Maccast Members 2015.09.08 - Apple Studios

Intro

• All this talk of Apple getting into the TV production business has made me worry, but why?
• I felt Apple is already spread too thin and this could just be another distraction that take focus away from their hardware.
• So I wanted to look deeper into this idea.

Why?

• The cable companies and content providers are playing hardball and this could be an end run around them
  • It also could be the thing that gives Apple the leverage to get them on board, but with Apple’s terms
  • The irony is that is one reason why they are probably not wanting to play ball with Apple right now.
• Bring more people to an Apple Streaming TV service
  • Use original content to anchor the service
• Sell more Apple devices
  • Screens.
    • 250 Million iPads
    • 700 million iPhones
    • 25 million Apple TVs
    • Might argue more android devices, but compatibility and longevity are issues on the platform.
  • Digital Video Benchmark report for Q2 2015 from Adobe
    • 22.3 percent of users used Apple’s iPad to watch TV Everywhere content
    • 18.3 percent used a PC, includes Macs (7.4)
    • 18.2 percent used iPhones
    • 12.8 percent used Apple TV
    • Even without including PCs, 53.3% of Tv Anywhere viewing is done on an Apple product. Add the 7.4 percent Macs and Apple devices are used 60 percent of the time.
• Sell more iTunes purchased content
  • More people using their service the more opportunity to cross sell products and services.
  • Apps, Music (Soundtrack), tie-in games.
  • Bundling?
• TV Experiences are bad, Apple thinks they can do better
  • Universal search being on and Apple could bring that together (they’ll still need content partners)
  • Corrdcutters don’t like friction though. Data shows if they can’t find what they want when they want it they’ll move on.

How?

• Set up a production arm with a budget to hire companies to create original content
• Set up a VC project to offer funding to new shows. Like Apple’s iFund did for Apps in the early days
• Provide an infrastructure for indies to distribute and sell content on iTunes. Apple would get a cut.
  • Could include a “vetting” process like Apps.
  • Would be just like Podcasts have now, but with an ability to monetize the content
• These options aren’t mutually exclusive.

Risks

• Spreading themselves too thin
  • I’ve expressed this worry myself, but I think my thinking may have been wrong.
    • I use it because we’ve seen it happen internally with Apple’s hardware and software teams. This media stuff is different though as Apple would be hiring resources that are completely separate to manage and produce this stuff. It’s not like they will steal software engineers off the OS X project to make a pilot.
  • Apple would be hiring, mostly from the outside, so I don’t see this being as big an issue as I once though
  • This is similar to how they are running Beats 1
  • Small internal team managing
• Producing a series of “flops”
  • Always a risk with any content
  • Look at how much content on Netflix, HBO, etc. is “marginal”
  • Flop is subjective. Not everyone like or watches the same shows.
• Apple has no experience
  • Apple already producing some videos for Apple Music
  • Apple has been producing it’s TV
• Pissing off partners
  • Netflix, HBO, Hulu and other channel providers may start to see Apple as competition
  • Will there be enough demand from customers to keep their channels on the Apple TV?
  • Apple will want a mix of everything. Their own original content, content from cable TV channels, local network channels, podcasts, You Tube, etc.
  • Apple Music has not yet stopped Rdio, Pandora, Spotify, etc. from doing iOS apps.
  • If Apple secures enough direct deals with providers for their own service then it might not matter.
• Upsetting customers
  • What kinds of shows do they do?
  • Many cable shows that are successful have adult content. Language, nudity, sex, violence.
    • What about controversial subject matter. Race, religion, lifestyle choices?
    • You can get this stuff on Apple TV now via partner channels
    • Would this been seen differently by consumers since it’s Apple producing the content
  • There would still be ratings, so I’m not sure this would be a big deal.

Rewards

• More people using their Apple devices to consume media
• Apple TV becomes a “destination” service
  • Brings in eyeballs
  • Brings in other content if successful.
  • Everyone wants to be around those who are successful
  • It’s happening with Beats 1 and Apple Music.
• Relative risk for Apple at the moment is low
  • Cable TV shows cost on average $2-3 million per episode to produce
  • Most shows are 10-23 episodes per season
  • Some bigger budget shows can go from $6-$10 million an episode
  • Doing the math Apple could in theory produce 10 original series for about $600 million dollars
  • Sounds expensive until you realize Apple’s last quarterly profit was $10.7 billion (an that’s in a slow sales quarter). It’s first quarter profits were $18 billion.
• They would really just need a couple of shows a year to be hits
  • Most people subscribe a cable service or streaming service for one or two good shows.
  • The rest of the content is just gravy.