SVOD Helps Apple Post Record Q1 Services Revenue of $12.7 Billion

Despite myriad naysayers, the Apple TV+ subscription streaming video service is quietly exceeding expectations and producing on the bottom line, according to CEO Tim Cook.

Speaking Jan. 28 on the Q1 fiscal call, Cook said Apple TV+, which launched on Nov. 1, 2019, has had a “rousing start” with strong consumer response worldwide. Unlike Disney+, which launched on Nov. 12 in six markets, Apple TV+ is available in 100 markets that sell iPhone, iPad, Apple Watches and Mac computers.

The SVOD platform helped Apple’s “services” business segment generate record revenue of $12.7 billion for the first quarter, ended Dec. 28, 2019. That was up 17% compared to services revenue of $10.8 billion in the previous-year period.

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The services category, which also includes iTunes, the App Store, the Mac App Store, Apple Music, Apple Pay, AppleCare and Apple Arcade, has become a significant revenue driver for the Menlo Park, Calif.-based tech giant.

Apple also had a great quarter overall, posting record revenue of $91.8 billion, up 9% from the year-ago quarter. International sales accounted for 61% of the quarter’s revenue.

“We are thrilled to report Apple’s highest quarterly revenue ever, fueled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for Services and Wearables,” Cook said.

He said Apple’s install base across all branded devices grew in each of the company’s geographic segments topping 1.5 billion.

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“We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board,” Cook said.

 

Streaming Wars: Media, Tech Companies Slug It Out With Netflix

In the weeks leading up to the November 2019 launches of Apple TV+ and Disney+, Wall Street analysts and company officials went into high gear with subscriber predictions, content reveals and special media events.

Each new service has a lot riding on it, with their high-profile parent companies spending millions of dollars wading into over-the-top video waters long dominated, on the domestic front, by Netflix, Amazon Prime Video and Disney-owned Hulu.

“Options are great for consumers when it comes to deciding what to watch,” said Peter Katsingris, SVP of audience insight at Nielsen. “But they’re also decidedly complicated for an industry that continues to fragment and search for unique ways to influence their behavior and perhaps steer eyeballs toward their network, program, service or brand.”

Disney expects to attract 60 million to 90 million subscribers for Disney+ through 2024, which would be more than half of Netflix’s current 158 million global subscriber count. It is giving away the service to Verizon’s unlimited data customers as part of a promotion.

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“What Netflix is doing is making content to support a platform,” Disney CEO Bob Iger told Vanity Fair. “We’re making content to tell great stories. It’s very different.”

Apple is targeting more than 900 million iPhone users worldwide through various incentives for Apple TV+.

David Sidebottom, analyst with Futuresource Consulting, said that as new OTT services expand on an international basis, colliding with legacy pay-TV agreements, mollifying distribution partners with differing levels of SVOD uptake will be factors in their evolving D2C strategy.

“Scale will be key in the [direct-to-consumer] space, but clearly the coming year is just the first phase in this era,” Sidebottom told the IBC365 platform. “D2C services will likely evolve, with their parent companies continuing to evaluate the benefits of D2C vs. third party [license] agreements.”

SVOD Minefield

As the subscription streaming wars heat up, most people (70%) believe there will be too many choices, and 87% worry it will become too expensive to keep up, according to a new study. TV Time, an online tracking platform for TV and movie viewership, along with UTA IQ, UTA’s data and analytics group, found that 42% of survey respondents plan to add another SVOD service, with 20% adding two. Conducted in September, the survey fielded 4,816 respondents in the

United States and 1,818 combined in the Netherlands, Canada and Australia. Disney+ and Apple TV+ had the highest levels of awareness (88% and 63%, respectively) among the upcoming services, followed by HBO Max (37%) and NBCUniversal’s Peacock (28%).

“While Disney+ appears well-positioned to succeed internationally, it may require additional focus in strategic markets to encourage people to subscribe,” Alex von Krogh, VP of TV Time, said in a statement. “It will be important to track how people engage with their programming from a global perspective and how that compares to competitors in those markets.”

Michael Pachter, media analyst at Wedbush Securities in Los Angeles, said he believes that with the surge of original content and catalog exclusives such as “Friends,” “South Park,” “Seinfeld” and “The Office” migrating online, consumers have more reasons to choose OTT. “If all that was happening were incremental services being offered, consumers might feel bamboozled,” Pachter said. “Instead, so much content is shifting to OTT services that many consumers will opt to subscribe to more than one service.” Pachter says long-term, exorbitant pay-TV contracts paved the way for OTT video, with online TV offering a less-expensive premium channel option. “I expect cord-cutters to look at rabbit ears and multiple SVOD services as a substitute. That’s why DirecTV lost 2 million subs since AT&T bought them,” he said.

