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Apple's Video-Streaming Service Might Just Be a Revamped Storefront

By Evan Niu, CFA - Updated Apr 15, 2019 at 11:34AM

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There might not be anything disruptive or innovative about the tech giant's evolving video strategy.

On Monday, Apple (AAPL -0.14%) will at long last take the wraps off of its highly anticipated video-streaming service. Apple has spent years and billions of dollars buying up original content hand over fist -- this we know. The bigger question is how much the company will charge for its service, if at all. It could potentially be free on Apple hardware initially as a way to attract users and bolster adoption out of the gate. Even with all the content that Apple has acquired, the Mac maker's catalog is still paltry compared to other video-streaming services out there. It would be hard to justify pricing comparable to Netflix or AT&T's HBO.  

Instead, the tech giant's new strategy may just be a revamped storefront.

Apple TV interface displayed on a TV

Image source: Apple.

More of the same

Recode reported last week that Apple might really just be making a renewed push to sell third-party subscriptions -- something it already does and has been doing for years. The main difference is that those third-party video-streaming services are currently offered as apps in the App Store, and the new approach could be little more than a newly created dedicated storefront for video services, presumably nested within Apple's TV app.

The TV app serves as a centralized hub, algorithmically curating content from services. The Financial Times (subscription required) also reported last week that Apple was focusing on curation and quality for its service. "Apple are taking a lot of pride in being very curated, with a smaller but higher-quality offering," a producer source told FT.

Selling third-party premium channels and getting a cut of sales is a much more tried-and-true model compared to creating an entirely new service from scratch. Amazon has enjoyed considerable success with its Prime Video Channels strategy, generating an estimated $1.7 billion from the platform in 2018, according to BMO Capital Markets. Social networking giant Facebook had reportedly considered making a similar move in its Watch platform, but opted not to. Streaming TV platform Roku started offering premium channels in January.

Apple could attempt to offer bundles, which might potentially include numerous premium TV channels and/or first-party services. The company has reportedly been exploring bundling video, music, and news all together. But bundling is also already a very common practice in the media industry -- hardly anything disruptive or innovative there.

Check out the latest earnings call transcript for Apple.

There are some technical changes behind the scenes such as where the content is hosted and streamed from, according to Recode. That could give Apple deeper insight into usage and viewing data. CEO Tim Cook noted last summer that the company has already gleaned useful information from the App Store, which is partially why it's developing its video platform in the first place. "There are, within the 300 million-plus paid subscriptions, some of these are third-party video subscriptions and we see the growth that is going on there," Cook said. "It's like 100% year over year."

Apple is now up to 360 million paid subscriptions, and aims to hit 500 million paid subscriptions at some point next year. Whatever Apple shows off on Monday might just be more of the same, but it could help reach that target.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon, Apple, Facebook, and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Facebook, and Netflix. 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 recommends Roku. The Motley Fool has a disclosure policy.

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