Monday’s event on Apple’s Cupertino, Calif., campus was something altogether different. The company unveiled paid subscriptions for news, video games and an entertainment service that looks a lot like a competitor to Netflix and HBO, though Apple didn’t say how much it would cost. The only product Apple announced Monday that consumers could actually touch and feel was a new titanium credit card, so minimalist in its design that it doesn’t even include a number.
As more celebrities like J.J. Abrams, Reese Witherspoon, Jennifer Aniston and Steve Carell walked onto Apple’s stage, the theme of the day became increasingly apparent. Apple doesn’t want to be thought of as a gadget maker. Rather, it’s a company that wants to touch every corner of its customers’ lives, from the music they listen to, the TV they watch and the news they read to the games they play and even the payment method they use to buy milk and eggs.
As CEO Tim Cook put it, Apple is now about “services that deliver incredible content and experiences directly to you whenever and wherever you are.”
For stars like Winfrey, the draw to create content for Apple was a simple calculation: “Because they’re in a billion pockets, y’all. A billion pockets,” she said onstage. Such wide reach creates an “opportunity to make a genuine impact,” she said.
Apple is expected to invest many billions a year, according to analysts, on making video content to compete in a crowded market that includes Amazon, Netflix, Hulu and Disney. It’s a gamble, and it signals just how important these new businesses are to Apple — especially as growth in its traditional gadgets slows. Apple signaled to investors in January that it would miss sales targets on iPhone sales, mainly because of slowing sales in China. The announcement sent Apple’s stock sliding, from a market capitalization of more than $1 trillion (it was the first company ever to cross that milestone) down to below $700 billion earlier this year.
To tide Apple over before the monumental shift from mobile technology that has driven spending for a decade to the next generation of devices, Apple is becoming increasingly dependent on services — sales of music and data storage that it complemented with new subscription products announced Monday. Apple is working on developing new gadgets, such as augmented reality glasses, but it can’t count on a big shift happening again any time soon.
In that way, spending billions on its own content might be a less risky proposition for Apple than waiting on the sidelines of streaming. The online entertainment world is starting to consolidate into a handful of gigantic players, and there was no guarantee that those other companies would continue to allow their content to rely on Apple’s platform, with Apple getting a cut of the revenue.
By creating its own high end streaming service, Apple gives itself a chance of becoming one of the few big players in the industry that is capable of controlling its own destiny, without being at the mercy of other platforms. Even if none of its shows become the next “House of Cards” or “Game of Thrones,” it can use the content in any way it chooses, to help sell devices through promotions or license it out to other platforms for extra revenue.
Gene Munster, an analyst at Loup Ventures, estimates Apple will make an additional $15 billion a year from Apple TV and its new streaming service within five years, another $3 billion from video games, about $1.5 billion from its credit card revenue and $500 million from its news offering for a total additional services revenue of around $20 billion, or $78 billion total.
The first announcement of the day was a new service called Apple News +, a $10 a month subscription service that will include magazines like Sports Illustrated and The New Yorker.
“Quality journalism matters,” Apple said in a short video touting the magazines it would include in the new service.
What Apple didn’t talk about in its presentation is that it had largely failed to convince some of the largest newspapers, including the New York Times and The Washington Post, to participate in the service. Though it briefly featured The Wall Street Journal and the Los Angeles Times during the presentation, it more or less focused on magazines.
“As a subscription-first business, we are focused on growing our highly engaged global audience," said New York Times spokeswoman Eileen Murphy. "We believe the best way for that audience to experience our journalism is on our own site and apps.”
The design of the paid news app downplayed the publications behind individual articles. Articles about Costa Rica from several publications were mashed together into one place. That might be good for readers, but it takes away the power of distribution from the publishers of the magazines and hands it to Apple, much like what happened to the music industry when Apple launched 99 cent songs on iTunes in the early 2000s.
The question for the news industry now is whether the $10 a month service takes off, bringing in significant revenue for participating publications. If that happens, it could cause larger publications like The Washington Post and the New York Times to reconsider sitting it out. “At this stage in the game, they are probably smart not to do it,” said Tim Bajarin, president of Creative Strategies, a technology industry market research firm. “But I have to believe they have to keep the option open,” he said.
Another selling point for its news service: Apple uses “on-device” intelligence to make recommendations, so that the company doesn’t actually know what you read and the data can’t be used to target advertisements, the company said.
Next, Apple announced the Apple Card, which builds on the popularity of its Apple Pay service that allows people to pay for products using their phones and watches. Offering its own credit card, with the backing of Goldman Sachs and MasterCard, helps Apple to cut out some of the middlemen in payment transactions. Apple is offering consumers competitive cash back and no late fees.
Apple Card requires Touch ID or some other form of authentication for payments to reduce fraud, and it said it won’t collect purchase data. It said Goldman Sachs won’t sell or share data with third parties, which implies Goldman would be able to get some data on users. Apple didn’t say whether it would pass on late payment information to credit agencies.
The card puts Apple a step closer to its customers’ financial transactions. By combining this with the company’s vast number of customers who carry around its devices, its payments services have the potential of giving Apple a low overhead revenue stream.
Next, Apple announced a new video game subscription service. Cook said iOS has become the largest gaming platform in the world, with roughly 300,000 games on the platform. With its new gaming subscription service called Apple Arcade, the company says it has created a way to help developers monetize their games.
Apple Arcade appears positioned to compete in some ways with Google’s new “Stadia” service, which was announced last week. Google will sell a game controller that will allow people to play high quality video games on any screen, from televisions to tablets, without an expensive gaming PC. Apple Arcade and Google Stadia both still have not named a price
Apple made the biggest splash with the announcement of its video streaming service, Apple TV+, in large part because it came with cameo onstage appearances from some of the biggest names in Hollywood.
While other streaming services have focused on obtaining the rights to franchises, such as “Star Trek” or “The Avengers,” Apple’s strategy has been to go for star actors and producers. That’s in keeping with Apple’s long time approach, said Larry Downes, project director at the Georgetown Center for Business and Public Policy. “It’s all about the brand,” he said.
That comes with some risks, Downes said. Big names don’t guarantee success, and even the most decorated in Hollywood have failed at least once or twice. Acquiring intellectual property can offset some risk, in part because there are opportunities for subsidiary rights, merchandise deals, video game rights, etc. And unlike famous actors, franchises like The Avengers or Disney children’s characters can live on forever.
Last week, as hype around Monday’s event steadily built up in the media, Apple made three hardware announcements, with upgrades to its iMac Pro, iPad Mini and AirPods. There was no news conference devoted to those announcements. It was unusual, because it showed Apple’s hardware taking a back seat to its new services-oriented businesses. Wall Street liked what it saw, rewarding Apple with a stock bump that boosted the company’s market cap above $900 billion. It had fallen below $700 million in January after news of slowing iPhone sales. On Monday, Apple lost some of those gains, seeing its value drop to $890 billion, and its stock was down 1.21 percent in after hours trading.
Sarah Ellison contributed to this story from New York.