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The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
Two weeks ago, many eyebrows in media were raised in response to this line from Netflix’s Q2 2024 letter to shareholders: “The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services and linear continues to decline.”
The week before, Reed Duchscher—CEO of Night, the creator talent management agency—wrote in an unrelated post on LinkedIn:
“In 2022, we started a production studio with the goal of helping creators develop premium content for streaming platforms like Netflix and Amazon. However, after a couple of years, it has not materialized as we had hoped, despite our best efforts.”
Duchscher also added: “Most top creators no longer view premium distribution as the ultimate goal."
And, a week later, Bloomberg’s Lucas Shaw wrote: “After spending more than $20 billion to produce original TV shows and movies that not a lot of people watch, Apple is starting to refine its strategy in Hollywood.”
The fact that the demand side of the market values “premium content” and “walled gardens” less in the streaming era is nothing new. But, it is significant that Netflix and Apple—arguably the two most important technology players in Hollywood when it comes to funding content— (1) agree that the economics of premium content are no longer viable in streaming; (2) are now openly talking about it; and, (3) are shifting budgets accordingly.
The significance of the creators’ perspective is that, despite being an obvious solution, they also are finding there are better business models with their audiences than Hollywood’s premium content.
The obvious question is, so now what for Apple TV+?
Key Takeaway
Apple's attempt at building a "walled garden" with TV+ is becoming too costly. It may be better off serving both creators and even Disney by "YouTube-ifying" Apple TV+ and its other various Apple services.
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A Problem of Spend?
Apple’s problem, as Shaw writes, is that it is “spending billions of dollars a year on original programming” and now wants to change its reputation as “the biggest spender in town.” Nominally, that is not true. Netflix buys more projects in Hollywood and will spend $17 billion globally in 2024, alone. According to Bloomberg, Apple has spent $20 billion total since launching Apple TV+ in 2019.
I wrote in March 2023 that Apple’s spending seemed like “a protective subsidy for Hollywood”. Meaning, Apple has delivered an influx of money into Hollywood that mirrors the billions of dollars of “free money” from Blockbuster Video’s success with VHS and DVD rentals that flowed into Hollywood in the 1980s and 1990s.
But, the difference with Apple’s spend is that—whereas Blockbuster’s “free money” created a virtuous cycle of more productions, more rentals and more funds for Hollywood productions—Apple TV+ is a little-used app. Apple TV+ was just 0.24% of U.S. viewing on smart TVs in June, according to Nielsen’s The Gauge.
Apple management told Shaw this data point was “inaccurate and incomplete” because Nielsen does not measure consumption on smartphones or tablets. Also, “if you exclude Netflix, Apple’s share of top shows isn’t that far behind most of its peers.”
Whatever the actual consumption may be, the obvious takeaway is that audiences do not value the premium content that Apple is funding the same way either Apple or Hollywood does. Unlike Blockbuster, Apple has not created a virtuous cycle despite the enormous scale of its ecosystem (over 2.2 billion Apple devices active worldwide, as of February 2024).
Or, A Problem of Exclusivity?
I also wrote in “Exclusivity Is Apple TV+'s Weakness” that the root of Apple TV+’s struggles was its attempt to build exclusivity around a “walled garden” of IP. It was clear, even then, that exclusivity had been proven “to have little benefit for a content business in 2023 and beyond.” I added:
That means that if Apple TV+ were purely a content business, $6 billion in content spend is less likely to recoup $6B in streaming subscriptions, but is more likely to recoup $6B if the content is distributed across platforms. Popular content like "Ted Lasso" will reach more audiences if it is not exclusive.
In other words, the odd dynamic within Apple TV+’s content spend is that it never sought to achieve the business objective of becoming a content business. Instead, content spend always served the business objectives of growing its $23.1 billion Services business (via subscription bundles with other Apple services) and selling more Apple devices. The goal of becoming the next HBO—implied by both the premium content funded by Apple and its hiring of former HBO chief Richard Plepler in 2020—was always secondary.
