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The Medium identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the rapidly and dramatically changing media marketplace. The key trends help you answer a simple question: "What's next for media, and where's it all going? How are the pieces lining up for business models to evolve, succeed, or fail?"
Read the three key trends The Medium will be focused on in Q3 2023. This essay focuses on "There is a less-discussed lens on how the demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers."
The premise of the multiverse concept is that there are parallel universes in existence, and all of them are observable.
Somewhere out in the multiverse, there is an alternate universe where the media and tech Twitterati are still chattering about Disney’s appearance at Apple’s unveiling of the iPhone 15 Pro. They can’t stop talking about Disney CEO Robert Iger’s appearance, and how the iPhone 15 Pro reminded Iger of when he held the video iPod for the first time, that he felt “a profound sense of holding the future in my hand.”. They’re thrilled about the brand new 4K and 8K streaming of Marvel, Pixar and Disney films on Apple’s iPhone 15 Pro, which is now enabled by the AV1 codec that is part of an upgraded video engine in the A17 Pro Bionic chip for iPhone 15 Pro and iPhone 15 Pro Max.
Like he did with the video iPod in 2005, alternate universe Iger has partnered with Apple to ensure Disney content and games have the best possible experience for consumers on iPhone 15 Pro devices. The “alternate universe Robert Iger” sees that Gen Z and Generation Alpha are spending equal amounts of time across streaming and gaming. He has quickly grasped that the iPhone 15 Pro is crucial to Disney IP staying relevant.
Obviously, this did not happen in our branch of the multiverse for a long and growing list of good reasons. One reason is that Disney exited the gaming business back in 2014 and since has been licensing titles to third party developers like Electronic Arts. But the main reason is that Disney now faces a long and growing list of existential challenges, including $47 billion in debt.
The Robert Iger of our branch of the multiverse has already used the callback to his 2005 appearance back in June at the reveal of the Vision Pro. There is a case to be made that Apple’s iPhone is a game-changing device that is much more in line with the future behaviors of consumers than the augmented and virtual reality of the Vision Pro. In light of both recent streaming and gaming consumer trends, Apple’s iPhone 15 Pro seems to be the future of devices for Generations Z and Alpha. There are two reasons, in particular:
The A17 Pro chip, and
The USB-C port.
Key Takeaway
The iPhone 15 Pro may not only be the best streaming device and gaming device for Gen Z and Gen Alpha users, specifically. It is has also quietly delivered a paradigm shift for streaming and gaming that captures the emerging sweet spot of Gen Alpha and Gen Z usage across streaming and gaming.
Total words: 2,200
Total time reading: 9 minutes
iPhone 15 Pro & A17 Pro Bionic Chip
The A17 Pro Chip is the core processor of the iPhone and it debuted with the sales pitch as the "fastest chip ever on any smartphone.” The chip is designed by Apple and produced by Taiwan Semiconductor Manufacturing Company. It is exclusive to Apple iPhone 15 Pro devices.
For our purposes, there are two key details. First, its graphics processing unit (GPU) is new and reflects the “biggest redesign in the history of Apple GPUs.” GPUs process many pieces of data simultaneously for graphics rendering, making them useful for machine learning, video editing, and gaming applications. The A17’s GPU is designed to be up to 20% faster than its rivals while also being more energy efficient for sustained performance while gaming (meaning, the battery will not overheat. Also, for the first time, the A17 Pro has something called hardware-accelerated ray tracing, which helps give light and reflections greater realism in games.
Second, the chip has a neural engine for handling some artificial intelligence workloads like transcribing speech to text. The engine now powers a new MetalFX technology for graphics rendering that can increase video game graphics detail, and with less drain on the phone’s battery. As Jeremy Sandmel, Apple's Senior Director of GPU Software, explained to IGN:
“As you probably know, there's the display resolution and then there's the gaming resolution, and then the frame rates, the game rendering. With technologies like MetalFX's upscaling, we can sort of separate those two things. The game can run at really high frame rates, get really great quality results, and then upscale whatever resolution the display, whether that's the iPhone display, whether that's an external display. So yes, the iPhone can connect to these 4K displays, and it can drive them externally doing whatever you do on the phone, including gaming to these other displays. The resolution and frame rate are going to highly depend on what the game's actually doing.”
