September 6, 2018
Netflix shares took a slight hit after Morgan Stanley Sept. 5 issued a bullish note on Apple’s slowly evolving subscription streaming video service.
In the report — Apple, Inc.: The Emerging Power of Apple Services, Part 3: Video a New Growth Driver in 2019– Morgan Stanley analysts believe Apple’s longstanding success with iTunes and the music industry, Hollywood and its ability to capture consumer demand through the iPhone, iPad and Apple Watch portends great promise in over-the-top video distribution.
“We forecast that an Apple Video streaming service with high-quality but limited breadth could be priced at the low end vs. competitors, or $7.99/month, and reach over 50 million paid subscribers by 2025, compared to 124 million at Netflix subs and Apple’s 650 million-unit iPhone installed base,” wrote the analysts.
Indeed, the note suggests Apple’s SVOD service could grow from a $500 million business in 2019 to $4.4 billion operation by 2025.
Lofty projections considering the late Steve Jobs often considered Apple TV and streaming a video a hobby and not a platform Apple could invest heavily in.
That’s changed as CEO Tim Cook and Eddy Cue, SVP of Internet software and services, have upped Apple’s video profile by hiring a string of entertainment executives, producers and directors to jumpstart original programming.
The biggest announcement occurred last November about an untitled morning show drama starring and executive produced by Reese Witherspoon and Jennifer Aniston.
Other projects include a sketch comedy with Kristen Wiig; renewed seasons of “Carpool Karaoke,” a basketball drama with Golden State Warriors Kevin Durant serving as both the subject and producer; and unnamed series from directors M. Night Shyamalan, J.J. Abrams and Oprah Winfrey, among others.
Morgan Stanley believes the Apple SVOD service could get a boost when bundled with the Apple Music and Texture news and magazine subscription services. A strategy Hulu has employed partnering with Spotify.
The note said such a bundling would diversify content options for consumers, diminish the need for immediate original content hits, increase perceived consumer value and simplify billing, among other features.
“If we incorporate the assumptions from our Apple Media bundle scenario while keeping all other Apple Services forecasts unchanged, then we’d expect Apple Services revenue to grow at a 21% through 2025, ultimately reaching $143 billion by 2025, up from current forecasts of a 19% revenue growth and $124 billion in revenue by 2025.”
Apple Services generated $95 billion in revenue in the most recent fiscal period.
“We believe that Apple Video will become a reality sooner than investors think, and use this report as a way to frame the two most likely methods for video content distribution and potential impact video could have on Apple’s Services business,” wrote the analysts.