Apple announced at its "By Innovation Only" event Tuesday its entertainment streaming service will cost $4.99 a month. Here's how that stacks up against what has become an increasingly competitive streaming space:
- Netflix (NFLX - Get Report) standard plan: $13 per month
- Disney (DIS - Get Report) standard plan: $6.99 per month
- Disney bundle: $12.99 per month (Disney Plus, Hulu, ESPN Plus)
Netflix shares fell 3.55% to $283.89. Netflix is perhaps the most vulnerable to the heightened competition. Firstly, it doesn't have another business on which to lean. It's competitors are diversified. Secondly, it's now priced at $13 a month (because of its huge content library), but the other heavy hitters, which includes Amazon (AMZN - Get Report) , can invest heavily in original content when they need to.
Disney fell 2.72% to $135.05 a share on the day of Apple's announcement. Disney has a huge content library, but Apple is certainly putting on the competitive pressure by undercutting Disney's standard plan price.
The market is saying competition is real.
Just because Apple's announcement puts pressure on Netflix and Disney doesn't mean Apple shares are exploding. They're flat Tuesday at $214.26 apiece. The $4.99 plan doesn't exactly bode well for the profit margins analysts want to see. But looking through the trees -- or out a few years -- Apple could conceivably invest more to acquire content and raise price. An Apple shareholder told TheStreet in August, while Apple is only budgeting $6 billion for content for the moment, it can certainly dive in fully within the next few years.
For now, Apple wants to leverage its 1.4 billion person user base for its services business. Management has decided the most efficient way to do that is to use the power of low prices against thick competition to engage people. Some users will even get free streaming at first. Once loyalty builds, Apple can raise price in tandem with more content acquisition.