In a nutshell, the A17 Pro chip has been built for optimal gaming and streaming performance on a smartphone.
The A17 Pro Chip & The AV1 Codec
A “codec” is a hardware- or software-based process that compresses and decompresses large amounts of data. Codecs are particularly valuable within applications that play and create media files for users, and to send media files over a network (e.g., streaming). Within hardware devices, the AV1 codec allows for streaming content at 30% lower bitrates than the H. 264/AVC codec or the H. 265/HEVC codec (both are also current market standards for streaming in higher resolution). As YouTube's standoff with Roku highlighted 18 months ago, AV1’s compression efficiency is necessary in the mobile space "where cellular networks can be unreliable, and our members have limited data plans."
The AV1 codec is both open-source and state-of-the-art. It exists because of the Alliance for Open Media, a consortium that includes semiconductor firms, video on demand providers, video content producers, software development companies and web browser vendors. Founded in 2015, the purpose of the alliance was to eliminate the complexity of licensing agreements when there are multiple patent holders [NOTE: There is a longer, more technical history about the codec on Wikipedia]. The consortium released the codec in 2018 as a successor to codecs H.264 (AVC) and H.265 (HEVC) that have slower bitrates and are also limited by patent licensing requirements and costs.
Apple is a member of the consortium, but only recently integrated the codec. Given that Apple is designing its own chip, the reason appears to be it did not want to do so until it could deliver an optimal experience for consumers on iPhones.
A17 Pro Chip & Gaming
The most interesting angle of the A17 Pro chip is the gaming console sales pitch. Apple is being cautious in how it discusses this sales pitch, as the IGN interview highlighted. The Apple team was asked where the iPhone 15 Pro “stacks console-wise” relative to the Xbox Series X, a Series S, or a PlayStation 5?
Tim Millet, Apple’s VP of Platform Architecture told IGN:
I think we're focused on the developers and the titles in the games. Less on trying to compete with consoles. I think console is just a convenient way for us to talk about the classic games and the types of games that the developers that we're targeting, the ones who have been successful in deploying there. We've done our best to try to deliver that same toolbox to the developers and we're working hard with them.
Jeremy Sandmel added: “I think they say the best game console is the one you have with you.”
That said, it is important to revisit a key detail, above. The USB-C standard is not proprietary to any one company and therefore is in broader use in the marketplace than Apple’s proprietary standard. So, the replacement of Apple’s proprietary Thunderbolt port with the USB-C port on the iPhone Pro means that the iPhone can be linked to more devices with greater ease (no need for a dongle). It also means higher quality: the maximum output with the A17 Pro chip is 4K resolution in high dynamic range (HDR) output at 60 frames per second.
That means, an iPhone 17 Pro connected both to a TV via USB-C and connected to a handheld game controller via Bluetooth will offer iPhone users an alternative to a gaming console on TVs and Connected TVs. It is estimated there are over 500 million connected TVs in the U.S., alone. This puts it in direction competition with Playstation 5 and XBox at a time when demand console gaming is being fueled by a wave of title releases that had been delayed by the pandemic.
Apple's Larger Play
Recent research from NewZoo found 9 in 10 Gen Alpha and Gen Z are game enthusiasts, but stream movies and series equally as much. Additional research from NewZoo projects the number of players worldwide will reach 3.38 billion in 2023, growing 6.3% over last year. Payers — those who have spent money to play games on a PC, console, mobile device or cloud gaming service in the past six months — will grow by 7.3% globally to 1.47 billion. Mobile is expected to contribute to most of the growth in the marketplace, with consoles being the second-biggest. Between 2023 and 2026, NewZoo projects the entire gaming marketplace will grow from $187.7 billion to $212.4 billion, or 13.2% over the four years.
Apple has made an impressive hardware play to capture some of that growth with the iPhone 15 Pro. Presumably it may capture some of that growth through its Apple Arcade subscription service, where certain games will be made available, and via the App store, where game downloads will be sold. It also has the lesser-used Apple TV+. That said, we are obviously in new territory for gamers.