More importantly, Pachter said that with Netflix losing Disney/Fox, NBCUniversal and Warner Bros. content, consumers will feel compelled to try new services offering recognizable programming and/or favorite shows. The analyst said he believes Netflix will lose around two-thirds of its content (measured in viewing hours) and will have a tough time replacing that with content of similarly perceived quality. Disney+ has an enormous library of content not available anywhere (including its vaunted library of animated classics, such as Snow White, Fantasia, Sleeping Beauty and, more recently, Aladdin, The Lion King, Cars and Finding Nemo) that will find its way to the service. The studio is also going to put its recent movies there and take those away from Netflix.

“That tells me that Disney+ gets to 30 million subscribers relatively quickly,” Pachter said.

Parrot Analytics tracked pre-release demand for Apple TV+’s original series, including “See,” “For All Mankind,” “Dickinson” and “The Morning Show.” Parrot found the shows were well ahead of the audience demand average across all TV shows in the United States over the same time period. “See,” a futuristic sci-fi drama starring Jason Momoa, and “For All Mankind,” which explores what would have happened if the global space race had never ended, were already attracting 11.7 and 11.1 times more demand than the average TV show in the United States ahead of launch, respectively, according to Parrot. “Dickinson,” starring Hailee Steinfeld as poet Emily Dickinson, registered 3.3 times the demand average, while “The Morning Show,” a comedy-drama series starring Jennifer Aniston, Reese Witherspoon and Steve Carell, managed 1.8 times the average in the United States during that time period.

A separate Ampere Analysis survey found “The Morning Show” would appeal to 35% of Apple customers (versus 25% of non-Apple device owners). “See” has a similar and strong appeal.

“Apple has a different business model from the other new platforms in that it is able to use Apple TV+ to incentivize device replacement — and therefore generate larger cash flow through those sales to fund content spend,”

Minal Modha, consumer research lead at Ampere, said in a statement.

The analyst found that the main barrier to uptake of Apple TV+ is a lack of interest in the offered content, which Modha said is mainly due to Apple being new to the original content space and consumers not knowing what to expect.

“As Apple TV+ begins to roll, we expect this barrier will be overcome,” she said.

Parrot compared the pre-release U.S. and global demand for Apple TV+’s four top series to that of other hit streaming shows. For example, U.S. pre-release demand for the Apple TV+ series tracked well ahead of Hulu’s first season of “The Handmaid’s Tale” in the week leading up to their respective premieres. In its analysis, the company compared the average U.S. demand over the period Oct. 21-27 for the Apple TV+ series to “The Handmaid’s Tale” season one demand over its seven-day pre-premiere period April 17-23, 2017. Internationally, the Apple TV+ shows don’t fare as well. Pre-release demand for “The Handmaid’s Tale” in most international markets pre-launch was well ahead of the pre-release demand for the Apple TV+ series on a per capita basis.

“Based on the demand that we are seeing, Apple TV+ promotion of the series in the U.S. has put them in a position to succeed domestically,” Courtney Williams, head of partnerships at Parrot Analytics, said in a statement. “However, they have to rapidly accelerate their international marketing if they hope to be a key player in the global streaming wars. The advantage of active and ongoing hardware penetration will be key domestically and should provide the necessary foundation to drive demand globally.”

Max is Coming

WarnerMedia isn’t launching high-profile HBO Max until May 2020, but that didn’t stop the former Time Warner company from unveiling the service Oct. 29 in a gala-like event on the Warner Bros. lot.

Pricing for the service is $14.99 a month — identical to the current HBO Now streaming service, which is being folded into Max. It will be aggressively marketed to AT&T’s 170 million mobile, broadband and linear TV subscribers. An ad-supported version of Max will debut in 2021.

“Just like cable introduced the rise of niche networks to dramatically grow audience, general entertainment streaming is the next great opportunity to aggregate and grow audience,” John Stankey, CEO of WarnerMedia, told attendees.

WarnerMedia is set to spend upwards of $2 billion annually on original content for Max, in addition to mining a treasure-trove of catalog content from Warner Bros., HBO and Turner.

Max will bow with 31 original series, increasing to 50 series by 2021. In all there will be 10,000 hours of premium content at launch, featuring 1,800 movies, including current box office hit Joker.

