Apple Ups Q2 ‘Services’ Revenue to Record $11.5 Billion

Apple April 30 reported record “services” revenue of $11.5 billion, up more than 16% from revenue of $9.13 billion during the previous-year period.

As the media/tech giant shifts its focus from hardware products such as iPhone, iPad, Mac and Apple Watch, among others, it has upped scrutiny on services, which include sales of digital movies and TV shows on iTunes and Apple TV, in addition to the pending rollout of Apple TV+ app and separate subscription streaming video service.

“Our March quarter [services] results show the continued strength of our installed base of over 1.4 billion active devices,” CEO Tim Cook said in a statement.

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Cook eyes Apple’s install base as the genesis for the future success of AppleTV+ and related Apple business ventures such as Apple News, Apple Pay (including branded credit card), Apple Arcade (gaming) and Apple Music.

Indeed, Apple said sales of its legacy iPhone declined nearly 18% to $31 billion from $37.5 billion during the previous-year period. The attributed the decline to 21.5% drop in unit sales in China – a slight improvement from 26.7% unit drop in the prior-year quarter.

Mac revenue dipped 4% to $5.5 billion, while iPad sales revenue increased 21.5% to $4.8 billion.

Net revenue fell about 5% to $58 billion from $61.1 billion. Net income fell almost 17% to $11.5 billion from $13.8 billion.

European Union Launching Movie VOD Platform Similar to ‘Movies Anywhere’ in the U.S.

The European Union is launching a platform aimed at informing consumers where they can access more than 35,000 European-produced movies on-demand across more than 150 video-on-demand services, including Netflix and Amazon Prime Video.

Dubbed “Lumiere VOD,” the platform — currently in beta rollout — is designed to support European films and filmmakers after an internal study found just 29% of feature films offered on VOD services originate from European countries.

By comparison, European VOD services feature about 50% movies originating from Hollywood studios, according to the EU.

VOD services financially backing Lumiere include Prime Video, Ampere Analysis, Apple, CNC, EuroVOD, FilmDoo, Filmin, Filmtoro JustWatch, Kino Fondas, La Cinetek, La Pantalla Digital, Le Kino.ch, Mediathèque Numérique, Netflix, realeyz, uncut, UniversCiné, VOD Club, VOD.lu and Vodeville.

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Lumiere VOD is similar to Movies Anywhere in the United States, which offers consumers a landing platform for third-party digital services selling digital movies, including iTunes, Prime Video, Vudu, Xinfity, Google Play, Microsoft Movies & TV and FandangoNow.

The EU previously passed a mandate that all streaming and VOD services operating within its jurisdiction include at least 30% localized content.

At the same time, the economic organization cited scant availability of databases promoting European movies available on VOD, despite the fact the region produced more than 18,000 films from 2007 to 2016, including 47% increase in global production in 2017.

With Digital TV Research projecting an increase of 409 million VOD subscribers by 2023 to 777 million globally, the EU decided to act.

“Europe is a major player in film production therefore we must ensure that European films and other audiovisual works attract the audience that they deserve,” Mariya Gabriel, commissioner for digital economy and society, said in a statement. “This is yet another important initiative aimed to ensure that European works of art and cultural heritage stay high on the political agenda.”

Lumiere VOD is slated to launch publicly at the end of the year.

Poll: Netflix ‘Integral Part’ of People’s Lives

Heading into Netflix’s first-quarter (ended March 31) fiscal results release, new research from The Harris Poll found that 86% of respondents stream the SVOD pioneer, followed by Hulu (53%) and Amazon Prime Video (49%).

The survey, commissioned by ad-exchange OpenX, found that despite Netflix’s recent price hike, the average amount subscribers would pay monthly for a single OTT service subscription is $22 — which is 37.5% more than Netflix’s most-expensive $15.99 plan.

Indeed, the poll found Netflix has become an integral part of people’s lives, with half of users also subscribing to Hulu (52%), Prime Video (54%), YouTube TV (29%) and HBO Now (24%).

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Notably, 31% of respondents would watch ads on Netflix for a lower monthly subscription price; while 24% would watch ads on Netflix, but only if the service was free.

“It will be telling to see if Netflix’s growth numbers are adversely impacted by the price hike; especially now that Disney+ will be significantly undercutting Netflix on price,” Dallas Lawrence, chief brand officer at OpenX, said in a statement.“According to our data, Netflix users are too loyal to leave over a few dollars cost increase.”

Indeed, the poll found Netflix replaces the need for cable/satellite TV for about half (47%) of respondents; with 46% planning to keep their cable/satellite TV package in addition to Netflix.

