Most Important Story of the Week – 18 Sep 20: Apple One, The Aggressively Moderate Take

Whenever a big tech company sneezes, the entire techno-entertainment industrial complex catches a case of “they’re taking over the world”. Such is my read of the latest announcement that Apple is launching a multimedia bundle called Apple One. For months, CWSMF (Celebrity Wall Street Media Futurists) had speculated and salivated over the idea that Apple would launch a multi-media bundle.

So let’s make that the most important story of the week.

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Most Important Story of the Week – Apple One, The Aggressively Moderate Case

Is Apple One that big of a deal? Sure. Maybe. We’ll see.

That lackluster of a response probably says a lot about my opinion. 

This move isn’t a bust, but probably isn’t the killer app/product Apple needed to win the 2020s the way it won the 2010s. (As a primer, I do recommend my articles on value creation and subscriptions from last year to understand my more skeptical take on subscriptions.)

Apple One – From a Value Creation Standpoint

Here’s the three versions of Apple One:

Screen Shot 2020-09-18 at 9.17.03 AM

The crazy part to me is that I would have bet anything that News would be bundled with Music, TV+ and Arcade. Because that’s really how you find multiple “somethings” for a customer in a bundle. If I was tempted by Apple News (free Wall Street Journal subscription is intriguing), then maybe Arcade is enough to swing me onto the subscription. Then Music and TV+ are the icing on the cake. Or for the many customers who already have Music, it just increases the odds that either news, games or TV+ entices them into the subscription.

Instead, the premium tier offers News–which most customers haven’t opted to buy–or Fitness+. (The most Microsoft in the 1990s move Apple has made yet.) As it stands, most customers don’t use all of these services, so the value creation feels fairly negligible. If you don’t have an Apple Watch, Fitness+ isn’t worth it at all. 

It’s also worth noting what else isn’t included in the bundle: insurance. 

Lots of folks thought Apple Care and/or the Apple phone replacement plan would come in this bundle. And someday they may. But my gut is Apple ran the customer surveys–they have a lot more data than I do!–and saw that adding in insurance for $15-20 bucks a month meant customers HATED the new bundle. Not to mention, for your $15 a month to Apple, the deductibles are still pretty steep:

Screen Shot 2020-09-18 at 8.54.32 AM

So let’s make a couple more “bundles” to understand the range Apple was playing with…

Screen Shot 2020-09-18 at 9.17.25 AM

The other killer app–which is still rumored–is that Apple will eventually add in both insurance and phone upgrades to this model. As the last bundle shows, though, this jacks up the price through the roof. Which maybe makes it worth it for customers, but it also takes a lot of folks out of the running for this type of plan. 

You can also see the media bundle and probably why Apple didn’t include News in the Individual or Family plans: it gives customers way too much value. Which sounds weird to say, but in this case it is a trade off. For every dollar in value you give the customer, Apple is likely losing that value. In fact, I think Apple is losing money on the bundle period. Here’s my back of the envelope value creation model:

Screen Shot 2020-09-18 at 9.16.51 AM

Moreover, I do think initially Apple is losing money on this bundle. Yes, I’m using per unit economics, but it seems clear to that Apple is losing money. Apple Music likely loses money or breaks even (if Spotify is the comp), Apple TV+ likely loses money (and customers only use it if they get it for free), News and Arcade have also both been described as troubled. Meaning the only service that breaks even is iCloud because frankly cloud storage is almost a commodity at this point.

Thus, the “Moderate” Case for Apple One

The upside/aggressive/positive case? Customers may like it! 

There is just enough “money losing” businesses to entice customers. Specifically, Apple Music and most likely in Apple TV. That said, the likeliest customers are current Apple customers who are relatively affluent and already have one or more Apple subscriptions. Upgrading Music to “TV+ and Music” seems like a simple decision.

That said, the “moderate/meh/blah” piece is that Apple has already discounted their own value on this bundle by giving TV+ away for free. Meaning at least one part of this bundle has been price discounted in customers minds. If a customer doesn’t like iPad games either, then basically the bundle isn’t worth it.

Further, Apple isn’t losing as much money as they could. They could have gone very aggressive a la Youtube TV and lost $20-30 per customer, but this plan isn’t that aggressive. However, that’s really how you add lots of subscribers quickly in digital media.

So the downside/pessimistic/negative case? Long term, to make money, Apple will need to either raise prices on the subscription or lower the quality of the product. 

Or, they could add insurance or utilities to the mix. Since those are the true cash cows of subscriptions. The risk is customers tend to hate insurance. (Apple’s current phone insurance by my look is a pretty terrible deal. Just save your money and buy a new phone.) But that’s how you make true money. Thus the tradeoff: make money off products or risk customer ire. In the 2010s, Apple made money while sucking up customer love, I don’t see that path via Apple One in the 2020s. 

Which is really what makes this a moderate take: this is a good subscription for Apple to make some money, lock some customers in for the longer term and diversify services revenue. But is it a game changer?

