Apple Brought Half of Hollywood Onstage. Its New Video Service Has Little to Show.

Next to the new video, gaming and news subscriptions, the real highlight turned out to be the credit card

In a keynote running nearly two hours, Apple bundled more than 100 paid games into a subscription package, signed up 300 magazines for a paid news service, and launched a credit card of its own.

But Apple itself seemed to think the biggest news was its money in Hollywood.

It began with Steven Spielberg walking onstage to announce a reboot of Amazing Stories. For the next hour, one Hollywood name after another came out to present the shows they are making with Apple.

Jennifer Aniston, Legally Blonde star Reese Witherspoon and The Office star Steve Carell brought The Morning Show, a new drama set in the news business.

Aquaman star Jason Momoa and Alfre Woodard introduced See, a science-fiction series in which the whole human race has lost its sight.

Silicon Valley actor Kumail Nanjiani stars in Little America, which will look at immigrant life.

Sesame Street's Big Bird and Cody will teach children to code.

Sara Bareilles played a song live; she and J.J. Abrams are making Little Voice, a series about young musicians in New York.

Closing the show, Oprah Winfrey announced she will produce two documentary series for Apple.

Apple is finally putting money into video. Its involvement in the business goes back to 2005, when the fifth-generation iPod, which could play video, arrived alongside the sale and download of TV shows. Then came the Apple TV set-top box in 2007. And today, in the age of streaming, the Apple TV service is still little more than a directory — an app on Apple devices that points users toward content on Hulu, HBO, Starz, even Amazon Prime.

The newly announced Apple TV+ follows the Netflix model: make your own shows, charge users directly, then keep investing in and refreshing those shows to draw more paying subscribers.

Apple has reason to put video at the center of things. According to the Motion Picture Association of America, global spending on digital video reached $42.6 billion in 2018, already ahead of the $41.1 billion global box office.

But the way the world's richest company is stepping into online video is remarkably cautious.

Sell Hardware or Sell Services? The World's Richest Company Enters Video the Careful Way

Apple TV+ and Apple TV are two separate systems — the result of a compromise.

The Apple TV "directory," which still requires separate subscriptions, remains. It gathers content from various providers, but users have to buy HBO, Starz, Hulu and Amazon Prime one by one. Netflix refused to join at all. And Apple has not spent heavily on licensing the way Netflix, Amazon, Tencent Video and iQiyi have.

Apple TV+, by contrast, carries only the original shows Apple pays for. That content will be exclusive to Apple, playable only on Apple devices and partner smart TVs. There is no announced plan for an Android version.

The advantage of this approach is that it doesn't burn cash. If users only watch other companies' content through Apple TV, Apple invests nothing upfront and simply takes a cut.

The exclusive originals on Apple TV+ take on a different job: getting people to buy iPhones and iPads.

Earlier reports put Apple's spending at $1 billion for ten original series. For comparison, Netflix's content costs passed $2.7 billion in a single quarter last year and are still rising, most of it on licensing.

The difference is that Netflix offers one simple, unified experience. Users think about nothing else: one monthly fee, and everything Netflix has that month.

Most of Netflix's licensing deals are outright buyouts. The upfront cost is large, but there is no cut to pay on every play — the more subscribers, the more it earns.

You could say Apple is dodging the cost and risk of licensing, preferring to stay a middleman for other people's video. But the practical result is that Apple TV today gives users a fragmented experience, paying separate subscription fees for different shows.

The bigger reason Apple looks cautious is hardware. Apple TV+ runs only on Apple devices and partner televisions — Samsung, LG, Sony, Roku. Any company serious about video covers every platform: iOS, Android, even Xbox, PlayStation and the Nintendo Switch. Once the money for the rights is spent, more platforms mean more people paying.

Apple TV, meanwhile, is still there to protect the iPhone and the iPad. For the same money spent on a show, Apple's rivals reach 4 billion potential customers. Apple reaches 1 billion — the number of iPhones in use.

Price is an even bigger unknown. Apart from Apple News, which the keynote priced at $9.99 a month, neither TV nor games got a number, only a vague "this fall." What Apple will charge isn't clear, but exclusivity may let it charge less.

In Video, Apple Is a Follower

When Apple has entered a new market in the past, it was rarely first, but it usually redefined the rules. That held from the iPod to the iPhone to the iPad, and even the Apple Watch.