Wedbush’s Pachter is “pretty confident” the Max model will work, if it transfers existing HBO Now subscribers for a free probationary period lured by original content.

“If it’s $3 to $4 per month, they’ll get 10 million subs immediately and probably get to 80% conversion [from HBO Now] in a few years,” Pachter said.

Additional reporting by Stephanie Prange

Tale of the Tape: Streaming Video War Fees

With the streaming video market beginning to resemble a heavyweight prize fight involving numerous contenders, a “tale of the tape” analysis is in order to better understand costs associated with each “fighter” (service).

Apple launched Apple TV+ on Nov.1 for $4.99 — arguably the lowest-priced SVOD service on the market. The service is considered a significant threat to Netflix ($8.99) due to the Apple name and star-studded content (“The Morning Show,” starring Jennifer Aniston, Steve Carell and Reese Witherspoon).

Wedbush Securities contends Apple TV+ can generate 100 million subs in the next four years due in part to a global iPhone install base of around 900 million users.

“While this is an obvious threat to Netflix, Apple TV+ only has a handful of shows at launch,” analyst Michael Pachter wrote in a note.

The Nov. 12 launch of Disney+ ($6.99) could cost Netflix 25% of total viewing hours as much Disney/Fox content migrates from the SVOD pioneer to Disney+, according to Wedbush.

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Disney/Fox controls all of Netflix’s canceled Marvel Defenders Universe series (“Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage” and “Iron Fist”) and Disney+’s upcoming Marvel Cinematic Universe series (“The Falcon and the Winter Soldier,” “Wanda Vision,” “Loki,” “What If…?,” and “Hawkeye”), popular series such as “The Simpsons,” and an unrivaled film library.

“We estimate that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal, and we think its efforts to replace that content with originals will only partially succeed,” Pachter wrote.

Disney earlier this year agreed to purchase Comcast’s stake in Hulu ($5.99) for about $5.8 billion by 2024. While Hulu continues to lose billions, which amount to the excess license fees paid to corporate owners over the revenue it generates, Pachter contends if Disney can grow Hulu’s subscriber base, it should be able to achieve breakeven and manage to gain market share from Netflix.

Disney is offering a subscription package with Disney+, ESPN+ and Hulu to drive greater subscriber adoption of all services.

As Netflix has developed more than 100 original series seasons outside of the U.S., it has relied on ‘second window’ content for the bulk of its viewing hours, according to Pachter.

“We estimate that fully 90% of viewing hours on Netflix are consumed by second window shows, and we estimate that Disney, Fox, Warner Bros. and NBC Universal account for 65% of total Netflix viewing hours,” he wrote.

Pachter estimates that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal.

“The company’s licensing of ‘Seinfeld,’ beginning in 2021 will help to soften the blow, and we expect [the show] to account for 5% or more of Netflix viewing hours,” wrote the analyst.

In 2015, Amazon Prime Channels began partnering with various third-party SVOD services offering domestic Prime members access to curated groups of content.

Monthly fees vary from $2.99 to $9.95 following a free trial period lasting between seven and thirty days. Showtime and Starz are priced at $8.99 each. Amazon has since added more channels, including HBO for $14.99 and Cinemax for $9.99.

AT&T TV Now: $135.00 Ultimate — 125+ live channels; $124.00 Xtra — 105+ live channels; $110.00 Choice — 85+ live channels; $93.00 Entertainment — 65+ live channels; $86.00 Optimo Más — 90+ live channels; $70.00 Max — 50+ live channels, including HBO and Cinemax; $50.00 Plus — 40+ live channels, includes HBO.

Hulu with Live TV: $50.99 No commercials plus live TV; $44.99 Limited commercials plus live TV.

YouTube TV: $50.00 YouTube TV — stream live TV from 50+ networks; $11.99 YouTube Premium — ad-free and offline video and music.

Sling TV: $25.00 Sling Orange — 34 channels of live shows, sports, and news; $25.00 Sling Blue — 47 channels of local tv, regional sports, and live shows, sports and news.

Netflix: $15.99 four-screen ultra-high-definition streaming; $12.99 two-screen high-definition streaming; $8.99 single-screen standard definition streaming.

HBO Now: $14.99 Standalone subscription to stream HBO on demand.

HBO Max: $14.99 Arriving May 2020; new home of HBO and WarnerMedia (Warner Bros., New Line, DC Entertainment, CNN, TNT, TBS, truTV, The CW, Turner Classic Movies, Cartoon Network, Adult Swim, Crunchyroll, Rooster Teeth, Looney Tunes, and more. Will have original programming, exclusive streaming rights to “Friends,” “The Fresh Prince of Bel-Air” and “Pretty Little Liars.”