Eh. 

And that’s because I really am trying to look at this product in a vacuum, not with “Apple-tinged” glasses that says, “Hey, it’s Apple, it must be great!”. That’s why I’m so moderate on this. It isn’t an all-in bundle, or a really great value. But that means it’s also likelier to make money for Apple in the near term. 

Quick Hits on Apple One

  1. First, 2020 Apple is 1990 Microsoft. They have a dominant market position on a key platform, and instead of letting others compete and innovate with add-on services, they plan to make those themselves and drive others out of business. So if you remember how bad Internet Explorer was for years, get ready for those dark times to come back. (They’re also constantly tweaking default settings to prioritize their own apps. Which is so Microsoft as to make your head spin.)
  2. I still don’t know the “thesis” on Apple. I’ve seen articles saying that Apple’s multimedia push is to get more “services” revenue, but also seen articles saying these services will help “Apple sell more iPhones”. If you read my June articles, you know my take: the best business model would do both. (The flywheel should make money at each stop.) But then the question is, “Is Apple making money on these media services?” 
  3. The most compelling argument is the “lock in”, but even that overstates the case as I’d argue most iPhone users are already locked in. The bass diffusion curve is what it is, and with increasing prices, most folks are holding onto phones for longer and longer. I don’t see how this bundle really encourages folks to buy a phone that much faster. And if they lose money per subscriber, then services revenue wont’ go up either.
  4. Apple “services” revenue continues to confuse analysts as well. Part of “services” is revenue from the App Store. Including recurring payments from video games. Which as I noted last week are booming. And as Fortnite, WordPress, Hey, and others have made clear, Apple is increasingly grabbing in-app revenues as a fee for doing business.
  5. Really hard to find prices researching this article and Apple now offers lots of free trials. Basically, it’s a very 2000s cable company strategy. (The opposite of Netflix, by the way.)
  6. Apple News likely forced the Premium tier because it and Apple Fitness aren’t available globally. I think that’s a strategic mistake and it should have been included in the lower tier for a cheaper amount than $30. But this is a minor tactical quibble.
  7. The Twitter Takes. I asked folks for their takes on Apple, and here’s the top tweets.

Data of the Week – ???

I had a good one, but it went just long enough to need it’s own article. Check back in on Monday.

Other Contenders for Most Important Story

Peacock and Roku Come to an Agreement

See, that didn’t take very long. It looks like some NBC content will wind up on Roku’s free channel, which does show the power the distributors have. (Amazon did the same thing to Disney+.) Long term, this means Comcast can take their time with Amazon. (They have many more devices internationally, and I trust that Roku users tend to be stickier than Fire TV, which Amazon gave away to lots of folks for peanuts.) And in general you’d have to think HBO Max will have an easier time finding a deal with Roku.

Bloomberg TV New (Not Tik Tok) Streaming Plan

Bloomberg TV plans to relaunch it’s on-demand streaming news service that was previously named “Tic Toc”. (Clearly that name is out for the relaunch.) They’d previously partnered with Twitter, but this time will go it themselves. I share Dylan Byers skepticism that this move is as disruptive as Bloomberg thinks. In fact, that’s a good rule of thumb: the more a company touts themselves as disruptive, the more skeptical you should consider their plan.

Still, the competition for young, Millennial business eyeballs between them, Cheddar, Morning Brew, all the traditional players and more is fierce. 

More AT&T Plans!

This time, it’s AT&T planning to sell advertisements for cheaper cellular service. From an entertainment perspective, this could further confuse their offerings. For the broader public, though, clearly rising cell phone prices are pricing some segments out of the cellular market so this fills a need. You have to imagine they’d keep Xandr (their digital ad-sales unit), but then again, it’s AT&T so maybe not.

Entertainment Strategy Guy Update

Paramount+

This story almost made the “lots of news with no news” section. Well, CBS All-Access will be rebranded to “Paramount+” as ViacomCBS tries to bolster its streaming service. While I doubt the name change will really help in either direct, it’s interesting that Viacom is telling us that Paramount is the most trusted global brand. That does indicate they’re thinking globally with this move. (My take on CBS’s strategy here from last August.)

More Agency Pain and then CAA’s Agency Confusion

The agency dramas with Covid-19 and the WGA stand-off are worth staying on top of. The latest updates are that Paradigm is doing more permanent layoffs and that CAA tried to fake-sign the WGA deal. Yes, fake-sign, as it refuse to sign a key demand but try to bluff the WGA into agreeing. If agents have one job, its winning negotiations, and this gambit seemed to have misfired. So yeah, not great negotiating.

PS5 Will Cost $500 too

Now that X-Box revealed their price points and timing, Sony followed suit with the Playstation 5. It too will cost $500. To share a different take from Tae Kim’s skeptical look I shared last week, Rob Fahey thinks the X-Box S could change the console paradigm.

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