Apple’s Success In A Key Area Is Having A Ripple Effect On The Industry

Summary:

• While streaming may not be Apple’s “core” business, it is still a key area and revenue driver that is fueling its successful bundled services division.
• With streaming, Apple has tended to go against the grain, especially with its “less is more” style approach where it focuses on quality over quantity.
• While that approach wasn’t clear in the beginning, you can slowly see where the pivot came in and when they opted to own this new direction across multiple areas.
• Netflix, which has largely been focused on quantity, is beginning to follow suit – in part due to the success Apple has seen with its projects.
• Disney has even started spreading the same message as it looks to right its ship and reimagine how it approaches its streaming service.

Less is more.

In the entertainment industry that is widely regarded as a North Star, but rarely does that come to fruition. Instead, the “bigger and bolder” expression takes precedence… which explains why the box office is in the state it is in.

With tentpoles seemingly being rubber-stamped now without real regard for why they are even being approved (let alone produced), we have seen an increase in content that audiences are rejecting. Part of that comes from them having less disposable income to spend on something they’ve seen in some incarnation before… or know is coming to their living room in mere months.

So when Apple (NASDAQ:AAPL) finally made the leap into originals its team ultimately (after some fine-tuning) decided to focus on quality over quantity and make that its differentiator. While some may look at its medium-sized roster and scoff that the streamer is about to double its original subscription price, the truth is that Apple’s earned that right and in doing so showcasing the value in its strategy.

First as always, some background.

Apple’s “less is more” approach didn’t initially succeed. It’s disjointed press conference to announce the service made it look like amateurs in the space. Talent was confused, details were minimal and footage was also non-existent. In short, this was the complete opposite of a coming-out party.

Analysts were quick to pounce and eventually even at launch there was a chorus of chirping from those who didn’t think its lineup was strong enough. The calls were coming for Apple to make a big splash with a name-brand acquisition, but Apple held back (outside of Peanuts).

And yes it took a beating from media and analysts concerned that consumers couldn’t justify the spend for a small catalog.

They just didn’t know Apple.

Remember a lot of the naysayers were not in the tech space, they were in the entertainment realm. They hadn’t spent as much time as others studying the trends that built Apple into what it is today.

Apple has always succeeded by filling a hole many didn’t know was there. And in this case that hole wasn’t content, it was accessibility. Similar to Amazon, what Apple was doing was giving customers the ability to have a little bit of everything.

And to get that message across takes time.

Unlike Netflix and Hulu, Apple was offering music, games, news, movies/shows, etc. and it was up to the consumer to decide what they wanted. While Amazon shared some of that ability through its services, at the time, it was more of an all-in proposition. Here, you had the ability to pick the services you liked.

And when they unveiled their bundle packs, Apple TV+ was a mainstay across all packages – this was to build a base. Overall, Apple didn’t just build a base for that service, but for all it services and that has become a very profitable part of its quarterly reports.

The strategy effectively morphed onto “less is more” meets “the sum of its parts.”

Meanwhile over at Netflix, it was spend, spend, spend and profitability was a problem for tomorrow.

Fast forward to today and we are seeing something interesting.

Apple’s approach has worked to the point they can raise their rates twice in a short period of time and Netflix’s approach led them down a path where they needed to completely re-work their business model.

Yes, Netflix appears to have righted the ship but did you notice how?

Less is more.

Netflix has started pulling back on its spending and prioritizing quality over quantity. Now that the company is close to profitable, it wants to stay profitable, and that means spending less.

Funny how that works, right?

But it also makes sense – look at Apple’s success in the past few years – Coda won the Oscar for Best Picture and Ted Lasso is the two-time defending Best Comedy winner at the Emmys. Awards mean something in this space, especially to Netflix, which has been chasing Best Picture for what will soon be a decade.