The iPod arrived at an odd moment in the music business. Sony's Walkman cassette players and the CD, dominant for 25 years, were starting to slip as people took to downloading music instead — that is, to MP3 players. Global MP3 player sales were 11.62 million units in 2002, and by 2004 they were growing 40% a year. But nobody had any idea how to sell digital music, and Silicon Valley's file-sharing pirates and the record giants who couldn't build a decent store spent their time arguing and suing each other.

The iPod and iTunes combination of 2003 offered a whole solution: labels and artists finally had revenue in the digital era, and Apple took both a cut of sales and the hardware money from iPods. By 2010 the iTunes Store had sold 10 billion songs and accounted for more than 70% of online music sales worldwide.

How much the 2007 iPhone mattered is something QDaily has already looked back on. It pushed the phone industry into a decade of headlong growth; with Android, which followed, it created an app economy almost from nothing and put 4 billion people online.

The iPad and Apple Watch that came later never matched the iPhone, but they too turned the tablet and smartwatch markets in a new direction and drove years of growth.

Apple's video service, on what has been announced so far, brings the industry no new business model, and the choice and the geographic reach it offers users fall far short of what Netflix, or even Amazon, has built up over years.

Apple Also Missed the Best Moment to Buy Its Way In

In 2018, online video subscriptions brought in $40 billion. By mid-2017, subscriptions to online video worldwide had already passed cable television, making it the first choice for paid home viewing.

In the biggest market, the United States, half of all households subscribe to Netflix, followed by Amazon at 33% — a figure that includes people who bought Prime for other reasons.

Worldwide, Netflix and Amazon are each in more than a hundred countries, with 190 million and 139 million users, and each has local shows for South Korea, Japan and Southeast Asia.

Every model has already been tried and settled by Netflix and Amazon, and nothing Apple announced today shifts them. It was Netflix's House of Cards that started streaming platforms making their own shows, and that series became Netflix's turning point: subscribers grew more than 30% that year.

In Hollywood, Netflix is a new power. At the 2019 Oscars it took 15 nominations, as many as all its previous nominations put together, and more than the traditional studios Warner Bros., Sony and Paramount — making Netflix a seventh major alongside Hollywood's Big Six.

Apple knows how far Netflix has come better than any other company. The App Store data is right there: how many downloads, how much time users spend each day, what share uninstall.

But in the eight years since Tim Cook took over in 2011, Apple has put its money into hardware research and into buying back its own stock.

At the end of 2011, Netflix's market value had fallen to $3.35 billion; Apple was sitting on nearly $100 billion in cash, enough to take it over by force.

By 2013, when Netflix began making its own shows, it was still worth only a little over $10 billion, and Apple held more than $130 billion. Netflix is now worth $160 billion. Apple can no longer simply buy it, and even if it did, the numbers would be hard to justify.

During the five years Apple spent hesitating over video, Netflix built a library of more than 1,000 of its own productions and began taking Apple on directly. This year, as Apple confirmed it was launching a video service, Netflix stopped letting users pay through the App Store, avoiding the 30% cut. Outspending Netflix now would not be easy — and this keynote showed no sign of that kind of resolve.

The markets' reaction says most of it.

Netflix's share price fell steadily once Apple's keynote began. But as the event reached the Apple TV+ segment, the stock climbed back and closed up 1.45%, far ahead of the S&P 500's -0.084% that day. Apple went the other way: down more than 2% at one point after the keynote ended, and down 1.21% at the close.

Apple announced three other services at the keynote. Next to video, the one people talked about most was the credit card.

Apple News+, the magazine subscription

• A paid tier built on top of Apple News.
• It carries 300 magazines, mainstream and niche alike: The New Yorker, Wired, Vanity Fair, National Geographic and others.
• Animated covers and richly laid-out interior pages, designed for magazines — much as Flipboard has been doing since 2010. Users can open a cover and read the current issue, or go straight from a recommendation page to the articles they want.
• Human editors pick the articles they recommend, as they already do in Apple News and Apple Music.
• Everything for $9.99 a month, with the first month free.

Apple News was an advertising-supported news service, but digital advertising doesn't bring big publishers enough money, and over the past few years the American news industry has moved almost entirely to paid subscriptions. Apple News+ signs up major publishers with a bundled fee much like a video streaming membership.

Apple got the major magazines, but not America's newspapers — the news medium with the strongest growth in digital subscriptions. Only two big papers joined Apple News+: the Los Angeles Times, which has been sliding for years through a string of failed acquisitions and pivots, and The Wall Street Journal, whose internal email revealed that it is supplying Apple News+ only with "a curated set of general-interest news." To read the Journal's most important business coverage, you still have to pay for it separately.

