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Apple TV Plus can afford to gamble $6 billion in a way that Disney and Hulu can’t

Apple TV Plus can afford to gamble $6 billion in a way that Disney and Hulu can’t


Does it really matter to a company that has $210 billion on hand?

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Image: Apple

Apple is reportedly spending $6 billion on its initial lineup of TV shows, documentary series, and other originals that will land on its streaming service, Apple TV Plus. That’s about $5 billion more than what Apple was originally slated to spend, according to a Financial Times report. It’s also about 25 percent of Disney’s entire 2019 content budget.

Unlike Disney — which will allocate just under $7 billion of its estimated $24 billion content budget this year on sports properties like ESPN and another huge portion on theatrical releases — Apple is focusing its content budget entirely on streaming. So it might make more sense to compare Apple’s creative budget to Netflix’s. While Netflix is currently spending upwards of $15 billion on its own original series and films this year — more than 300 originals shot around the world — it took six years to get to that level of spending. When Netflix first started looking into developing original content back in 2012 and 2013, its budget was much smaller.

By the time Netflix’s first major original series, House of Cards, debuted in 2013, the company had a content budget of about $2.3 billion, which mostly went toward licensing movies and TV series. The company reportedly spent around $500,000 an episode for the rights to Friends in 2014, which is roughly $30 million a season for 10 seasons. It was a huge part of the company’s content investment, but it paid off: Friends became one of Netflix’s most-watched shows, and it helped retain subscribers over the next four years. WarnerMedia, which reportedly bought back the rights to Friends for $425 million, is expected to spend about $11 billion on content this year.

Apple is focusing its content budget entirely on streaming

Apple hasn’t joined in on the race to secure popular licensed shows like The Office and Friends, which suggests it’s focusing that $6 billion primarily or entirely on original content. The company is investing in prestige series like The Morning Show and See, which are budgeted at a reported $15 million per episode, putting them on par with Game of Thrones’ final season.

But The Morning Show is not Game of Thrones. Game of Thrones was a cultural phenomenon that used its budget to secure expensive location spots around the world and build realistic-looking CGI dragons. The Morning Show is a newsroom drama starring Jennifer Aniston, Reese Witherspoon, and Steve Carell. There are no dragons in it, at least not based on the initial trailers. See is a science fiction / fantasy series starring Aquaman’s Jason Momoa, set in a future where everyone is blind. Even for See, Apple’s attempt to produce a prestigious science fiction series, $15 million an episode is a lot. Remember: Apple doesn’t have one Apple TV Plus subscriber yet.

But Apple isn’t Netflix or WarnerMedia or NBCUniversal, the latter of which is reportedly spending approximately $13 billion on content this year as it figures out its own streaming strategy. It’s an important distinction. Netflix, WarnerMedia, NBCUniversal, and Disney are primarily entertainment companies. Their entire revenues come from people paying, either via subscription or theater tickets, to watch something.

Apple has more in common with Amazon in that regard, which spent more than $500 million on the rights to a Lord of the Rings series. Like Amazon, Apple has an absurd amount of money in the bank: $210.6 billion cash-on-hand. It can take a risk by investing $6 billion into a select number of shows on a streaming service no one knows much about yet — especially when CEO Tim Cook plans to invest heavily in services as a division.

The Morning Show’ is not on the same cultural level as ‘Game of Thrones’ — but they reportedly have the same per-episode budget

Apple is trying to do more with services because iPhone sales are dropping, and the company wants to look outside of traditional hardware sales to continue increasing its revenue. Its push into services — gaming, music, and now streaming — is a big focus for the company, with an expected revenue of more than $100 billion by 2023, according to one Morgan Stanley analyst.

It’s an understatement to say that Apple has an upper hand in the streaming wars when it comes to available cash flow to invest in its platform. But Apple TV Plus is still a hard sell content-wise. None of its shows are proven hits, and there doesn’t appear to be any licensed programming to bring people in automatically. Taking a blind chance on shows starring Hollywood A-listers is still a tough sell for a service that will reportedly cost $10 a month. That’s even truer now that Disney is planning to launch its service, which will have a recognizable and beloved back catalog of titles alongside anticipated new releases, for $7 a month.

It will take some time to see whether Apple can succeed as a streaming service, joining giants like Netflix and Hulu in a competitive market. Not everyone can; YouTube’s subscription-based programming tier, YouTube Premium, wasn’t considered a success, and it’s moving to make its original content free to stream. What’s clear is that everyone clamoring for a seat at the table is being forced to spend more than ever — and that’s where Apple clearly has no issue.

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