Cinemax: $9.99 Max Go — standalone subscription to stream Cinemax on demand.

Amazon Prime Video: $12.99 monthly Prime membership; $9.92 annual Prime membership for $119 per year; $8.99 standalone video subscription.

Hulu: $5.99; $11.99 no-commercials subscription option for all non-live content.

Showtime: $10.99 standalone subscription to stream Showtime on demand.

Starz: $8.99 Standalone subscription to stream Starz on demand.

Apple TV+: $4.99 ad-free monthly subscription for original content; TV App includes access to subscribed cable content and most standalone SVOD subscriptions.

Disney+: $6.99 Standalone subscription to stream Disney, Pixar, Marvel, Star Wars, National Geographic, and some Fox content (“Simpsons”); Will be offered in a bundle with Hulu and ESPN+.

Peacock: Price not disclosed. Expect a standalone subscription from Comcast to stream NBC Universal content to be launched mid-2020.

The Roku Channel: Ad-supported service for accessing live content, movies, and series on demand provided by partners; accessible via Roku device or web browser.

IMDb TV: Ad-supported service for accessing movies and series on demand provided by partners; accessible via IMDB.com or any Fire TV devices.

Crackle: Ad-supported service for accessing movies and series on demand provided by Sony Pictures and content partners, accessible via most connected devices.

Tubi: Ad-supported service claims 20 million average monthly users and more than 132 million hours streamed in September alone.

 

AT&T CFO Backs John Stankey, Downplays Apple TV+ Impact on HBO Max

The day after Apple announced pricing/content updates for its Apple TV+ subscription streaming service, and an activist investor called for the ouster of AT&T’s CEO and COO, the telecom’s CFO John Stephens came out swinging.

Speaking Sept. 11 at the Bank of America Merrill Lynch Media, Communications & Entertainment Brokers Conference in Los Angeles, Stephens didn’t directly address Elliott Management’s Paul Singer (who owns $3.5 billion of AT&T stock) or his letter to the board calling for executive changes, including replacing CEO Randall Stephenson and COO John Stankey — the latter also CEO of WarnerMedia.

AT&T CFO John Stephens

Specifically, Singer questions the cost/benefits involved acquiring DirecTV and Time Warner as the pay-TV market shrinks in a rapidly evolving over-the-top video ecosystem.

Indeed, AT&T expects to lose more than 1.3 million pay-TV subscribers in the current third quarter (ending Sept. 30).

Stephens, however, outlined why Stankey is the right executive to oversee Warner Bros., HBO and Turner operations, in addition to AT&T.

Stephens said AT&T’s goal to meld entertainment content with wireless direct to the consumer requires specialized leadership befitting Stankey’s skills.

AT&T COO/WarnerMedia CEO John Stankey

“John has IT and technology experience,” Stephens said. “He had network experience. He was at our business, a wireline group and the wholesale side. He has run consumer mobility. He’s had experience in strategy. He’s had experience, with Warner Media and real knowledge of it.

“So, he’s the guy that’s got the background, that capabilities and we know and knows us and he knows all our capabilities.”

Stephens said Stankey understands the AT&T culture (he’s been with the company almost 20 years).

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“He has the ability to move things and how to get things done,” he said. “It makes all the sense … and is the right way to go about moving forward, particularly with our real significant move with HBO Max.”

Indeed, AT&T in October is planning an extensive unveiling of HBO Max — yet another direct-to-consumer subscription service centered around the HBO brand.

With Apple pricing Apple TV+ at $5 monthly, the pending service costs a third of the current HBO Now SVOD service.

Stephens isn’t concerned, characterizing the nine original shows launching on Apple TV+ as

“We only have a 40-year head start with [HBO] … a quality product that is the premium of premium,” he said. “[The] depth of just HBO alone is tremendous and it’s much different than what was talked about by some of the other [SVOD] carriers.

“When you add to that the Warner Bros. library — some of the children stuff there, what it might be — new shows that might come out and other things, it reinforces, boy, we’ve got really quality assets and really quality capabilities that others just don’t have at their disposal. So, we feel really good about that.”

Stephens pointed out that a couple of the Apple TV+ original programs (“Mythic Quest,” “Little Voice”) are produced by Warner Bros. Television.

“So, I’m sure those are pretty good shows because the folks over at Warner Bros. do great work,” he said.

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.