“Recent announcements by Apple and Disney signify Netflix’s reign as the undisputed king of streaming services may be coming to an end,” said Lawrence. “It’s early in this massive shift of consumer attention from linear TV to OTT to make any calls just yet. As the percentage of Americans who stream content gets closer to 100% [from current 50%], there’s still growth potential for Netflix in the U.S.”

Report: 83% of U.S. Teens Own an iPhone

With Apple prepping to launch its rebooted Apple TV+ streaming platform, new data from Piper Jaffray found that 83% of teen survey respondents in the United States own an iPhone.

The survey of 8,000 teens skewed 54% male with an average age of 16.3 years. Notably, 86% of respondents said they would choose an iPhone for their next mobile phone – up from 75% in a spring 2016 survey.

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The data suggests teens would continue use the iPhone as adults, with usage expanding to Apple Music, AirPods, Apple TV+ and Apple Watch.

Indeed, Piper found that 27% of teens own a smartwatch, with another 22% planning to buy one in the next six months. That’s up from 20% in the same survey a year ago.

Netflix Rated the Fastest-Growing Brand in 2019

As if it needs more attention, Netflix has been tapped the fastest-growing brand of 2019, according to Brand Finance, a brand valuation consulting company based in New York and Paris.

Based in part on a company’s ability to remain relevant and make an impact on the culture (home entertainment) it’s participating in, Netflix saw its brand value increase 105% over the past year to $21.2 billion.

The report said the subscription streaming video pioneer is set to play the “lead role in home entertainment,” building a disruptive business model as a universally accessible narrowcaster and effectively challenging traditional broadcasting brands and distribution.

“Netflix delivers high-quality and varied programming to anyone with Internet access and a credit card,” Alex Haigh, valuation director at Brand Finance, said in a statement. “The platform has embarked on a disruptive approach to media services and now has incumbents in the market looking over their shoulder.”

While Netflix’s brand keeps growing exponentially, Amazon (including Prime Video) remains the most valuable domestic brand, growing nearly 25% to $187.9 billion valuation.

“This year, Amazon’s brand is worth approximately half of the combined value of the 42 retail brands in the ranking,” Haigh said. “The retail industry is another sector at a crossroads as tech giants and online sellers encroach upon the traditional business model with a completely new proposition.”

With the media industry feeling the effects of tech disruption, another rapidly growing digital media brand is YouTube(up 46% to $37.8 billion) this year jumping 10 spots to 13th nationally.

Like Netflix, YouTube is building a broad platform for video content, in an effort to leverage its brand from merely peer-to-peer video creation and sharing to also include a growing premium and professional video library.

Among traditional media brands, Disney entered the top 10 nationally on the back of its M&A acquisition of 20th Century Fox Film Corp. The brand jumped 40% in value to $45.7 billion.

Tech giants, Apple (2nd, $153.6 billion) and Google (3rd, $142.8 billion) remained entrenched in their positions from last year.

With a 47% increase in brand value to $119.6 billion, Microsoft moved into 4th after the company’s successful turn towards a cloud-centric business.

With all eyes turned to 5G, AT&T dropped down a spot to 5th, after a modest 6% brand value increase over past 12 months to $87 billion.

Aside from calculating brand value, Brand Finance also determined the relative strength of brands using a scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance.

Though Facebook held onto its 6thspot, its brand strength suffered the second worst decline among the top 100 brands, resulting in a rating downgrade from AAA+ to AAA- after a year of privacy issues that have landed the company in the hot seat.

Behind tech, the largest industry with a combined brand value of over $1 trillion, the retail sector comes in second with $340.5 billion. Eighth-ranked Walmart (up 10% to $67.9 billion) is the nation’s most valuable brick-and-mortar retail brand, as it continues to push the boundaries of its physical store and logistics network.

Home Depot (up 39% to $47.1 billion) jumped from 11th to 9th, while its rival Lowe’s saw its brand value go up 49% to $23.9 billion.

Analysts Split on Apple’s Streaming Impact on Netflix

The day after Apple’s media coup announcing plans for an enhanced Apple TV app and related services, Wall Street appears divided depending upon which side of the Netflix stock it sits.

With more than 1.4 billion iOS connections globally, the revamped Apple TV+ service would appear to be a major competitive threat to Netflix’s global base of nearly 150 million subscribers and future growth.

With a history of industry disruption and creating consumer markets through iTunes, the iPhone, iPad and Apple Watch, conventional wisdom suggests Cupertino, Calif.-based Apple could upend Netflix’s burgeoning growth and market dominance — despite its relatively late entry into the over-the-top video ecosystem.

