Why Apple’s new TV service may not be a game changer
Whatever its big plans are, it seems unlikely the tech giant should rely on it to take it out of its current rut
One of the key masterstrokes of Steve Jobs’s Apple came in 2003, when its chief executive made the then-astonishing decision to allow its iTunes music programme and iPod music player to work with Microsoft’s Windows operating system.
At that point, the iPod was seen as an intriguing new product, but one that was existentially limited: it worked only with Apple’s own Mac computers, which accounted for less than 3% of worldwide computer sales.
Jobs reportedly agonised over the decision to sell iPods to Windows users. While it would naturally mean Apple selling more music players, it also meant eliminating one of the few clear advantages that Apple’s computers had over the Windows empire. The Mac had been Apple’s most important product for years and sharing iTunes with Microsoft seemed like a compromise.
In hindsight, it proved to be a brilliant move. iPod sales soon eclipsed those of Macs, and laid the groundwork for the iPhone that succeeded it.
There were echoes of the move last week, when several of the world’s largest television makers announced deals with Apple that would allow more of the company’s video services to show on their screens.
LG, Sony, Samsung and others announced support for Apple’s AirPlay protocol, which lets users beam video from Apple devices to televisions. Samsung went one further, announcing that a version of iTunes, which sells films and television shows as well as music, will run on its smart TVs.
Like the iPod’s Windows moment, the decision was met with surprise by those who study the fortunes of Apple closely. The company has long retained tight control over its products, both software and hardware. It does not allow the iPhone operating system to run on other phones, for example. And before last week’s move, the main way of watching iTunes movies and TV shows on a large television was to buy the company’s own Apple TV set-top box.
Now, as in 2003 when Apple accepted the reality of lower Mac sales to boost the iPod, the company is sacrificing sales of the Apple TV to make iTunes more competitive. The move illustrates that times are once again changing at Apple.
This month, when Apple warned that iPhone sales were on the decline with a damaging profit warning, it tried to cushion the blow by pointing to strong growth in its software and services division, the part of the business that includes iTunes.
iTunes today is not the power it once was. Downloads of music and video have made way for streaming in the shape of Spotify and Netflix. But all signs point to Apple gearing up for a renewed push into video in the not-too-distant future.
The company has been rapidly acquiring talent. It has hired Jay Hunt, the former Channel 4 and BBC executive, among a string of experienced TV executives, as well as a handful of A-list celebrities and directors
In 2018, Tim Cook, Apple’s chief executive, told analysts and investors that the company was working on a TV project that he “couldn’t be more excited about”.
The initiative appears set to launch within months, although Apple has said little about how it will work (the company is famously tight-lipped, but a less charitable interpretation could be it simply has not got its strategy figured out).
The service has been long in the making, and gone through various transformations. Jobs was working on a secret TV project long before his death. A few years ago, the company planned but failed to reach deals with a set of broadcasters that would have allowed it to sell subscription bundles. Last week’s move to allow its video service to feature on other manufacturers’ televisions also marks something of a strategic shift.
It remains unclear what shape its forthcoming initiative will take: whether it will be free to those who buy its iPhones, in the same way that Amazon’s video service is a carrot to sell Prime subscriptions, or whether it will charge outright, as with Netflix.
But either way, it seems unlikely that Apple should rely on the forthcoming TV service to be the sort of thing to take it out of its current rut.
For one thing, it has already given Netflix and Amazon a long head start. Netflix has been video streaming for more than a decade and has close to 150 million subscribers. Amazon Prime has more than 100 million and, although geographical restrictions prevent all of them from using its video service, its international expansion is surely imminent.
Apple, meanwhile, has dawdled, with Cook personally putting the brake on certain shows because of the amount of graphic violence, swearing and adult themes in them.
Video streaming services are not a zero-sum game: people are likely to subscribe to several simultaneously, but extra competition is coming down the line in the form of Disney and other media giants, while Facebook is also putting huge resources into video (albeit with limited results to date).
But even in a best-case scenario, in which Apple comes up with Netflix-like numbers, its TV service is unlikely to be a game changer for investors. This week, Netflix is expected to report a record-breaking $4.2bn in fourth-quarter revenue. Apple’s disappointing revenue forecast for the same quarter is exactly 20 times higher. Its profit margins are also about three times higher than Netflix’s. And its strategy of putting its content on more televisions suggests the TV service is unlikely to be a route to selling more iPhones.
Before it has even got started, Apple’s big bet on TV seems like a tough sell.
– © The Daily Telegraph