Apple's $1 Billion TV Investment Helps Company Compete With Spotify In Near Term

By Trey Williams Markets MarketWatch Pulse

Apple Inc.'s $1 billion investment to buy and produce original TV programming pits the technology giant against Spotify, not Netflix Inc. or Amazon.com Inc. -- at least for the time being, according to analysts at RBC Capital Markets. Apple's designated $1 billion content spend is small compared with Netflix's $6 billion, Amazon's $4 billion and Time Warner Inc.-owned HBO's $2 billion. Lead analyst Amit Daryanani wrote in the note that it makes more sense to see the investment as potentially taking share away from Spotify. Daryanani wrote that if Apple is able to add seven million to eight million paid Apple Music subscribers, it would recoup the $1 billion investment in three years, and given the double-digit growth in music streaming and the roughly 20 million subscriber gap between Spotify and Apple, upside to market share gains could be significant. "We think this itself provides Apple sufficient incentive to sustain the level of these investments," Daryanani wrote. "In addition, over the longer term, content investments open multiple possibilities including strengthening iTunes media sale/rental business, launching an Apple TV exclusive streaming service, leverage in negotiating with media companies, and driving M&A strategy. Ultimately, we think the investments fit well with Apple's goal of doubling services business by 2020." Shares of Apple have gained 36% in the year to date, while the S&P 500 index is up more than 8% and the Dow Jones Industrial Average is up nearly 10%.

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