Needham analyst Laura Martin contends Apple TV+ could be “poison” to Netflix by virtue of Apple’s 900 million existing connected consumers and its ability going forward to bundle original content, discounted third-party OTT services, music and video games.

In a note, Martin writes that if Apple is successful converting just 10% of its unique users to Apple TV+, it would be able to fund content with a budget nearly triple Netflix’s. The analyst is also bullish on Disney’s pending Disney+ streaming service, telling media it could generate 50 million subs.

Dan Ives, media analyst with Wedbush Securities, says Apple is separating itself from Netflix by catering to family-friendly content on a secure platform.

“[Apple] is trying to differentiate itself [from] competitors and flex its Apple brand muscles to get more consumers on this ‘trustworthy’ platform,” Ives wrote. “We continue to believe the company has the opportunity of capturing 100 million consumers on this streaming service over the next three-to-five years.”

On the flipside, Raymond James analyst Justin Patterson says Netflix market position is well-built to withstand the threat.

“Similar offerings already exist, suggesting this service is more incremental than revolutionary,” Patterson wrote in a note. “We believe Apple’s and Disney’s launches will not adversely affect Netflix’s competitive position.”

Longtime Netflix bear Michael Pachter, with Wedbush Securities, says that with Apple reportedly spending $2 billion on original content, including licensing content from Netflix’ studio contributors – in addition to offering third-party OTT services — the SVOD pioneer will have increased challenges finding compelling content to justify its standalone service.

“We expect Netflix to suffer the double whammy of seeing existing content migrate to competitive services at the same time that new domestic subscribers are more difficult to attract,” Pachter wrote in a March 26 note.

 

 

Stars Bite on Apple Streaming Service

Stars and filmmakers from Steven Spielberg and J.J. Abrams to Steve Carell, Jennifer Aniston, Reese Witherspoon and Oprah turned out March 25 to help Apple launch it’s new streaming service Apple TV+.

Apple Bows New Services, Including Apple TV+, Channels

Apple March 25 unveiled a new Apple TV app — dubbed Apple TV Channels — as well as enhanced Apple TV+, an ad-free platform featuring original content, access to all 100,000 iTunes titles, in addition to third-party online TV channels and subscription streaming video services.

The Channels platform mirrors Amazon Prime Channels — the later affording Prime members direct access to third-party SVOD services, includes HBO Now, Showtime, Starz, Epix and CBS All Access, among others.

Apple said the new Apple TV+ app would be added as an upgrade to the existing Apple TV app, in addition to availability for the first time on the Mac computer this fall, in addition to smart TVs from Samsung, Sony, LG and Vizio, with availability on Roku and Amazon Fire TV.

Users can share Apple TV+ and related subscriptions to Apple TV channels with family members for no additional charge.

Pricing for Apple TV+ will be revealed later this fall. The apps, which are available in 10 countries, will be expanded to more than 100 countries this year.

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To help launch Apple TV+, and a reported $2 billion original content budget, the company brought out a slew of actors and directors to highlight the app, including Steven Spielberg, who talked about the reboot of “Amazing Stories,” bowing later this year.

Spielberg said he first came into contact with “Amazing Stories” through an anthology magazine his father “devoured” when Spielberg was a young boy. The director said he would be working with Apple to resurrect “this 93-year-old brand.”

“The stories he read to me were ‘amazing,’ or so it seemed to 5-year-old me,” Spielberg said. “That amazement is a human birthright. And we want to transport the audience with every episode.”

In addition, Reese Witherspoon, Jennifer Aniston and Steve Carell introduced “The Morning Show,” an episodic series starring the trio and revolving around the morning television industry. It’s Aniston’s first TV show since “Friends.”

“We pull back the dynamic between men and women in the high-stakes world of morning news shows,” Witherspoon said.

“All of this and the chance to collaborate again has brought me back to television, and I’m really excited about it,” Aniston added.

The “Apple Special Event” event ended with Oprah Winfrey announcing her involvement with Apple TV+ through two original documentaries about mental health and workplace sexual harassment.

“We’re honored that the absolute best lineup of storytellers in the world — both in front of and behind the camera — are coming to Apple TV+,” Eddy Cue, SVP of Internet software and services, said in a statement. “Apple TV+ will be home to some of the highest quality original storytelling that TV and movie lovers have seen yet.”

Apple News+

The event’s first hour brought word of a new news subscription service, Apple News+, that for $9.99 a month gives subscribers access to newspapers such as The Wall Street Journal and Los Angeles Times, as well as upwards of 300 magazine, including Billboard, Sports Illustrated, Essence, National Geographic, The New Yorker and People.

