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Friday, March 22, 2019 4:13:46 PM
By: The Motley Fool | March 22, 2019
The tech company has a lot riding on its special event, with all signs pointing to a new streaming video service.
It's long been rumored that Apple (NASDAQ:AAPL) would eventually launch a streaming video service. As early as mid-2017, reports emerged that the iPhone maker planned to spend more than $1 billion to procure original content over the course of the following year. This was particularly surprising at the time, as Apple's only forays into programming then were Carpool Karaoke: The Series and Planet of the Apps, both of which were critically derided.
Since then, Apple has made an increasing number of original-content deals, stoking speculation that the company would soon introduce a streaming video service. Earlier this month (and in typical Apple fashion), the company sent out invitations for a special event at the Steve Jobs Theater on the Apple campus on March 25 with the tag line, "It's show time." All signs point to Apple finally announcing its entry into the growing market of streaming video.
With the event almost upon us, let's look at what this could mean for Apple and why it couldn't come at a better time.
Trying times
It's no secret that Apple has been dealing with a number of challenges in recent months. The company shocked investors in January when it revised already tepid guidance for its first quarter. It cited slowing economic growth in China, one of its largest markets. Apple then reported revenue that declined 5% year over year, driven by iPhone sales that tanked 15%. This seemed to confirm investors' worst fears that sales of the company's flagship device may have peaked.
Apple might have suspected this day was coming when CEO Tim Cook announced in January 2017 that the company planned to double its services business over the following four years after that segment had generated revenue of $25.46 billion over the previous 12 months. Just two years in, Apple is well on its way to reaching that goal, as it generated $39.6 billion in services revenue this past year.
This increase alone won't be enough to offset struggling iPhone sales, which accounted for $266 billion -- nearly 63% of Apple's revenue -- in 2018. That's why Apple's March 25 announcement may be the key to its future growth.
A long time coming
Apple signaled it was getting serious about streaming video when it poached television executives Zack Van Amburg and Jamie Erlicht from Sony in mid-2017 to lead the move into original programming. At the time, Apple senior vice president for internet software and services Eddy Cue said: "We have exciting plans in store for customers and can't wait for them to bring their expertise to Apple. There is much more to come."
Apple seemed to confirm its plans in October 2017 when reports emerged that the company had signed a deal with legendary producer and director Steven Spielberg for a reboot of his 1980s science fiction and horror anthology Amazing Stories. This was the first major project green-lighted by Apple as it moved into content production.
Recent reports suggest the company may have nearly three dozen programs in various stages of production. It's taken Apple this long to put together just a small sampling of what may eventually be a robust catalog. Movies can take more than a year to film, and that doesn't include other necessary steps like script writing and post-production. The time it takes to create a television series is even more difficult to pin down because of all the variables involved.
Late to the party?
Some might say that Apple is late to enter the streaming party, an assertion echoed by Netflix chief content officer Ted Sarandos. In an interview with the website Deadline Hollywood this month, Sarandos said, "It's the same stable of competitors, just very late to the game." Late entry has never stopped Apple from eventually commanding significant market share, however, as evidenced by the performance of such late entrants as the iPod, iPhone, iPad, and Apple Watch.
Apple has a sizable war chest to spend on acquiring and creating original content if the company decides to make a serious push into the space. It ended 2018 with more than $245 billion in cash and marketable securities on its balance sheet. To put that into perspective, streaming leader Netflix (NASDAQ:NFLX) spent about $8 billion on content in 2018. Even its competitors' multiyear head start won't stop Apple from becoming a serious competitor to offerings by Netflix, Amazon.com, and Hulu if it invests the resources.
Off to a good start
Even in light of its late arrival, Apple has been able to assemble an impressive roster for its upcoming slate of programming. Headliners like Oprah Winfrey, M. Night Shyamalan, J.J. Abrams, Ron Howard, Reese Witherspoon, and Jennifer Aniston have signed on, though details about many of the programs are sparse.
Here's are a few of the shows that might be part of Monday's initial reveal:
• Shyamalan, known for films like The Sixth Sense and fresh off the success of Split, will oversee a psychological thriller series starring Rupert Grint of Harry Potter fame.
• Witherspoon and Aniston will produce and star in a drama that follows the cast of a morning TV news program. The series will also star Steve Carell.
• A fantasy program titled See, featuring Game of Thrones and Aquaman star Jason Momoa. The series is reportedly set in a future where the human race has lost its sense of sight. The show is written by Steven Knight -- creator of Peaky Blinders -- and directed by Francis Lawrence, best known for The Hunger Games.
Rumors and innuendo
In typical Apple fashion, the company has been extremely secretive about its programming. Much of what we do know has been reported by Hollywood trade publications, and very little has been confirmed by Apple itself.
We also don't know exactly how Apple plans to distribute its library of programming. Some reports indicate it will be a dedicated streaming service, which will allow customers to subscribe to other streaming services as well. Others say the programming will be free to subscribers of Apple Music, while still others report it will be part of a bundled service that could include video streaming, music streaming, and a subscription news service. The truth likely lies somewhere in between.
We'll know more on Monday. Stay tuned.
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