Apple hasn’t yet “opened the floodgates” for Apple TV+ subscribers, says analyst Rod Hall, which should staunch what he sees as bleeding.
The main financial takeaway from the launch is that shows likely more expensive to produce are being released more gradually while other shows are being dropped all at once. This should help Apple to maintain initial control of how much cost is added to the P&L with no matching revenue due to the free trial.
We also note that Apple does not appear to be aggressively promoting the free TV+ trial. Given the likelihood that existing Apple customers are unaware of the trial, we believe this lack of an initial advertising push likely leads to a slower take rate ramp which should also help drive a more gradual financial impact from the free TV+ trial.
We also believe that Apple may be wanting to test its delivery technology with less initial users before opening the floodgates to more. We continue to forecast a roughly 45% initial take rate but we note that the impacts to Apple’s financials ramp rapidly along with the take rate should the TV+ trial gain in popularity over time.
Maintains Neutral rating, raises price target to $192 from $188.
My take: In his deep dive into TV+ accounting, Hall argued that giving users a free year of “The Morning Show” would carve big bucks out of iPhone sales revenue in order to fatten up Services. You could argue that a year of free Apple TV+ is more like a marketing cost.