It Wasn't the Apple TV+ Spend, It Was the Apple TV+ Strategy
"Apple is Losing Over $1 Billion a Year on Streaming Service" – the literal headline number in this report about Apple TV+ by The Information looks scary. Apple is doomed, right? While it's a nice, big round number, context matters. Losing $1B a year on anything would be a gargantuan amount for most companies and certainly all media companies. But Apple, as the most valuable and profitable company in the world, could afford to lose 10x this amount and it still wouldn't matter.
Well, it undoubtedly would matter to Tim Cook, but the point is that it's all relative and all of these streaming companies are not created equal. For better or worse, the reality is that Apple can um, think different about such losses.
And yet the flip side is also undoubtedly true. Because of that reality, it has led the company down the path of a number of strategic blunders with regard to Apple TV+. And Wayne Ma's report actually highlights some of these, they're just buried under that headline. So let's unbury them a bit.
First and foremost, assuming some of the details in the report are accurate, the strategic issues started from day one – or perhaps even before day one, actually:
Years ago, when Apple’s board of directors debated whether the company should buy a streaming service to jump-start efforts to diversify, Eddy Cue, the company’s services chief, argued to board members that Apple could build a competing platform much more efficiently than Netflix, whose growth was fueled by borrowing, according to a person familiar with the matter. (Netflix now generates billions in cash.)
I mean, my god could you imagine if Apple had bought Netflix? Who knows if they even would have been allowed to from a regulatory perspective, or if Netflix would have sold, but if it's true that Cue argued against it simply because he viewed their business as being bolstered by borrowing (financing content spend through debt) that's a huge strategic blunder. Yes, this was the common criticism of Netflix at the time, though – with the benefit of hindsight – it clearly misunderstood what would happen if and when Netflix reached escape velocity with regard to scale.1
Company executives also believed that making the Apple TV+ app available on a wide array of devices from other companies, including Samsung TVs and Android smartphones, could tempt shoppers to buy Apple’s hardware products. However, the company didn’t have internal data on whether that strategy ultimately led to higher device sales, according to multiple people who worked for Apple TV+.
Yeah I mean not being able to measure the effectiveness of such a move, if true, is silly. But the bigger question is if that stated strategy is sound to begin with. Why would the availability of an Apple TV+ show on a Samsung TV prompt a person to buy Apple hardware? Just halo effect stuff? The argument for making these shows widely available is to sell Apple TV+ subscriptions and spread the cost (and content) far beyond the Apple ecosystem base, not the other way around.
Instead, Cook began looking much more closely at its financial performance. One former Apple TV+ employee said Cook expressed the view that the streaming service was becoming a serious business that needed more oversight.
One form of spending that caught the eye of Apple’s bean counters was the private jet travel for the service’s top talent. The company was laying out hundreds of thousands of dollars per flight to ferry actors and producers to events promoting its TV shows and movies. While splurging on private flights is common in Hollywood, it was more unusual at Apple.
This has always been a huge discrepancy between Hollywood and Silicon Valley. It's less the specific use of private jets – fairly common in both industries, of course! – but more just the ridiculously opulent spending that is baked into the Hollywood side of the equation. I can just imagine Tim Cook asking for a few receipts and seeing $50,000 being spent on fresh strawberries to be on set every day for six months – 99% of which were thrown out – and Mr. Logistics losing it. "But <INSERT HOLLYWOOD STAR> had it baked into their contract, Tim!"
And this is somewhat related to an issue which is only tangentially talked about here, but is clearly important overall: Apple's pull-back from theatrical after their rather disastrous start in that specific area. This all came to a head with Wolfs, the awkwardly titled and very much just okay movie starring George Clooney and Brad Pitt. When it was announced, it seemed like a massive coup for Apple's Hollywood aspirations; this was two of the biggest movie stars in the world teaming up (for the first time since their hit Ocean's films) for a young, hot director coming off his own massive success in the form of the latest Spider-Man movies.
Somehow, it turned into a complete nightmare for Apple.
Again, not because the movie was awful – it was fine – but because Apple completely and utterly shit the bed when it came to the strategy for the film. Obviously, the assumption was that a film starring Clooney and Pitt that cost upwards of $200M to make (though various parties denied this – undoubtedly there were earn-out caveats, etc) was going to get a massive theatrical push. But right before that was set to happen, with the movie already in the can, Apple... decided to pull back entirely from Wolfs theatrical run. Yes, it still got a film festival premiere – but that just ended up serving as a more awkward and high profile stage for Clooney and Pitt to have to answer the questions as to why it was being moved from theaters.
Those two were as diplomatic as you can be about the movie – perhaps thanks to some behind-the-scenes promises about sequels and pay checks – but director Jon Watts was far less so. He was pissed off and rightfully so! Apple essentially bait-and-switched them because they clearly didn't want to have another big Hollywood flop on their hands. And they probably would have, because the movie just isn't the right type of film for a massive roll-out. Apple got that call right, but they made it way, way, way, way, way too late in the process!
