In Q1 2023, PARQOR will be focusing on four trends. This essay focuses on "The definition of scarcity is continuously evolving away from linear. What happens next?"
Apple TV’s “Ted Lasso” will return for its third season on Wednesday. If estimates are right, it will reach 40 million subscribers globally off the bat. The expectation is it will attract more subscribers who have churned out since Season 2.
Apple’s monthly churn rate for TV+ is one of the highest in the U.S. at 6.6%, according to research firm Antenna. The more that number goes up, the closer Apple TV+ gets to losing one subscriber for every new one signed up annually. That is an especially important data point two-and-a-half years into the business: whatever Apple TV+ is for consumers as a streaming service, all available data suggests that it isn’t enough to compete with Netflix (230MM+ subscribers worldwide and a 3.3% churn rate in the U.S.).
Then again, Apple TV+ was never intended to compete head-to-head with Netflix. It is in fewer countries than Netflix (Apple in 107 to Netflix in 190), and its mission — “the new home for the world's most creative storytellers” — is markedly narrower than Netflix’s mission — “a global streaming entertainment service offering movies, TV series and games”.
But Nielsen data is increasingly telling the story that — in the U.S. at least — Apple TV+ also competes with free services like YouTube and Pluto TV. On Nielsen’s The Gauge, YouTube recently had 8.6% of total TV and streaming consumption in the U.S. and Pluto TV had 0.8% of it. Apple TV+ does not show up.
Key Takeaway
There are no simple answers to the question, “What problem —or even whose problem — is Apple TV+ solving?” One answer: Apple’s $6B seems like a protective subsidy for Hollywood.
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It has been estimated recently that 87% of U.S. households have at least one connected TV (CTV) device. A recent opt-in panel of 5,000 U.S. households conducted by TVision Insights, found that 24.2% of respondents choose YouTube as their first app after turning on their connected TV. TVision also found that YouTube is also the leader in terms of time spent using the app in the U.S. CTV ecosystem.
So the obvious question is, if YouTube and Netflix are increasingly the preferred streaming solutions for U.S. TV consumers, what problem —or even whose problem — is Apple TV+ solving anymore?
The math doesn't add up
So let’s assume 50% of YouTube consumption on TVs is creator content, as YouTube CEO Susan Wojcicki revealed to YouTuber Hank Green in a 2020 interview. Then 4.3% of total TV and streaming consumption is creator content. That is higher than every other streaming service on Nielsen’s The Gauge except Netflix.
If Apple TV+ lies somewhere near the bottom of the other streaming platforms lumped together and not identified by Nielsen, then that number is below Pluto TV’s 0.8%. That implies YouTube’s share of consumption on TVs may be 10x Apple TVs, or perhaps even 100x. A measure of share of time spent on YouTube versus other apps by TVision Insights had YouTube with 16% share and Apple TV+ with 0.5% share, a 32x difference.
As for devices, as of last February the Apple TVOS captured only 5% of U.S. households.
So all available data in the U.S. suggests that the target customer for Apple TV’s strategy of supplying “the world's most creative storytellers” is not found on their TVs. That implies they may not exist at scale, or they simply prefer to consume Apple TV+ content on one of the billions of Apple iPhones, iPads and/or desktop computers where content consumption is harder to measure.
This is an ambiguity for which we have very little information. It is also an ambiguity that still benefits Apple, which is happy to publicize growing Services revenues (up 14% year-over-year to $78.13 billion in 2022) but does not share subscriber numbers for subscribers to iCloud, Apple TV+, or from any other of its services.
What does $6B deliver for Apple?
So we have two different, contrasting stories: first, U.S. audiences do not consume Apple TV+ on their TVs, nor do they tend to buy Apple TV devices. Second, Apple TV+ may cost $6B per year but Apple and its Services revenues suggest that it contributes to revenue growth, even if marginally: Apple TV+ is included in all three tiers of the Apple One bundle of services. There even may be evidence that TV+ retains Apple consumers from switching devices, but Apple is not sharing that.
So, if we were to ask “Who is the customer for Apple TV+” we get two different answers:
The small percentage of consumers who value “the world's most creative storytellers” and the content those storytellers create; and,
Consumers who value Apple TV+ as part of a larger bundle of discounted services from Apple.
