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Apple ( AAPL - Get Report) has reportedly boosted the content budget for its new premium streaming service from $1 billion to $6 billion, with plans to launch the service in November, according to recent articles from the Financial Times and Bloomberg.
But with roughly $112 billion in net cash and plenty of catching up to deep-pocketed rivals to do, shouldn't Apple be spending even more?
"Spending $6 billion more suggests that [entertainment content is] a serious hobby instead of just a hobby," D.A. Davison & Co. analyst Tom Forte told The Street. "We're still trying to gauge for Apple if this is a full-time job."
Netflix ( NFLX - Get Report) , by comparison, will spend somewhere between $15 billion and $20 billion on content in 2020, according to multiple reports, while Disney ( DIS - Get Report) is expected to spend $24 billion overall on content, including on its theatrical films, in 2019. Disney's much-anticipated streaming video service, Disney+, is expected to launch in November.
"It would be advantageous for Apple to observe how [its] original content performs to the extent that they start rolling out the Apple TV Plus service," Forte said, noting that Apple has the balance sheet to compete with Netflix, but may not want to invest as aggressively early on.
Apple TV Plus, which Bloomberg reports Apple is planning to charge $9.99 a month for, will feature a considerable amount of original content, including "The Morning Show" starring Reese Witherspoon, Jennifer Aniston and Steve Carell; a reboot of "Amazing Stories" by Steven Spielberg; new shows from Oprah Winfrey; and sci-fi series "See." But it will only have a small number of shows compared to the hundreds of original series and films from Netflix, and the vast libraries of older content that Netflix offers and Disney will be offering.
Apple's $6 billion spend is "appropriate," Kevin Walkush, a portfolio manager at Jensen Investment Management, told TheStreet. "They don't have a position of strength yet. But I think it makes sense to wait" before spending more. Jensen counts Apple as one of its holdings.
Meanwhile, entertainment streaming is becoming increasingly competitive. In what Forte describes as an "arms race" for content, Amazon ( AMZN - Get Report) continues to ramp up its media business, while Disney recently announced it will be bundling Disney+ with ESPN+ and the ad-supported version of Hulu for a total of just $12.99 a month. And new streaming offerings from Comcast ( CMCSA - Get Report) and AT&T's ( T - Get Report) Time Warner unit are also on the way.
Forte sees Apple's video content business eventually contributing 10% of the company's total revenues within the next five years. This could be significant for Apple's stock, as video content streaming can be a high margin business that "can be a significant accretion to the bottom line," Forte said. Apple itself has set a goal of having its Service businesses contribute $50 billion in revenues by 2020; in its latest June quarter, Services revenue amounted to $11.5 billion, or 21% of the company's total revenue.
Apple shares have risen 34% year-to-date, and are now trading at $210, close to their all-time high of $224. The average analyst price target on Apple is $218, with a handful of analysts pricing Apple at above $240.
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