Apple Video business model looks to fail hard, analyst says

Apple is reportedly planning a services-focused event for March 25 and may finally debut its long-awaited original video content at that time.

Sources indicate that the company is looking to implement a single-stream subscription model incorporating content from all sorts of providers like CBS, Viacom and others for a flat monthly fee. But there was quite a bit of sticker shock when it was revealed that Apple would be taking 30 percent of total revenue and the providers would split the rest based on performance. That reportedly turned off Netflix and Hulu from entering into an agreement.

So, what are the laurels that Apple will be standing on? Jeffries analyst Tim O’Shea sees not that many. In a note obtained by Business Insider, the O’Shea believes that Apple will be highly reliant on third-party content in the service’s early days as it will not have too many of its own series to rely on.

CNBC reports that Apple wanted to spend $1 billion acquiring series in its first year and some research houses estimate that the number could grow to $4.5 billion by 2020. Meanwhile, Netflix is spending up to $8 billion per year and Amazon is approaching $5 billion.

But that 30 percent cut, which Netflix has taken steps to avoid by removing the ability to subscribe through an iTunes account on the iOS app, may turn Hollywood away.

“There are only a handful of players that make content that matter,” O’Shea said. “If you lose one or two of them, it makes your service much less attractive.”

Netflix made $15.8 billion last year off of the 139 million subscribers it has amassed in 12 years. Unless Apple has a massive breakout hit from the gate, it will take a long game for the company to place it as a key pillar of its services strategy.

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About The Author
Jules Wang
Jules Wang is News Editor for Pocketnow and one of the hosts of the Pocketnow Weekly Podcast. He came onto the team in 2014 as an intern editing and producing videos and the podcast while he was studying journalism at Emerson College. He graduated the year after and entered into his current position at Pocketnow, full-time.