The newspapers' resistance comes from two things. One is the split: Apple is said to be insisting on 50% of the revenue. The other is the weakening of their own brands. As The New York Times CEO said in a recent interview, the paid version of Apple News works like a video streaming site — it pays for other people's content first, and once the habit takes hold it starts making its own, until the value of the publishers is erased. Making its own content need not mean Apple starting a news outlet: WeChat official accounts and Toutiao's Toutiaohao are another cheap way of replacing large media.

Apple News+ is live in the United States and Canada, with a French version in Canada, and will reach Australia and the United Kingdom later this year. Like Apple News, it has not come to China, which is no surprise.

Apple Arcade, the game subscription

• A set of games bundled into one subscription, played without limits.
• Every participating game is a paid game with no paid content of any kind: no ads, no paid items, no expansion packs.
• In a mobile game business built on free downloads and paid items, this is a service meant to encourage paid independent games.
• The games will run on iPhone, iPad and Mac at once, with progress shared across platforms.
• They cannot be ported to Android, though several have announced Nintendo Switch versions.
• Launching in the fall of 2019 in more than 150 countries, with family sharing. Price unknown.

Ever since Apple introduced in-app purchases in 2011, mainstream mobile games have gone from paid downloads to free downloads that then coax you into paying.

Because developers make their money from paid items and features, game design inevitably puts playability below persuading you to spend — as the players' own vocabulary, "digging a hole" and "whaling," makes clear.

Developers of paid games mostly have to think instead about making the game better so more people buy it. Apple's App Store has long promoted paid independent games, which care more about play and are easier to negotiate with than the big studios. Apple Arcade is Apple using a subscription to support paid games.

The first confirmed lineup has nine titles, among them Sonic Racing, Beyond a Steel Sky, Lego Brawls, Hot Lava and The Pathless, most of them independent. Another hundred-plus games from big names — Disney, Cartoon Network, Konami, Sega — are in development.

Apple Card, Apple's own credit card

• Apple's own credit card, made with Goldman Sachs and running on the Mastercard network.
• Cash back paid straight out: 2% of everything you spend, credited to Apple Cash daily, with no cap; 3% at Apple's own stores.
• A physical card as well, in titanium, with no card number, no CVV and no expiry date — nothing but your name.
• It lays out your spending as data and tracks your habits, which is essentially what a budgeting app does.
• Every transaction is verified through the device with a one-time code, so in theory a leak at a shopping site can't be used to charge the card.
• Neither Apple nor Goldman Sachs tracks your spending habits, stores your habits or amounts on their servers, or passes any of it to advertisers or partners.
• Repayment need not be monthly; more flexible plans are on offer. No annual fee, no foreign transaction fee, no charges of that sort.

Apple Card sets itself apart with a better experience than a bank's — in applying, in using it, in resisting fraud. Its hardware design means a leaked card number can't be used against you the way it can with an ordinary credit card. A budgeting app is built in. And the mechanism for encouraging you to spend is the one Americans like: cash back, 2%, on every purchase, settled every day.

Apple is entering a new market the way it knows how — find what is missing from the experience of using a credit card, then bring in a partner ranked low in that industry to handle the licenses and the financial back end.

In the United States, where the business starts, that partner is Goldman Sachs. Goldman is old and large, but it has mostly served the very rich, and only last year began pushing hard into consumer finance, folding its Marcus retail arm into its investment management division. In personal products like credit cards, Goldman is a latecomer. The deal with Apple gives its consumer business a chance to cover half of America at a stroke — the iOS share.

In China, WeChat and Alipay have largely solved digital credit card payment; Huabei is essentially Alipay's own credit card. But across most of the world digital payment is still not widespread, and regulation limits how far Alipay can go abroad. In most places the credit card remains the main way to pay apart from cash. Apple Card's partnership with a bank is the more likely way into those markets.

A credit card's revenue comes mainly from interest on installments, and from packaging that interest into financial products (ABS) to sell to investors. Apple has disclosed none of that detail — how the work and the money are divided with Goldman Sachs.

Apple Card is a financial product, and it is also a way for Apple to hold onto its hardware users: Apple's hardware, Apple's operating system, App Store apps, Apple's services — and now, on top of it all, money Apple lends you.

Against a video service with little to show, the credit card became the keynote's biggest highlight, and a demonstration of Apple's ability to combine hardware and software to enter a new industry.

Cover image: Visual China Group

Graphics: Feng Xiuxia