Apple spent $500 million in Hollywood this year

Netflix spent 6X that much, Amazon 3X.

From a note to subscribers by Loup Ventures’ Gene Munster:

It’s no secret that original content will be an emerging area of investment for Apple, given it will boost the increasingly important Services revenue line. The good news is the trend is undeniable of more cord cutting and consumers paying for multiple monthly streaming services. Multiple streaming services means there will be a handful of content provider winners. The bad news is Apple’s efforts in content have been limited to “learnings” (Carpool Karaoke and Planet of the Apps).

We think that will change over the next 5 years as Apple ramps its original content investment from about $500m in 2017 to our estimate of $4.2B in 2022. It’s worth noting this will still lag our 2022 estimates for original content spend (excludes catalog spend) by Amazon at $8.3B which will likely surpass Netflix at $6.8B.

Apple's media spend

Click to enlarge.

Fighting to reach 75 million subscribers:

We define a winning content platform as having 75m+ monthly subs. That’s a tall order given it’s a crowded field with more than 200 subscription video services in Sep-17 (Parks Associates)… Looking at monthly subs, today’s leaders are Netflix (estimated to end 2017 with 115m subs) and Amazon (~80m global Prime subs). Hulu is the 3rd largest with 12-15m U.S. subs, but that doesn’t clear our 75m hurdle. Apple should be able to quickly expand their sub base given they have a running start with just over 30m Apple Music subs that will have access to the video offering for the same $10 per month.

The hand of Jimmy Iovine:

Apple has been filling the ranks of its programming team with experienced entertainment executives. In late October Apple hired Jay Hunt, a rock star in UK original content, and in June hired Jamie Erlicht and Zack Van Amburg from Sony. Separately, these hires tie back to the acquisition of Beats and Jimmy Iovine joining Apple. Iovine was instrumental in bringing Erlicht and Amburg to Apple and has been the point man for Apple’s push into the original programming. Iovine has deep knowledge and a wealth of experience in the music industry — we consider him a “tastemaker” — and will likely work to expand their video offering into original programming, alongside their existing audio offering.

My take: Breaking into Hollywood may not be easy for Apple, especially if Jimmy (“the tastemaker”) Iovine is in charge.

5 Comments

  1. Sandro Castellaro said:
    Cramer’s admonition a few years ago that Apple buy Netflix for $30B looking prescient in hindsight

    1
    November 21, 2017
    • Richard Wanderman said:
      I agree.

      I’m not hopeful on Apple successfully getting into original content, at least with what they’ve done so far as a taste(maker) on what they might do in the future.

      1
      November 21, 2017
    • Jonathan Mackenzie said:
      You can’t just do the math with the $30b figure, though. To get to today’s Netflix, Apple would have needed to buy the company (for $30b) and then duplicate all the cash burn that Netflix has endured (5 billion headed to 20 billion soon enough).

      My take is that if you assume the total cost of getting the Netflix of today would have been around 40-50 billion, there’s no reason not to think Apple couldn’t get there on their own, maybe even for less money.

      In my opinion Apple has been wise to leave Netflix alone. They are a paper thin company that has to burn a dollar to make a quarter. If they can’t keep producing hits, their subscribers can leave them in droves with no switching costs. If they can keep producing hits, it will only be by pumping billions into the machine, and Apple can manage that just fine on their own thank you very much.

      Given that Apple has a tendency to wait patiently behind earlier market entrants and then come in with a splash, I don’t understand why so many folks are negative on Apple’s prospects in streaming. They haven’t even really tried to do anything yet. When it comes to hardware, Apple collects component teams, experiments, and then executes based on a grand vision. This appears to me to be their strategy with online content. I think the odds are better than 50-50 that they can obtain a Netflix like market position for less than it would have cost to buy Netflix a while ago and certainly less than the $100b it would cost today.

      Time will tell. Maybe they will totally fail. But how often has failure been the right call when it comes to Apple?

      If you had the choice to pick Netflix the company with all its assets and liabilities or Apple’s streaming aspirations and the bankroll behind it, which would you choose? I’d pick Apple.

      3
      November 21, 2017
      • Fred Stein said:
        I like the way you think. Apple has time and cash on its side. There’s no monopoly position in content creation or distribution.

        That said, I’m not pleased with Apple’s pace, nor with Mr. Iovine’s results. Mr. Cue has done little on his own, post Jobs.

        0
        November 21, 2017
  2. John Kirk said:
    Two things. First, buying Netflix would be a terrible mistake. Apple’s business model is the complete opposite of Netflix’s.

    Second, What people don’t understand is that Apple uses services for a different purpose than many other companies. For Netflix, a subscription to movies is their entire business. Services ARE their business.

    The same is true of Google. They give away search, maps, etc. in order to get data that they can then sell to advertisers.

    Apple’s business model is to make great software and monetize it through the sale of hardware. Services are NOT Apple’s business.

    So why is Apple putting money into services? For the same reason, that Apple put money into Apple maps. Apple doesn’t ATTRACT customers through their services. Apple has a strong relationship with their customers and a 95% approval rating. Apple uses services to keep clients from LEAVING Apple. That is fundamentally different. Apple doesn’t have to provide the best services. Like Apple Maps, Apple just has to provide a good enough alternative to the “sirens” from Netflix, Google, etc.so that Apple customers don’t “jump ship”.

    2
    November 21, 2017

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