With more than a billion potential viewers, Apple aims to disrupt entertainment industry

iPhone and iPad maker sets out to tap new revenue streams

Tim Cook, CEO of Apple, says farewell at the end of an Apple special event at the Steve Jobs Theater in Cupertino, California, U.S., March 25, 2019. REUTERS/Stephen Lam

Apple, which unveiled its new video and game subscription services in California on Monday, is hoping to transform the digital entertainment service industry for its 1 billion existing customers, industry analysts say.

Video and gaming subscription services are "likely to be well-received by over 1 billion iOS users globally", Barsali Bhattacharyya, lead companies' analyst at The Economist Intelligence Unit in London, tells The National. The new offerings are likely to help Apple reach the target of doubling its services revenue in the 2016 to 2020 period, she says.

Struggling with falling sales of its iPhone, Apple is shifting strategy to offer more services such as data storage in the cloud, gaming, and music and video streaming. The revenue from services for the tech giant reached an all-time high of $10.9 billion in the last quarter ending December 29.

To woo new and existing customers, the company launched Apple TV+, a video subscription service, and Apple Arcade, a game account with more than 100 exclusive games, at the Steve Jobs Theatre in Silicon Valley on Monday.

Industry experts say the impact of the content additions on profitability is likely to realise slowly, however, as is usually the case in the entertainment business, and to a larger extent is dependent on the format of its services.

While aggregating content created by major studios and television networks is less costly, Apple is going down the route of creating original content. "If Netflix's story is anything to go by, it will take time, but the right investment and strategy can lead to profits rising in leaps and bounds," says Ms Battacharyya.

Researcher International Data Corporation predicts the announcements will add to the company's bottom-line as Apple endeavours to find new revenue streams since shipments of hardware – the star performers that previously made billions – has been on the decline in recent quarters.

“With the success of other companies in the digital services space, this is definitely a good place to put increasing focus into,” says Nabila Popal, senior research manager for Middle East, Africa and Turkey at IDC.

“Will it blow consumers away like the first iPhone? I doubt. Key to consumer reaction, and eventually the bottom-line, will depend on what unique propositions Apple will bring to consumers in the longer run, and how will it differentiate itself from the existing competition, especially on content,” he says.

Revenue from iPhone sales, which constitute nearly 60 per cent of the company's overall income, dropped 15 per cent to $52bn, while total revenue from services and other products grew 19 per cent in the last quarter. The tech company cited economic slowdown in China, one of its biggest markets, and weaker demand for its newer products as reasons for the revenue drop.

Industry experts say introducing services is a smart move for Apple because unlike a phone purchase, subscriptions mean recurring monthly revenue for the company.

But it will not be easy.

"Apple has been successful with Apple Music, gaining a sizeable share in music streaming services market, but I am not sure if entering other entertainment areas will result in the same," says Abbas Ali, managing editor of TechRadar Middle East.

Competing with the likes of Netflix, Disney and Amazon in video streaming will be a lot more challenging. Unlike music services, the video streaming services attract consumers with original and exclusive content, says Mr Ali.

“Profits will only be lifted if consumers are impressed and willing to spend on content that is exclusive and original
to Apple’s platform because there is nothing else holding them back.” Global research and advisory company Gartner says competition in digital entertainment services will heat up with Apple’s new offerings.

"With the impressive line-up of Hollywood stars and offers, Apple looks really promising," says Annette Zimmermann, vice president and analyst at Gartner. "Apple is pumping in huge money and it has so many resources to buy great content. They look quite serious about it."