apple Are Scheming to Win

3 minute read
| Analysis

The success of a TV streaming service is not based on price and content alone. It’ll be a complex calculus of costs, portfolio design, viewer habits, demographics, and excellence of delivery. And some luck.

Apple

Previously, before September 10, we assumed that Apple would have to set a price for Apple TV+ that reflected a proper understanding of its limited initial content. That understanding was probably driven by the pricing and content announcements of Disney+.

[Apple May Have to Launch Apple TV+ as a Free Service]

[Leaked Pricing for Apple TV+ is Certainly a Trial Balloon]

The first editorial above concluded that, in the face of substantial content libraries from the competition, that Apple ould be forced to undercut Disney+ at $6.99/mo. or else just go with free—in some kind of bundle arrangement.

Apple solved the puzzle on September 10 by making Apple TV+ free along with certain new Apple hardware purchases for a year. And charging $4.99/mo. for everyone else. This strategy of dealing with a limited, initial portfolio has led some to conclude that the service won’t gain much traction and will eventually fail. For example, “Why Apple TV+ Will Fail.

What’s key here is the proportion of customers who elect to actually pay the $4.99/mo., something that will likely be a fairly small percentage. Apple knows that. Those who select Apple content at $4.99/mo, will be basing their decision on word of mouth, the quality of the content.

However, the vast majority of customers will be getting Apple TV+ free as a bonus for being in the Apple family, and they won’t really care how rich the content library is. It’ll always be there, growing, and available for browsing. Apple need not fret about a massive library that can go toe-to-toe with the competition.

In other words, Apple, which is already good at enticing customers to join the Apple family, is making an even stronger case to be there. Incremental hardware revenue makes more money by itself but also invites customers to engage other services.

Note that Apple sells about 90-100 million hardware devices in an average quarter. Apple will quickly have a substantial number of Apple TV+ “subscribers” growing with and appreciating Apple TV+.

This will remain Apple’s business model until, years from now, a very much richer library can stand on its own and justify a corresponding price. It’s a resilient tactic and not subject to pressure from the competition or in need of an immediate return on investment (ROI).

The Other Services

What about the competition? The problem they have is that most don’t have an existing, vertically integrated hardware and software stack like Apple. Nor do they generally have the development expertise of Apple. So there’s a wide range in app quality. That can ruin the subscription experience and lead to unwanted churn (cancellations).

Disney+ logo

Disney+ has been masterful in building its library.

Independent of app quality, what Apple’s competition is busy doing is trying to construct the optimum content library by 1) Developing its own desirable content, and 2) buying rights to the rest. This is the calculus: What have customers loved in the past and what are they likely to crave in the future? How many ads can the customer endure? How much can the studio spend, and what will the market bear in subscription fees? Profit hangs in the balance.

The studios have access to a vast trove of ratings data and can calculate what the ROI will be for acquiring certain content. For example: “Big Bang Theory streaming exclusive with HBO Max in $1 billion deal.”

Big prices like this reflect a calculated gamble that new viewers will flock to HBO and ensure competitive success. But some other gambles might not pay off so well. Streaming services that flub this process too many times will fail in the marketplace.

That’s when the mergers will start. Combining portfolios and demographics may be the only way for latecomers or underfunded services to survive.

Meanwhile, viewing customers will be sizing up the content of each service and deciding what’s genuinely important to them. As time goes on, our viewing culture changes, and the streaming service that responds best will thrive. Those that deliver an irritating viewing experience at too high cost and outdated material will flounder.

NBC Universal to launch its ‘Peacock’ streaming service in April 2020.

Back to Apple

Apple won’t have to play this perilous game. Its hardware is a joy. Apple TV+ will be a pleasant viewing experience. Apple won’t have to backtrack and introduce additional, annoying ads to make up for executive judgment shortfalls. It can remain above the rat race as it sells more and more hardware, racks up awards, pleases its customers and generates other kinds of service revenue.

I’m already feeling sorry for the Peacock.

1
Leave a Reply

Please Login to comment
1 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
1 Comment authors
webjprgm Recent comment authors

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  Subscribe  
newest oldest most voted
Notify of
webjprgm
Member
webjprgm

Another point that I thought you might make is that while a prospective customer might not want to pay for Apple TV+ content that looks like it might be good but has not yet proved itself, by getting a year free that is a year for Apple to prove that its content is worth paying for once the free time expires. Also, you implied but didn’t outright say: do you think that one of those floundering companies that gets acquired might be acquired by Apple to grow their library? I believe a previous TMO article said that Apple starting fresh… Read more »