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2 Challenges Facing Apple TV+

By Adam Levy - Updated May 20, 2020 at 4:40PM

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The tech titan is considering a major shift in strategy to help solve them.

Apple (AAPL 1.89%) launched Apple TV+ about six months ago with a generous promotion: buy an Apple device and get a free year of the service. The standard price is $4.99 per month.

Despite the offer -- and selling tens of millions of devices over the last six months -- just 10 million people have signed up for Apple TV+ since its launch, according to a report from Bloomberg. Just half of those sign-ups actively use the service. 

To put that in perspective, Disney (DIS 1.08%) had 10 million sign-ups for Disney+ on launch day (including presales and free trials), and reported 54.5 million subscribers as of the beginning of May. 

Apple's paltry numbers highlight two challenges facing the fledgling streaming service. First, it doesn't have content that drives mass audiences to sign up. There's nothing on Apple TV+ that screams, "You gotta see this!" 

Second, Apple's content library is too thin to retain the subscribers it has. Even if a subscriber likes a series, there's not much else for them to watch after they've finished it.

The Apple TV+ logo.

Image source: Apple.

Bulking up the content library

Apple is reportedly looking to build up its content library with some older films and television series. Apple TV+ has been exclusively original content up until this point. There's value in that strategy: Originals are one of the main reasons people sign up for new streaming services.

But Apple needs to bulk up the library to get people to remain engaged with its service after they finish watching whatever series got them to sign up in the first place. There's a reason Disney moved all 30 seasons of The Simpsons into Disney+; it's a big, time-consuming, popular, and rewatchable piece of content.

Some of the most popular content on Netflix (NFLX 3.29%) in terms of time spent watching are old licensed series. And as many media companies move to take back the streaming licenses on some of their most popular old shows, companies like Netflix are forced to pay extremely high prices for the few popular shows left available to license. For example, it reportedly bought the rights to Seinfeld for over $500 million.

So, it's clear why Apple might've initially balked at the idea of licensing old shows: It can be really expensive. Apple thought it would be more efficient to invest exclusively in originals. To be fair, Netflix touts its originals as its most efficient content in terms of cost per hour of viewing. But the success of Disney+, Netflix, and others shows there's still value in owning a sizable catalog of old licensed series and films.

Moreover, circumstances have changed recently. The spread of COVID-19 has shut down film and television production for the time being. That will likely cause delays for Apple TV+ originals set to come out later this year and early 2021. With fewer new originals coming down the pipeline, and free trials set to start expiring, the need for additional content is even more acute now.

Finding an original that makes people sign up

Apple is still searching for an original series that draws in new subscribers. It's important to note, though, that it might not be the quality of Apple's original efforts that's to blame. A big piece of making something popular is marketing. It doesn't matter how good a series is if only a few people have heard of it.

Netflix notably stepped up its marketing spend in 2018 in order to support its massive slate of original content. It's seen some good returns on that spend, seeing growing interest in its originals as other media companies pull back their licensed content. Netflix spent $2.65 billion on marketing last year, up from $1.28 billion in 2017. And it notably has access to the best billboard money can't buy -- the Netflix home screen.

Apple hasn't spent a lot on marketing Apple TV+ originals. It made a big push ahead of its launch, but it's been relatively quiet since. Apple may be saving its marketing budget for the next iPhone launch and the period when customers start lapping their free trial period. With many competitors in the space, it could take a lot of marketing spend to get customers interested in Apple TV+'s series. 

That said, it's important to solve its retention problem first. What's the point of spending $100 million on a big-budget original series that draws in millions of viewers just to see them leave in a couple months after the series ends its run? A back catalog of popular content with lots of episodes that can fill in the gaps between series premieres could be a very valuable addition.

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