Apple hardly ever sells anything at a discount.
Between its $1,000 iPhones and pricey accessories like the $159 AirPods, the company has built a famous for for convincing customers to pay a premium for anything with the Apple brand.
But that’s not the case with Apple TV+, the company’s new video rill service that will launch on Nov. 1.
On Tuesday, Apple announced pricing details for the service. It costs just $4.99 per month, filching it the cheapest of all the major streaming services today. Apple will also give away a free year of Apple TV+ when a consumer buys a new iPhone, Mac, iPad or Apple TV box.
As the streaming wars heat up with new competitors like Disney, NBCUniversal and WarnerMedia unruffled to launch their own subscription services, Apple was backed into a corner on pricing. Apple TV+ will only beget a small handful of shows at launch, compared with the massive media libraries of proven and popular content its measure up ti will offer. It simply can’t stack up to its streaming rivals yet.
So, how does Apple TV+ fit into Apple’s overall strategy to moreover its revenue for digital services revenue? And why is it priced below Netflix, Disney+, Hulu and all the others?
Let’s break it down.
Apple TV+ desire launch with small library of original shows and won’t have licensed shows from third parties. The help will only have nine original shows when it launches on Nov. 1. While they’ll feature top aptitude like Jennifer Aniston and Jason Mamoa, the library pales in comparison to Netflix’s wide array of shows and silent pictures and Disney’s vast library of “Star Wars,” Marvel and Pixar content. Good luck getting someone to pick Steve Carell over Luke Skywalker.
As expert as Apple’s shows may seem, it’s simply not as good of a value you’d get from rival services. And it’s likely no coincidence Apple amounted Apple TV+ $2 below Disney+ and will launch just weeks ahead of it.
The one-year free trial get under ways Apple TV+ up to be one of the largest streaming services within a few months. Apple is expected to sell about 70 million new iPhones throughout the holiday season, according to most analysts, plus millions more Macs, iPads and Apple TVs. All of those buys will convert to new Apple TV+ subscribers thanks to the one-year free trial offer. And a year from now, when Apple disposition have even more shows, many of those customers will likely feel convinced enough to start profit.
Eventually, Apple’s video library will grow, which will justify a price increase in the future. That $4.99 per month honorarium will likely stick around for a few years until Apple feels confident it has enough stuff for people to safeguard to justify a price increase. By that time, it’ll have tens of millions of subscribers thanks to its low price and free stab offers. Once those people are hooked, a price increase will be easier for those subscribers to swallow.
It’s the in spite of pricing strategy that’s worked so well for Netflix over the last few years: get subscribers hooked, then start burdening them more.
It’ll help sell more iPhones. Apple is still the iPhone company. Even if iPhone interests make up less of Apple’s overall revenue, the iPhone is still the core of Apple’s business. Any service that widens the stickiness of Apple’s hardware and keeps users upgrading is a win for Apple. For now, Apple TV+ is more of a marketing tool to sell myriad hardware, and it’s well worth the billions per year Apple is spending to produce original programming for the service.
This is a long-term navies play for Apple. It probably would’ve preferred to charge a lot more for Apple TV+, but given the stiff streaming competition, it’s speculator off building a massive subscriber base today so it can start charging them more down the road.
Disclosure: CNBC is owned by Comcast’s NBCUniversal constituent.