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Apple's Upcoming Video-Streaming Service Could Possibly Be Free

By Evan Niu, CFA – Oct 10, 2018 at 6:17PM

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A paid version would probably come later on.

Apple (AAPL 1.56%) is very obviously working on some type of video-streaming service, buying up content across genres hand over fist over the past year. CEO Tim Cook even acknowledged the service directly for the first time in August during the Mac maker's fiscal third-quarter earnings call. Meanwhile, most investors and analysts have expected Apple to take the most straightforward approach to monetization by offering the service for $10 to $15 per month, the market price for over-the-top (OTT) streaming services.

In what would be a major plot twist, Apple might decide to give service away for free.

TV app on iPhone and iPad

Apple's TV app. Image source: Apple.

Didn't see that coming

CNBC reports that Apple's slate of original content will be included in the company's TV app and be available for free to Apple device owners. There will also be third-party channels that consumers can subscribe to, with Apple presumably getting a cut of subscription revenue. The company is expected to release the overhauled TV app early next year, potentially creating a platform for video content to compete with the likes of and Roku, among many others. Amazon Prime Video offers third-party channel subscriptions, while Roku has been rapidly pivoting toward ad-supported channels like The Roku Channel, despite offering third-party channel subscriptions for many years.

Apple has been enjoying considerable progress in growing its broader services business, which now includes over 300 million paid subscriptions. That's why it would be such a surprise for the company to offer original content for free, which would represent a departure from its typical premium pricing model. Notably, it also doesn't sound like Apple is trying to support the service with ads, either.

A paid service might come later

Rather, Apple's goal is to promote usage of its TV app while attempting to hook users on flagship content franchises that could potentially convince consumers to pay up for a subscription later on, according to the report. Apple has been trying to aggregate video content services within its TV app over the past year, but the company has never shared any meaningful metrics regarding its usage.

Many of the most popular video-streaming services like Netflix and Hulu have their own dedicated apps, in addition to integration within the TV app, and consumer behavior is hard to change. That could ultimately prove to be the tallest order to fill: channeling (pardon the pun) consumers into the TV app instead of stand-alone apps, especially as third-party service providers would prefer to retain ownership over the user experience (as well as the billing relationship).

Apple certainly isn't looking to give away $1 billion worth of original content for free out of the kindness of its anodized aluminum heart. But if it can successfully bolster engagement with its TV app to more meaningful levels by seeding original content, that would be a relatively small price for the richest company on Earth to pay.

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 and NFLX. The Motley Fool owns shares of and recommends AMZN, Apple, and NFLX. 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.

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