And it's all the more awkward when you consider that Pitt is set to star in Apple's true next tentpole: this summer's F1. That will absolutely be getting a massive theatrical release, as well as on IMAX, and it will undoubtedly do well! They just bungled Wolfs. And Fly Me to the Moon. And Argylle, as the piece notes, And Killers of the Flower Moon. And a half dozen other projects.2
Again, moving these types of movies from massive theatrical releases is the right call, both for Apple and for the entire industry going forward. But they stumbled their way into doing the right thing, strategically. And that also would indicate a bad strategy from the get-go. Apple clearly thought they could just use their clout as the most valuable company in the world with nearly unlimited capital to bully their way into making massive Hollywood hits. They badly miscalculated all that was involved – including, yes, picking the right properties, not just big name stars.
And the strangest element of the whole thing is how badly they messed up the marketing of these movies. It's Apple! They're typically the best at marketing. But clearly consumer tech product marketing is very different from film marketing.
Adding to the oddity of all this: as bad as they've been on the film side, that's as good as they've been on the television side, at least when it comes to content. They really have created the "new HBO" in a way. But there they have almost the inverse problem as on the film side. Despite having great content, it's incredibly hard to get people to sign up for your service without meeting consumers where they are. In their living rooms.
Apple thought that creating great Apple TV+ shows would lead people to buy Apple TV set top boxes. That didn't happen. Instead, they just kept their Rokus and stayed happy with Netflix and Prime Video and Disney+ and didn't think much about Apple TV+.
That was especially true since the other mistake Apple made here was not having a big enough back-catalog at launch.3 I mean, they essentially didn't have any back-catalog. They were starting from scratch. You know who wasn't? Disney+, with 100+ years worth of back-catalog across many studios. Same with Prime Video thanks to licensing deals struck – a model which, yes, Netflix pioneered. Apple thought they could go it alone for some reason. If they weren't going to buy Netflix, they should have bought HBO.
They still should! Because if having a steady stream of must-see content is the key for streaming services, the underrated related important element is the sheer amount of content and back-catalogs, because it's all churn prevention. Since you can't really predict what the long-tail of people might want to see, you need enough to ensure everyone has something they want to see after that new hit show is over. Apple has always had an issue here. Time naturally heals some of it as new content shifts to catalog content. But that takes a long time, obviously. That's why you do licensing or partnerships or acquisitions. But Apple doesn't like to do any of those. And so Apple TV+ suffered out of the gate – again, despite good content!
None of this is rocket science, it's simply the way the entertainment industry works. A lot of that is weird and wasteful, which must make no sense to Apple, but they were also told all of this going into it. They just clearly thought that their brand and money would change such equations – remember all those celebrities at that early, weird Apple TV+ event? – but that hasn't worked, and so now Apple is changing to meet the market they arrogantly walked into.
The only real tech company that has taken on Hollywood and bent it to their will has been Netflix. And that's largely because they had a great strategy from the get-go and mainly stuck to it – while also being malleable enough as needed, such as with ads, and now live content, and soon, my guess is, theatrical releases as well. The entertainment industry misunderstood what they were doing and that's hardly a surprise when you consider that Apple clearly did as well!
But now with expectations and strategy seemingly reset within Apple, they have a path forward here. In my mind, it looks something like this:
- You do a handful of tentpole films a year. But you have to be good at picking these. And you have to put real Hollywood marketing muscle behind them. F1 will be the first real test of this strategy this summer, and it looks great.
- Other films get more strategic and limited releases (for awards season, etc). You leverage that smaller-scale theatrical marketing to build buzz for the Apple TV+ streaming release.
- The Apple TV+ television content stays the course in terms of quality. Perhaps spending is brought in a bit just to match industry norms and so you don't become the place where top talent peddles their mediocre stuff because Apple is starstruck. Hopefully they got that out of their system.
- That content is available beyond Apple devices because you need to meet consumers where they are and most consumers are not going to buy a $130 streaming box (even if it is very good – it's just a different market/world).
- If they subscribe to Apple TV+ on, say, Amazon Prime Video Channels – or on Android! – perhaps there's a way to move them over to the Apple One bundle eventually if they have an Apple device. But it's probably not going to sell them that Apple device.
Up above I completely brushed aside the "halo effect" elements at play here. But I do think there are benefits, I just think you need to have your content available and viewed at a massive scale to take advantage of them. And it's extra hard for Apple because unlike, say, Netflix, they'll want to maintain a high level of quality to ensure it's the right type of brand halo effect.4
It's a very hard thing to pull off, of course! But Apple has also been very good at it over many years. I mean, I eventually bought a Mac because I bought an iPod. It took a few years of recognizing the quality of the one product to making me want to switch other products, but it eventually worked.
That's an even taller ask with software and taller still with content. But there's probably a sort of intangible path to walk here. Apple just needs to make the content side of the equation actually work, strategically. I don't care how much it costs, necessarily. It's more that those costs – in particular those losses not going down over time – actually indicated that they're strategy was broken. And so the hope is that Cook cares less about the spend and more about what the spend was indicative of – and has shifted that strategy appropriately. We'll see, quite literally.
M.G. Siegler
M.G. Siegler
1 I might just point out that not all of us needed such hindsight benefit... just sayin...
2 They probably made the right call with The Gorge – which also wasn't great – though that actually may have done better in theaters simply as counter-programming on Valentine's Day.
3 A mistake they would make again with the launch of the Vision Pro! And yes, are slowly working to fix here too!
4 Yes, yes "quality" can be subjective. But again, they've been great at this when it comes to streaming series thus far. They need to get better about it with movies. They seemingly need a better greenlighter? Which may be increasingly true of the broader company!