Subscriptions may be shared at no cost with family members. The app features animated magazine covers. Apple stressed that advertisers would not be able to track data.

The Wall Street Journal later issued a statement clarifying that not all content in its daily digital edition would be available through Apple News+. Participating publishers reportedly are splitting upwards of 50% revenue with Apple on the new service.

Apple Arcade

Apple also teased a credit card (backed by Goldman Sachs and MasterCard) dubbed Apple Card through its Apple Pay platform. It also announced an online video game platform, Apple Arcade, it said would enable users access to more than 100 premium games. The move follows Google’s announcement of game platform through YouTube.

Dallas Lawrence, chief brand officer for OpenX, an independent ad exchange, said the Apple announcements had more to do with distribution than content or celebrity.

“Despite all of the celebrity sizzle, the real meat of today had nothing to do with Reese Witherspoon or Oprah Winfrey. It has everything to do with Apple’s move to abandon its device strategy for OTT and bring Apple TV+ to Smart TVs everywhere,” said Lawrence.
He said internal research has shown OTT users do not want to be beholden to one device and operating system.
“Expanding Apple TV beyond Apple’s own device ecosystem shows that Apple understands that the platform is more important than the hardware, and this is a key move if they are going to become a ubiquitous video platform for every consumer,” Lawrence said.

Google Set to Reveal Video Game Streaming Service

As online gaming grows (and disc-based video games decline), tech/media giants such as Google and Apple are eyeing the $100 billion industry for new cloud-based streaming platforms.

Google is reportedly set to disclose a streaming platform March 19 offering high-end games across all platforms, including Android, iPhone, Mac, Chrome, Windows 10 and TVs at the Game Developers Conference in San Francisco. The search behemoth teased a YouTube video about it.

The company, which would enable users to buy games directly from the TV screen or portable media device, will also unveil a gaming controller (and possibly a console) that could be used with a smart TV.

The move comes as the gaming industry – dominated by Sony (PlayStation), Microsoft (Xbox) and Nintendo – grapple with changing consumer habits and distribution revolving around their longstanding gaming consoles.

Google’s service could enable users to play top games without having to buy an expensive console.

“Cloud gaming will enable publishers to broaden their reach even further by potentially taping into new audiences on any device and any screen,” Thomas Husson, analyst with Forrester Research, told CNBC. “Beyond music or video, gaming represents another opportunity to offer recurring streaming revenue for companies in the gaming ecosystem. For cloud platforms like Amazon, Google or Microsoft, it will also become an opportunity to offer cloud storage and services to game publishers, who spend more and more in their IT infrastructure.”

 

 

 

 

 

 

 

Apple Responds to Spotify Complaint

Apple March 15 responded to Spotify’s decision to file a complaint against Apple Music with the European Commission citing unfair business practices, including taxes and restrictions on tech and user-enhancements, among other issues.

Spotify ended its most-recent fiscal period with 87 million paid subscribers, compared with about 50 million for Apple Music. Both services operate through the App Store, which is owned and operated by Apple — and at the center of Spotify’s gripe.

Specifically, Swedish-based Spotify takes issue with the 30% tax it and other digital services must pay utilizing Apple’s payment system. If the service opts out of the payment platform, Spotify alleges Apple restricts how it can communicate with its subscribers outside the app.

“In some cases, we aren’t even allowed to send emails to our customers who use Apple,” Spotify founder/CEO Daniel Elk wrote in a March 13 post.

In a 1,124-word response on its website, Apple said Spotify wants to enjoy the benefits of the App Store without paying for them.

“Spotify has every right to determine their own business model, but we feel an obligation to respond when Spotify wraps its financial motivations in misleading rhetoric about who we are, what we’ve built and what we do to support independent developers, musicians, songwriters and creators of all stripes,” Apple wrote.

The tech giant said the App Store has created “many millions of jobs,” generating more than $120 billion for developers while creating new industries such as subscription music streaming via through businesses like Spotify started and grown entirely in the App Store ecosystem.

“After using the App Store for years to dramatically grow their business, Spotify seeks to keep all the benefits of the App Store — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace,” Apple wrote.

The iPhone/iPad/Apple Watch creator said the 30% tax imposed on app payments drops to 15% after one year.

Apple said the majority of Spotify customers use their free, ad-supported product, which makes no financial contribution to the App Store. A significant portion of Spotify’s users come through partnerships with mobile carriers, which Apple claimed generates no App Store contribution but requires Spotify to pay a similar distribution fee to retailers and carriers.

“Even now, only a tiny fraction of their subscriptions fall under Apple’s revenue-sharing model. Spotify is asking for that number to be zero,” Apple wrote.

“Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong.”