The plan is simple: make its Apple Music business gain more subscribers by delivering them original content.
Original content could be the answer to Apple's slowing sales in iPhones and iPads. It could make Apple Music the secret weapon in protecting and fortifying the company's music ecosystem. The Wall Street Journal last week reported Apple's plans, citing anonymous sources, but later Apple executive Jimmy Iovine essentially confirmed the expansion, according to The Hollywood Reporter.
In addition to Spotify, Netflix's and Amazon's streaming services also stand to be affected. It's essential to understand how Apple's offerings would differ from other content distributors.
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Apple has loyal customers. By bringing quality original films, television and music to its customers, Apple can tap into these massive pools directly and control distribution and pricing strategies.
At the moment, there are three key questions to ask about Apple's push for original content:
First, will the original content be made available to subscribers of Apple Music under the current pricing scheme? Original content can bring more subscribers because the narrative shifts from "subscription cost" to "value of subscription." At its current $10-per-month subscription rate ($5 for students), which is the same as Spotify's subscriber rate, original content might allow Apple to increase the price point of its subscription service. This could be a huge profit driver.
Second, Apple could be competing against high-quality original content from Netflix, and this comes at hefty price. Being vigilant about budgets will be important in the early stages of this effort as Apple comes in very much as an outsider. From Friends to Game of Thrones, a single episode of a series can easily cost more than $5 million.
Third, Apple is notorious for demanding that customers use its proprietary software. Will it be able to adapt to an environment in which customers have already gotten used to streaming their content from any device? On-demand internet streaming goliath Netflix has shown how much customers appreciate a flexible streaming platform that they can use on any device and share with friends and family.
It must be remembered, that quality content demands excessive capital outlay. Netflix expects to spend $6 billion on original content in 2017. One analyst estimates that Amazon spent $3.5 billion on it in 2016. These amounts will only keep rising.
Apple of course possess a huge cash war-chest.
With smartphones and tablets reaching a plateau, Apple must evolve into a next-generation enterprise in order to continue driving earnings. Content could be that missing link, propelling Apple further.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.