Hollywood is the customer
But, I wonder if there is a third answer, and the question came to me after a couple of points Disney CEO Bob Iger made in an interview at last week’s Morgan Stanley Technology, Media and Telecom Conference. When asked about what his areas of focus will be until his successor is picked, he responded:
“Now it’s about getting our content pipeline right, making sure that we’re making the right decisions and making sure that we’re making the right number of decisions in terms of how much we’re making, And then it’s I think really being mindful of a world that is not getting any less complicated, and in fact that technology only is going to disrupt more, and making sure that we’re positioning those great brands and this great content-generation business in the right way to deliver the kind of value that shareholders need long term.”
His point reads strangely in the context of Apple TV+ because the latter service does not need to deliver shareholder value. But he is saying effectively that the “great” Hollywood content generation business is increasingly endangered by technological change, and therefore that is increasingly the risk Disney’s content business faces. The more it will cut the total number of productions and its production costs, the more it invites disruption by technological change. The only nuance is that its success mitigates the negative impacts of that change for Hollywood.
In that light, Apple’s $6B seems like a protective subsidy for Hollywood. Through the lens of Iger’s worldview, that $6B seems beneficent, but through a more skeptical worldview of Apple executives wanting to win Hollywood trophies like Oscars (they won last night for Best Animation Short - “The Boy, the mole, the fox and the horse”), Golden Globes, Grammys, and Emmys).
Second, Iger made an interesting point when asked about the futures of windowing and exclusivity in streaming:
I think it's already clear to us that the exclusivity that we thought would be so valuable in growing subs while it has some value wasn't as valuable as we thought and content can actually exist on the traditional platform and on the streaming platform quite well without doing damage to either one because it's actually very, very different audiences consuming those platforms… Abbott Elementary airs on ABC, where the median age of ABC is substantially higher than the median age of the Abbott Elementary viewer on Hulu by about 30 years.
The implication for Apple’s $6B in spend is quite significant here: exclusivity has been proven to have little benefit for a content business in 2023 and beyond. That means that if Apple TV+ were purely a content business, $6B in content spend is less likely to recoup $6B in streaming subscriptions, but is more likely to recoup $6B if the content is distributed across platforms. Popular content like "Ted Lasso" will simply reach more audiences if its not exclusive.
A solution in search of a problem?
So, what problem —or even whose problem — is Apple TV+ solving anymore?
The easiest answer seems to be Apple’s Services division. The more complicated answer seems to be Hollywood (and it gets more complicated when Apple’s sports distribution deals with MLB and MLS are also factored into the equation).
But, as Bob Iger said, the most complicated answer is the consumer. The target customers may simply not be ready to move on from broadcast and/or linear TV yet, if ever. Or, there simply may not be enough of them. The growth of connected TV penetration towards 100% may not be in Apple TV’s favor, either in streaming or hardware.
Must-Read Monday AM Articles
[AUTHOR’S NOTE: This has been a weird news cycle in which to launch a Slack. Normally I have 80+ tabs open across my phone and laptop. That hasn't been the case for the past few weeks. Because the Slack is a solution for those 80+ tabs, I am going to put it on hold.]
* My colleagues at The Information delivered extraordinary reporting on the collapse of Silicon Valley Bank. All articles can be found here.
* A weird argument in the Financial Times that big studios betting on theatrical means "Hollywood strikes back against streaming" ($ - paywalled). As you can see above, the dynamics are so much more nuanced.
* Roku filed an 8-K saying that over 25% of its $2 billion in cash reserves is in SVB. That as suboptimal timing given its CEO Anthony Wood told the Morgan Stanley conference last week that it will continue to focus more on producing originals and licensing content.
* Spotify announced a redesign of its app at last week's Stream On event and it is "part TikTok, part Instagram, and part YouTube".
* A good overview from Daniel Frankel of NextTV on how the Regional Sports Network industry is not going to implode, but it is undergoing a "major reset"
* A good interview with YouTube's new global head of gaming on the evolution of gaming content consumption on the platform
* "All the streaming boxes suck now"
* Netflix's Executive Chairman Reed Hastings told an audience at Netflix's European headquarters that it has "become biggest builder of cross-European culture in the EU. It’s partially because all the other networks are national networks who specialize in one language group. We specialize in connecting.”
* "Jesus Revolution is a box office surprise, and a different kind of Christian film: It is unabashedly evangelistic, but aims first to entertain — and one of its unlikely inspirations is the Blumhouse horror empire."
* A weird and seemingly problematic bet by Apple CEO Tim Cook on Mixed Reality headsets as his hardware and software legacy. ($ - paywalled)
Author's Note: I incorrectly identified the release date for Season 3 of "Ted Lasso" on Apple TV+ as this Friday, March 17th. It is this Wednesday March 15th. The text has been updated.