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Streaming Wars: Apple To Spend Over $6 Billion On Original Shows

Courtesy of ZeroHedge View original post here.

In a world where Netflix already has tens of billions in "off the books" content liabilities, and Disney is about to engage in a deathmatch with the legacy streaming video giant as a war erupts over the streaming video crown, a new entrant is set to send shockwaves across the sector, and with a warchest of over $100 billion, the resulting tsunami will mean an unprecedented race to the bottom as the scramble for "market share at all costs" will mean no prisoners taken.

According to the FT, Apple has committed more than $6 billion for original shows and movies ahead of the launch of its new video streaming service, a ballooning budget aimed at catching up with the likes of Netflix, Disney and AT&T-owned HBO.

While it is hardly surprising that Apple – which most recently reported net cash of just over $100 billion - is willing to commit serious capital to the pursuit of the streaming crown, the escalation in budgeted spending is simply unprecedented. As the FT notes, while the iPhone maker has been preparing its foray into media for years, after hiring Jamie Erlicht and Zack Van Amburg, two well-known Sony Pictures Television executives to lead the charge in 2017, what is surprising is just how aggressively Apple has taken to the rollout. To wit: Apple originally granted the duo "only" $1 billion to commission original content over their first year but the budget has expanded and the total committed so far has passed $6BN, according to FT sources.

Under services chief Eddy Cue, Mr Erlicht and Mr Van Amburg have built a team of media veterans at Apple’s growing Los Angeles offices in Culver City.

Meanwhile, the company has already spent hundreds of millions of dollars alone on a star-studded series featuring Jennifer Aniston, Reese Witherspoon and Steve Carell called The Morning Show, which shockingly amounts to a higher price per episode than Game of Thrones, which reportedly cost $15m for each episode of its final season.

The Morning Show ranks alongside science fiction drama See, which features Aquaman star Jason Momoa and is written by Peaky Blinders creator Steven Knight, as one of the most expensive shows on Apple’s slate.

In March, Apple hosted a star-studded event at which Hollywood heavyweights including Oprah Winfrey and Steven Spielberg joined Mr Cook on stage to promote the streaming service. “They are in a billion pockets, y’all — a billion pockets,” Winfrey said of Apple, as she launched her plans for new documentaries and live book club shows that will be exclusive to the iPhone maker.

Of course, insane spending on streaming content is nothing new in an age where companies just need to issue a few junk bonds to grab the most popular actors from the competition in hopes of snagging market share, and while Apple’s budget remains well below Netflix’s expected cash content spending of $15bn this year, its more generous payment terms are helping it to win deals in Hollywood. Also, with Apple's core business a cash cow, and having clearly committed to becoming a dominant force in the market, it is likely that company is prepared to spend tens of billions more to surpass Netflix and its incipient competition. To wit, unlike Netflix, which often pays content creators over several years, Apple pays earlier in the production process, once certain milestones are hit.

But before taking on Netflix, Apple has to first challenge Disney, and to do so it hopes to launch it new TV+ service live within the next two months, to pre-empt the launch of Disney Plus, which Disney has said it would debut in the US on November 12. Both Apple and Disney released new trailers for their rival services on Monday.

So the next question is how much will the Apple service cost. The answer: we don't know yet as Apple has not yet revealed pricing or other key details for the TV+ subscription service, but said that new content will be added every month after the service launches in more than 100 countries.

Consistent with Apple’s reputation for secrecy with product launches, the company has provided little information about the timing and details of the streaming service, even to the studios whose shows will appear in the new video bundle.

Needless to say, Apple's ambitions are nothing less than sky high. Tim Cook has said Apple aims to achieve $50BN in services revenue by 2020, and to do that he is looking to boost the company’s digital media and cloud services and reduce its dependence on the iPhone. And judging by how much Apple plans to spend, it is clear that streaming video is a key piece of the puzzle for Cook. Indeed, Cook said on Apple’s most recent earnings call that he expected most people to “get multiple over-the-top [streaming] products”, adding that “we’re going to do our best to convince them that the Apple TV+ product should be one of them."

The problem, as the recent Netflix fiasco showed, is that contrary to what Cook may believe, Americans dont have infinite price, or demand, elasticity when it comes to streaming vendors, and if indeed Netflix's latest dismal quarter is an indication of peaking domestic demand, instead of a gold mine, Apple may have instead stumbled on what will be a monetary black hole.

The winner, for now, is the consumer because if the total addressable market has peaked, it will mean a race to the deflationary bottom, as Apple, Netflix, Disney and others race to slash prices at first, and eventually give away content for free.


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