3 Reasons Why Apple Is No Threat to Netflix

By Rick Munarriz Markets Fool.com

Image source: Netflix.

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It seems as if the booming realm of premium streaming video services is about to get more competitive. The Wall Street Journal is reporting thatApple (NASDAQ: AAPL)is in the process of building out a new business of original TV shows and movies.

The popular initial reaction is that Netflix (NASDAQ: NFLX) is going to be in for a world of hurt. Apple is a beloved brand, and a company with far more financial resources than its fellow Californian enterprise. However, reports of Netflix's demise or even that it should be fearing Apple's push into original content are overblown.

Netflix will be just fine. Let's go over a few of the reasons why Apple's arrival is no big deal.

1. Apple isn't gunning for Netflix

The Wall Street Journal's sources are saying that Apple's push for video is more about beefing up Apple Music, the $10-a-month music-streaming platform that it rolled out two years ago. Apple Music is growing nicely, but no match for the similarly priced Spotify that continues to be the market leader.

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Giving Apple Music subscribers access to exclusive video content would help Apple differentiate itself from Spotify, which at 40 million premium accounts is twice as big as Apple Music. Spotify also has more than 100 million total users, a figure that Apple Music doesn't compete with because it's only available to paying subscribers.

In short, Apple's push into first-run eye candy is more about turning Apple Music into a digital smorgasbord along the lines of the goodies that Amazon.com (NASDAQ: AMZN) provides Prime members at no additional cost than it is to become a stand-alone Netflix killer. One can rightfully argue that a lack of intent doesn't preclude Netflix from being in the line of fire anyway, but there are other reasons why Netflix won't wind up being collateral damage here.

2. Netflix survived Amazon

If Apple's digital music and subscription offering is going to look a lot like Amazon Prime, then we may as well belly up to the bar of the original alleged Netflix killer: Amazon. Jeff Bezos introduced streaming video to Amazon Primesix years ago.

We don't have official Prime Video usage metrics. We know critics generally like the originals, but there's a good chance that you and your friends have seen more House of Cards or Stranger Things than Mozart in the Jungle or Transparent.

However, even if Amazon's Prime Video was a hit, the ultimate burden to fail or succeed falls on Netflix. It had 21.7 million domestic subscribers and just 1.9 million international accounts when Prime Video was launched. Netflix has 86.7 million total subscribers -- 47.5 million domestic and 39.3 million international -- today. Amazon is a worthy peer to Netflix, but clearly it has not been an impediment to a platform that has nearly quadrupled in popularity since its arrival.

3. Apple isn't as crazy as Amazon

Amazon was a scary entrant in 2011 because Bezos isn't afraid to operate at a loss for the sake of market share. That's not how Apple plays the game.

One can say that Apple views some of its services as a way to sell hardware, but Apple Music recently became available on Android devices. This may make Apple's video push scary since it can cover a wider market than servicing just folks tethered to iOS, but it also means that Apple isn't going to take a hit to fuel the entertainment on Android smartphones.

Netflix has a juicy market that likely topped 90 million dedicated subscribers last month. Unlike Amazon and apparently Apple, which will try to squeeze proprietary TV shows and movies, Netflix throws all of its resources into video content, with $14.4 billion in streaming content obligations as of the end of September. If a ruthless Amazon couldn't dethrone Netflix, it's hard to picture a more level-headed Apple doing so.

Netflix will be just fine.

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Rick Munarriz owns shares of Apple and Netflix. The Motley Fool owns shares of and recommends Amazon.com, Apple, and Netflix. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.