"We believe the future of television is apps," Apple (NASDAQ: AAPL) CEO Tim Cook proclaimed back in 2015 when the company unveiled the fourth-generation Apple TV and first extended the App Store to tvOS. However, bringing apps to tvOS was hardly a prescient move, but rather a natural extension of how people prefer to access content in the era of mobile devices and cord-cutting. Just about every popular over-the-top (OTT) streaming service built tvOS apps as an added convenience to subscribers, but that's a far cry from revolutionizing the industry.
Apple hosted its "show time" special event yesterday, but the company's vision for the future of television is stuck in the past in more ways than one.
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Apps or app?
For starters, Apple's evolving TV strategy is not built around "apps." It's predicated on a single app: Apple's TV app. The company is hoping to make this single app a centralized destination that integrates a plethora of services, including traditional cable packages, over-the-top (OTT) streaming services, and just about everything in between. This is not a new idea; Apple first introduced the TV app back in 2016.
All that's changing is that Apple is giving the TV app a makeover, refreshing the interface to emphasize curated content discovery across services. There is one big exception, though: Netflix (NASDAQ: NFLX). The dominant video streamer, which accounts for an estimated 15% of global internet bandwidth, is decidedly not integrating with the TV app. "We want to have people watch our service -- or our content on our service," Netflix CEO Reed Hastings said last week. "And so we've chosen not to integrate into [Apple's] service, because we prefer to have our customers watch our content in our service."
TV app partners will host and stream their content from Apple servers, giving the Mac maker deep insight into usage and viewing data. That type of data has long been one of Netflix's most powerful tools, which it closely guards and uses to shape strategic content decisions. Netflix has almost no incentive to get on board to begin with, and doing so would only risk giving away valuable competitive data. Besides, Netflix recently stopped selling subscriptions through Apple's platforms in order to stop paying the Apple tax on new and returning customers. Spurning TV app integration will only further distance it from the tech behemoth.
At the event, Apple discussed how TVs and movies shape popular culture, and few video services do that in the way that Netflix does. But viewers won't be able to find BoJack Horseman or Stranger Things or any of Netflix's other culture-defining originals on Apple's TV app. Simply put, most viewers will still need to use at least two apps in practice for their entertainment needs: Netflix and Apple's TV app. Netflix is singlehandedly undermining Apple's strategy.
Cable bundles have been around forever
Like many before it, Apple is also now looking to sell premium third-party TV channels like AT&T's HBO, CBS' Showtime, and Lions Gate's Starz, among others, adding to its growing tally of paid subscriptions (360 million at last count) and getting a piece of those sales. As mentioned, regular cable subscribers can log in to the TV app to access their existing packages. Users can mix and match just the channels they want, making their bundle as slim or as bloated as they choose.
In other words, Apple is now selling glorified cable bundles, which companies have been doing since forever. Even the forthcoming Apple TV+ service will simply be another optional add-on to the package.
Subscription services aren't entirely mutually exclusive, but there is a limit to consumers' monthly budgets. In that sense, Apple TV+ may not complete directly with Netflix, but at the same time prospective subscribers will weigh their relative value propositions by gauging the breadth, depth, and quality of the overall catalog.
The company has yet to specify how much Apple TV+ will even cost, but Apple has a lot of catching up to do in terms of its content catalog.
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Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool owns shares of and recommends Apple, LGF-A, LGF-B, and Netflix. The Motley Fool is short shares of CBS and has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.