Apple (NASDAQ:AAPL) has been talking up its services ambitions for over a year now, establishing a goal in early 2017 of doubling the size of its services business over the next four years, which translates into a target of $50 billion in trailing-12-month revenue by 2020. That aspiration has been an overarching narrative for the Mac maker ever since, with the company highlighting how many paid subscriptions it has throughout all of its platforms, among other aspects of its services business.
Meanwhile, investors have heard rumors of a premium news service that would be built on the Texture acquisition and Apple is very clearly building some type of over-the-top (OTT) video streaming service. The company might be interested in bundling these two services together with Apple Music, its growing music-streaming service that now boasts over 40 million paid subscribers.
The Information (subscription required) reports that Apple is tossing around the idea of a single subscription that includes original video content, music, and news. However, that's more of a long-term idea that is unlikely to be introduced anytime soon, as Apple still needs to build out each component service, starting with news.
That's much easier than the video service, as third-party publications would largely be supplying the underlying content while Apple focuses on the user-facing interface, experience, and relationship. Texture, which Apple scooped up in March, should provide the foundation, and it already offered a $10-per-month service that granted access to over 200 publications. Apple is already taking Apple News to the next level by expanding its presence across the lineup, so it's just a matter of integrating all of these pieces together.
Video is a bit trickier, as differentiation in video services usually comes in the form of original content, which is incredibly expensive and takes longer to produce. Bundling original video content with Apple Music at the same price has never made sense and is economically unsustainable but bundling video and music together at a higher price point could work. Other reports have suggested that iCloud storage, Apple's only other current first-party subscription offering, could be thrown in to the mix, too.
Apple will still likely allow users to sign up for each service separately instead of forcing users to sign up for services they don't want through a bundle, according to the report.
Apple's services strategy is evolving
There are some obvious parallels to draw with Amazon.com's (NASDAQ:AMZN) popular Prime program, which now has over 100 million members and bundles a wide range of benefits and services together, from two-day shipping to video streaming to live-streaming esports (through its Twitch subsidiary) to unlimited reading, among many, many more. Prime's annual membership fee has steadily increased over the years -- the bump to $119 took effect last month -- as the e-commerce giant crams more and more benefits into the program.
It's unclear what price point Apple is contemplating, but Texture's service was already priced at $10 per month, Apple Music costs $10 per month, and the market rate for OTT video streaming services is $10 to $15 per month. At face value that would imply an opportunity of $30 to $35 per month ($360 to $420 per year) per user, which is pretty expensive. But companies often offer discounts through bundles as well as annual billing, so the actual annual subscription cost would likely be much lower.
There's still a lot that investors don't know, but one thing is clear: Apple's services strategy is rapidly evolving, and the company remains on track to hit its ambitious target.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.