If you haven’t been following the streaming media world closely, you may have missed the major changes of the past year. After a particularly bad financial quarter at Netflix, the entertainment industry has collectively decided that it is done spending huge amounts of money establishing new streaming services.
The gold rush is over and the rules have changed. One of the biggest changes is that Netflix, which for years refused to even consider offering advertising on its platform, instead announced that it would be adding a discounted version of its service… with advertising. And the results are there: Netflix is already doing more money from a subscriber viewing their ad-laden version than from a subscriber who signed up for a more expensive ad-free tier.
If you don’t like the ads on your internet video, that’s bad news because it means you’ll have to pay even more to keep the ads at bay. But for Apple, it’s an opportunity and a data point that could cause the company to question its video strategy.
The ecosystem game
Right now, Apple TV+ only has one tier – you pay (either outright or through a plan like Apple One or Apple’s deal with T-Mobile), and you get access to a Ad-free 4K video service with all Apple programs on it.
Now, just because Netflix does something and it’s successful doesn’t mean Apple will follow suit. Unlike Netflix and all of its entertainment industry kin, Apple (and Amazon) are tech giants that also play video game streaming. All of Netflix’s business goes up or down depending on how it operates in streaming.
Apple is able to play a much bigger game, using Apple TV+ as part of a larger strategy to create value within the Apple ecosystem. If watching Ted Lasso ties you more closely to Apple One, makes you more likely to buy a new iPhone, or causes you to spend more time in Apple’s TV app on your streaming box or iPad, it is a victory for Apple. Netflix, HBO Max, Paramount+ and Peacock don’t have these extenuating circumstances – they have to make up what they pay for content with subscribers and growth.
As a result, it’s not even really fair to compare what Apple TV+ and Prime Video do to Netflix and its ilk. The success parameters are entirely different. One group plays chess and the other plays four games of Risk simultaneously.
Apple TV+ is just one service in Apple’s diverse product lineup, but the company can use it to help their advertising business grow.
Foundry
money talks
That said, it’s hard to believe that Apple isn’t paying attention to what Netflix has discovered, which is that there’s growth to be had and money to be made by offering a cheap or free version of its service which includes advertising. (Another recent trend in the streaming industry is the rise of FAST, short for ad-supported free TV services like Tubi and FreeVee that were designed from the start to be free with ads.
The question is, what does Apple want Apple TV+ to be? How does it fit into its ecosystem? Is offering a free or cheap tier with ads something that helps push Apple’s ecosystem in the right direction? Is this against Apple’s strategy, or is it somewhere in the muddy middle?
I’d like to argue that Apple sees itself as a more polished premium experience that would be tainted by the inclusion of advertising. But I can not. Not only does Apple see advertising as a growth area, but it has already integrated ads into its live sports offerings. (Friday Night Baseball, for example, has between-innings ads like any other TV show, and its pre-game show also has a title sponsor.)
In short, the Apple of today has not proven to be a company that will shy away from additional ad revenue. Also, the App Store itself has popularized the “freemium” model, where you give something away for free and then ask customers to pay for additional items. It’s the same idea.
Ted Lasso presented by State Farm
Given all we’ve already learned from Netflix’s rocky pivot from being an ad-free premium service to one that loves its ad-based tier so much it beefs up its feature set, it’s hard to imagine that Apple resists the call.
The question is not if but when and, more importantly, how. Since Apple has so far resisted offering a free tier with ads of Apple Music, I suspect it probably won’t offer a free version of Apple TV+. Instead, it will likely offer a $5 per month version with ads while possibly increasing the price of the current ad-free offering to $7 per month.
At least, that’s my best guess. Listen, I don’t like the rising cost of streaming services any more than you do. Unfortunately, what Netflix has proven is that streaming video ads are so profitable that it will cost even more if you don’t want to see them. It’s a message that even Apple will find impossible to resist.