Apple’s larger play is to leverage its hardware and software advantages to target that sweet spot of Gen Alpha and Gen Z usage across streaming and gaming. The smartphone as both a gaming and streaming device is neither a new nor a revolutionary concept in the marketplace. Generally, both Apple’s iOS operating system and App Store and Google’s Android operating system and Google Play App Store have been the foundations of this model since their original product launches in the 00s. Nor is the concept of an iPhone as a streaming device anything new or original: iPhones and Android phones are able to connect to connected TVs and streaming media devices via bluetooth and wifi.
But the key difference the iPhone 15 Pro introduces is the combination of graphics rendering and the USB-C port. The iPhone 15 Pro may not only be the best streaming device and gaming device for Gen Z and Gen Alpha users, but it now offers broader use cases to these consumers than past iPhones.
What It Means For Everyone Else
I have written a bunch about Netflix’s mobile gaming strategy, where it offers mobile games within all of its subscription tiers. Netflix has made some recent hires for a major publisher-type console game (known as “AAA”), including Joseph Staten, former creative director for the Xbox hit “Halo”. CFO Spencer Neumann told the Bank of America Securities Media, Communications and Entertainment Conference last week: “ultimately, our vision is to have games that are playable across multiple services, not just mobile, see us starting to do that a little bit with some early forays into being playing -- being able to play on the TVs as well as mobile.”
That vision is notably device-agnostic. It is also a vision not just enabled by the Apple iPhone 15 Pro, but in some ways accelerated and improved. There is evidence that Netflix is in a good position to take advantage of this trend (and more than 50% of its consumption is on smartphones). But, as Neumann also shared a conservative vision: “really, right now, we're just kind of building our learnings in this business in terms of what works.”
Netflix’s conservatism is still eons ahead of Disney and other legacy media companies. Warner Bros. Discovery has games Multiversus, a free-to-play crossover fighting game that had reached over 20MM total players as of August 2022, and “Hogwarts Legacy”, an immersive, open-world action role-playing game set in the world first introduced in the Harry Potter books. But both exist independent of its Max streaming app.
This all points to the question of which companies outside of Netflix and Apple are best positioned to take advantage of Apple’s quiet paradigm change. The answer seems to be none of them because they are all narrowly focused on profitability, paying down debt, and trying to defend their stock prices from growing bearish market sentiment about their business models.
Back to Disney
This perspective highlights why it is notable that Iger picked the Vision Pro tentpole as his next “video iPod” moment instead of the iPhone Pro 15 tentpole. I wrote about the implications of this decision back in June: Disney is moving “iteratively towards a Vision Pro being another distribution outlet like the video iPod, and VisionOS App Store as the new iTunes.”
But, I noted the Vision Pro was more like the “experiential lifestyle platform” his former successor and predecessor as Disney CEO Bob Chapek once promised investors: “A platform for the whole company to embody both the physical things that you might be able to experience in a theme park, but also the digital experiences that you can get through media.”
The iPhone 15 Pro seems to fall somewhere in between both strategies. It is a less ambitious product and paradigm shift than the Vision Pro. But, its hardware architecture enables exponentially more and better use cases within and beyond the smartphone. If the iPhone 14 Pro Max past is precedent, the impact of the iPhone 15 Pro is going to be significant. For the first half of 2023, Omdia's Smartphone Model Market Tracker “reckons the iPhone 14 Pro Max is the most-shipped model, with 26.5 million units shipped in the period. It is closely followed by the iPhone 14 Pro in second place with 21 million, then the iPhone 14 with 16.5 million.”
Ultimately, Apples iPhone 15 Pro seems positioned to redefine the customer relationship in streaming into one that is more dynamic and multivariable than smartphones as simply another distribution outlet for content. That means the businesses that have streaming relationships built upon those relationships—Apple, Amazon, Netflix—will be better positioned to take advantage of this new technology than Disney. And that will make Disney’s burden in 2023 not only the paying of $47 billion in debt, but also the exponentially emerging need to stay relevant with the next generations of Apple customers.