Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons Netflix Will Survive Apple TV+

By Rick Munarriz - Sep 15, 2019 at 11:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An early launch at a surprisingly low price is turning heads, but Apple's new service won't hurt the premium streaming industry leader.

Apple (AAPL 0.17%) surprised the market last week by announcing that its new premium streaming video service will launch on Nov. 1 at just $4.99 a month. Buyers of any new iPhone, iPad, Apple TV, iPod Touch, or Mac will also receive a year of Apple TV+ at no additional cost.

Aggressive pricing is an odd look for a company that has positioned itself as a premium tech giant, and the news was enough to send shares of its rivals lower on Tuesday. Netflix (NFLX 1.56%) also felt the pain following Apple's media event, but in a surprising twist, the stock closed higher in each of the next three days. Netflix shares closed higher for the entire week, in fact, up 1.4% despite the arrival of another price-slashing entrant in the suddenly crowded streaming video market. 

Netflix shares are also trading higher so far in 2019, even if the 10% gain there is half of the S&P 500's year-to-date pop. There are plenty of interesting challengers on the horizon, and Netflix is coming off a rough quarter, but let's spell out the reasons Apple TV+ is something the top dog in this niche doesn't need to worry about just yet.

The cast of Orange is the New Black looking down at someone in an orange jumpsuit.

Image source: Netflix.

1. Content is still king

There are a couple of interesting shows coming to Apple TV+, but the problem is, that's about it for the service. Apple has only announced nine original shows coming to the platform, but it hasn't unveiled a slate of older shows and movies to keep viewers fed between new releases. Even HBO, the master of tentpole serialized dramas, keeps a steady back catalog flowing for its streaming customers. 

Apple TV+ will be a very incomplete service at launch. Unless it brokers some content-licensing deals in the next month and a half, folks will need something else once they're done streaming The Morning Show, Dickinson, and whatever Oprah Winfrey brings to the table. 

2. Batteries not included

Most seem to agree that it's sheer genius for Apple to bundle a free year of its upcoming service for folks buying most of its devices. We're talking about as many as 100 million people with potential access at no additional cost during the potent holiday quarter. 

The problem is that giving a service away -- or in this case including it as part of a larger purchase -- isn't a guarantee for success. (AMZN 0.25%) has reportedly topped 100 million Prime members in the U.S., and it's been offering those loyal shoppers access to Prime Video at no addition cost since 2011. It took more than four years before the "free" service gained traction after it had a couple of hit shows under its belt, and even then it's nowhere close to the usage that Netflix subscribers commit to the leading platform. It's like leading a horse to water. You can lead a customer to a a service that's bundled into the price of the hardware she's buying, but you can't make the customer stream.

3. It's the pie, not the slice, that matters 

There are two huge services launching in November, and they're making enough noise to draw large audiences at launch. The problem with thinking that Netflix, Apple, and other services that have been at this for years will suffer is that it assumes that the market pie will remain the same while the size of the slices will shrink. History has shown us that this is not the case. We're expanding our consumption of streaming entertainment, and that's going to give all of the meaningful services room to grow.

In fact, the pie is growing to the point that Netflix can lose market share but still continue to post double-digit growth. It's also expanding at the expense of time spent on linear television, and we're just starting to scratch the surface as long as the masses are still overpaying for cable and satellite television. If an inevitable recession doesn't make traditional pay TV services obsolete, then maybe Apple will play a starring role in widening the audience to the point where all the top platforms win.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$137.59 (0.17%) $0.24
Netflix, Inc. Stock Quote
Netflix, Inc.
$186.35 (1.56%) $2.87, Inc. Stock Quote, Inc.
$2,151.82 (0.25%) $5.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.