From a note to clients by analyst Daniel Ives that landed on my desktop Friday:
We believe Apple’s goal here is to be a major distribution platform for content and with 1.4 billion active iOS devices worldwide, with the theme of family and a safer viewing platform. Cupertino is trying to differentiate itself vs. competitors and flex its Apple brand muscles to get more consumers on this “trustworthy” platform.
Apple has signed major Hollywood stars such as Oprah, Jennifer Aniston, Steven Spielberg, and Reese Witherspoon for its original content and this massive budget increase is a major shot across the bow to all content providers that Cupertino is done with just dipping its toe in the streaming pool and is ready to dive into the deep end.
With that said we believe Apple needs to be very strategic with this initiative as the success on this front will play a vital role in the services growth at Apple for years to come.
We continue to believe the company has the opportunity of capturing 100 million consumers on this streaming content service with this major, potentially game changing content distribution service. From a pricing strategy, we believe $10 per month will be the initial launch service fee offered to Apple customers, however we expect different bundled options with Apple Music and other services will also be offered at different price points.
If Apple executes with minimal speed bumps and aggressively acquires content… we believe reaching the 100 million subscriber number in the medium term (3 to 5 years) is a realistic goal that could translate into a $7 billion to $10 billion annual revenue stream over time for Apple and further cement its installed base and halo effect.
Maintains Outperform rating and $245 price target.
My take: To put that in context, Xerox is a $10 billion company. But as Ives warns, Apple has to execute for this to work. In other words, the shows have to be must-watch good.