The irony is that despite that objective, Apple TV+ has performed worse than its legacy media competition which set out to build and monetize exclusive walled gardens with subscription fees. Exclusivity did not matter to Apple users within its ecosystems, or target customers outside of its ecosystem.
Or, A Different Problem Altogether?
One of the objectives behind Apple’s hiring of Plepler was to convey to Hollywood that Apple TV+ was “creator-friendly”. That term was used recently by David Ellison, the presumptive soon-to-be owner of Paramount, and Jeff Shell, the presumptive soon-to-be President of Paramount, to describe the objective of creating a “culture of fostering creativity and setting a high bar, our hope is that the most talented people in the world will want to call Paramount home.”
Apple “prioritized making a handful of splashy programs rather than flooding the market” like Netflix. It also focused on working with “big stars — names so loud that people had to pay attention.” As a result, “Apple’s deference to talent and generous budgets have earned it the affection of the creative community, which already revered the company for its devices.”
But, in the long run, Apple TV studio chiefs Zack Van Amburg and Jamie Erlicht must produce content that generates a return on investment (ROI) from premium content for Apple, however it may be calculated. If an exclusive walled garden is not the solution it was perceived to be, then what other models are available?
The Creator’s Perspective
That is where Reed Duchscher’s perspective comes into play.
Duchscher observed that creators no longer perceived premium distribution on platforms like Apple TV+ or Netflix as “the ultimate goal”. He added, “streamers are still getting their heads around the power of creators to tell stories and move audiences.” I wrote that Duchscher was implying that: “A creator’s ability to build and engage with their community will create more business opportunities like subscription fees and merchandise than an ‘A’ content streaming series, alone.”
As a result, the market now offers a spectrum of business models with walled garden platforms Apple TV+ on one end and creator economy models on the other. There is no viable middle ground that is evident in between.
So why is Apple not trying to monetize both sides of the spectrum?
YouTube-ify The Apple Ecosystem?
The creator economy is driven by driving qualified leads to commerce channels. In that light, Apple may be better off solving for how it may leverage Apple TV+ and its other various Apple services to help drive 2.2 billion Apple device owners to creators' various businesses. A view on Apple TV+ lives and dies by the subscription model, but a creator's relationship with their fans can be monetized in many different ways.
I made a similar version of this point recently in "Disney Netflix-ifies Disney+, But Really Should YouTube-ify": "YouTube is a video distribution platform, first, but its business model has evolved to include multiple digital conduits for passionate fandom." Therefore, Disney needs to build more digital conduits for passionate fans of its powerful library of IP on the Disney+ platform.
So, a YouTube-like model for creators would enable Apple to monetize those creators' businesses across its ecosystem of apps. Apple would need to pivot its TV+ from the question of what the value of a piece of "premium content" is within its ecosystem. Instead, it would need to identify how its ecosystem may be conducive to ROI-positive engagement between creators and passionate fans.
The business logic would be producing "premium content" is too expensive whereas adding links to existing apps has almost zero marginal cost and is therefore ROI- positive.
Apple TV+Disney
Unlike Disney, Apple has built the ecosystem.
In fact, given that Disney is in no position to build out this type of ecosystem, "YouTube"-ifying Apple TV+ may be a more fertile ground for their celebrated partnership than the sexy-but-ROI-negative initiatives like app0building for the Vision Pro. Assuming Apple took an affiliate fee from all Disney fan transactions—which could total in the hundreds of millions per month—it would not need to rely on TV+ subscribers, alone (and yes, that raises more questions about its 30% commission fees).
Creators are proving that there are better and more multi-faceted business models for "premium content" than streaming apps as the definition of "premium content" evolves away from Hollywood. There is no reason why Apple could not leverage its ecosystem to capitalize on this trend, both for itself and for legacy media companies like Disney who are in no position to build out similar ecosystems.