Apple CEO Tim Cook offered a simple answer when investors asked why the company decided to essentially give away its upcoming streaming service, Apple TV Plus, for next to nothing: it’s a “gift to our users.”
“We’re really proud of the content,” Cook told investors during the company’s fourth quarter earnings call on Wednesday. “We’d like as many people as possible to view it. And so this allows us to focus on maximizing subscribers, particularly in the early going.”
Apple TV Plus technically costs $4.99 a month, but anyone who purchases a new or refurbished piece of Apple hardware will get a free one-year subscription. Those customers can then get five people on their Family Sharing plan. Maximizing subscribers is important to the company and to investors who are eager to figure out Apple’s strategy.
This is a new space for the company, one it’s been trying to crack for years. All eyes are on whether TV Plus can take off or whether it will flop. Cook knows this, but he’s outlined how important software services are to Apple’s future. Creating an ecosystem of ongoing, subscriber-based products that keep customers within the company’s ecosystem is crucial.
Apple Music, Apple Arcade, Apple News Plus, and now Apple TV Plus exist to give people an avenue into the broader Apple ecosystem. That doesn’t include important ongoing hardware-based subscriptions iOS users pay for today, including iCloud storage and the company’s iPhone leasing program. Each service attracts its own paying subscribers, but there’s a future in which all of these services are bundled together to create a more unified customer base for Apple.
The company is already experimenting with such bundles. Customers who pay for an Apple Music student plan will get a free subscription to Apple TV Plus. Eventually, Apple could spread that out to include Apple News Plus and Apple Arcade. Video is a “core part of this effort,” wrote Matthew Ball, an industry analyst and former head of strategy at Amazon Studios, in a Redef analysis last May.
“An Apple Subscription allows the company to use its existing ecosystem, reach and brand to de-risk new business, out-compete in undifferentiated ones and create a rich, proprietary experience that its competitors will struggle to match (due to either their more modest cash reserves or scope of services),” Ball added.
Just because Apple TV Plus is free now doesn’t mean it will stay that way. Customers pay for Amazon Prime Video; they just get it through Amazon Prime. They also get Amazon Music and one free Twitch Prime subscription every month. Apple wants to replicate Amazon’s success by using its big advantage: hardware. Once customers are reliant on Apple’s apps, upgrading to a new iPhone or MacBook makes even more sense.
People are still spending money. It’s just likely that instead of spending $750 for a new iPhone or $150 for an Apple TV once and getting the service for free, they’ll pay $50, $75 or $100 a month for Apple services indefinitely.
Update (November 1st, 1:15pm ET): The piece has been updated to include a clarified line about pricing.