Apple has also been doing that, but in a more traditional way. It’s two big awards-plays this year Killers Of The Flower Moon and Napoleon are in partnership with major studio/distributors. Moon with Paramount and Napoleon with Sony – meaning the films go to theaters first and then come to their service.

Again, going against the grain… but with a reason.

Yes, Moon cost $200+ million to make, and its theatrical run hasn’t matched that cost (yet), but the value that movie has to Apple in terms of both industry prestige and catalog value can’t be measured in the traditional sense. Box office revenue was never the only factor here – especially given its three-and-a-half hour runtime limits how many runs can be shown in a day.

“The reality is that it’s less cut- and-dried for streamers because these companies have different metrics of success. Apple, for one, isn’t judged by Wall Street based on the money it makes or loses on its films, nor does it place the same emphasis on box office as it does on streaming subscribers.” – Variety

That last part is really important here – success IS measured differently with Apple. It means different things to different investors.

You also have the case of Napoleon, which comes from another director with a penchant for equally high running-times. The Ridley Scott helmed film (which runs two and-a-half hours) debuted over the Thanksgiving break to higher-than-expected numbers, but again that only tells half the story.

You can say the same for Amazon’s Air, which bowed earlier this year and was shifted from streaming to theatrical at the last minute. The story behind Michael Jordan’s famed Nike shoe line wasn’t cheap to produce and the sudden shift in distribution was costly, but the movie’s $20 million second-place box office opening was considered a win because of what it represented.

As I wrote back in the Spring, for it not to be a 3D action hero franchise-in-the -waiting type movie and hold its ground against a movie that IS (i.e. The Super Marios Bros. Movie), says something. Studios have traditionally counter-programmed big action/family tentpoles with more adult fare in the past. It had normally been a big success, but that has waned over the years with the blockbuster taking all of the oxygen as audiences had (even pre-COVID) opted to just stay home.

And catering to “at home” doesn’t always work either.

Remember, Netflix’s movie-a-week type approach may have built up a roster of content for its library, but it also diluted its brand in the process. Movies don’t always mean as much to audiences on Netflix as they do on Apple TV+… mainly because there are so many of them.

Whereas Air’s box office success set it up for a strong run on Prime Video and Apple is expecting the same level of anticipation for Moon and Napoleon.

Disney has also been preaching that approach this year as Bob Iger has tried to course-correct the House of Mouse. Since his return he has preached “less is more” and as recently as the other week told employees they may be making too many sequels and should again be focused on quality.

For Apple though, this isn’t just with the scripted part of its streaming business, it extends to other areas.

Take sports for example.

Apple went all-in on MLS (Major League Soccer) and while it was bidding for the NFL Sunday Ticket rights, when the price got too high to justify what they needed as a return on investment – it pulled out. Instead, it pivoted to taking over the rights to the Super Bowl halftime show, which was much more affordable (by comparison) and would have a direct impact on its services.

There’s always been a perceived notion with Apple where the industry knew if the price wasn’t right, the company wouldn’t bite. And yes at times that’s been seen as a negative and chalked up to frugality, but you have to give Apple credit here. The vocal majority of the press and analysts were really going hard after Apple to make big splashy moves early, and Apple stuck to its guns.

Focusing not just on “originals” but “Apple originals” became a rallying cry of sorts – and it worked.

It’s also important to mention that we’ve seen reports in recent weeks that Apple and Paramount are supposedly looking to create a bundle deal. While we still need more details on the rumored team-up to really dive into the potential pros/cons, you can see the position of strength Apple has in this scenario.

If the price is right, it would help Apple continue to be competitive and at the same time silence those who think Apple needs to invest in a massive library to stay relevant. This way its subscribers get access to a more robust portfolio (in a much more cost-efficient way) but Apple can stay true to how it wants to run its individual service. More importantly, it would serve as a way to get more people into the Apple universe of products and services.

Apple is never going to have the most streaming subscribers or the most content, but that was also never the goal. Less is more may not mean as much in Hollywood, but for Apple it seems baked into its current formula for success.

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