Apple (NASDAQ: AAPL) is preparing to release several new services next month, according to reports. The company is expected to introduce a subscription news aggregation service based on the acquisition of Texture last year. It will also launch a streaming video aggregation service built on the $ 1 billion investment in original content.
But Apple has encountered some big media companies when it comes to their share of sales. Apple wants to hold 50% of its revenue from the news subscription service, according to Wall Street Journal . Meanwhile, reportedly, Apple will take 30% of its subscription revenue for its video service.
Not surprisingly, companies are giving up these fees, which are higher than Apple's standard fees. Netflix (NASDAQ: NFLX) has removed the ability to subscribe to its service in the app due to fees Apple pays. Thinking that it would pay a higher fee to give Apple even greater access to the viewer's data makes no sense.
Apple needs to consider a strategy for losing a leader
If Apple wants to make its content aggregation services successful, it should consider offering a free advertising service such as Netflix or AT & T (NYSE: T) Now HBO. Both services are quite popular that lost subscription revenues are minimal, but their ability to attract customers to the new Apple service can be great.
According to a survey by Parks Associates, 36% of households subscribe to two or more streaming video clips. services. If Apple provides a convenient way for subscribers to see all of their paid content in an app, it must attract many viewers to its platform. This opens the door for Apple to sell them additional subscriptions for lesser-known services based on what they see in more popular channels like HBO or Netflix.
Apple will have a much more difficult time to convince users to change their behavior in a different way. Of course, he invests a lot in his own content to attract viewers, but it does not necessarily have to make it a video entertainment center.
It's unclear how Apple plans to split the revenue from news from its subscription service. If the formula weighs the content of Entertainment Weekly with the same value as in-depth reporting from The Wall Street Journal or from New York Times two can get upset. The Wall Street Journal charges up to $ 39 a month for a subscription, while EW costs less than $ 2 per month.
The Apple Wall Street Journal and is the access to its huge audience of 1.4 billion active devices – 900 million of them are iPhone users. But these larger companies do not need direct access to Apple's audience.
Netflix spent over $ 2 billion in marketing last year; everyone knows about Netflix and its hundreds of originals. HBO led the world in Emmy's nominations for 17 years before Netflix headed it this year. It will be hard for you to find a newsreader that has never been seen The New York Times or The Wall Street Journal .
The point is that if users want to find quality content they will find the aforementioned companies with or without Apple's help. Apple only provides value to smaller media companies that can focus on smaller niches or do not have marketing budgets to reach their full potential audience. This is where it can take value. Apple will have to stop worrying about the margins of its services and negotiate special terms with leaders in subscription videos and news to get them on board with their services. This will be a challenge to attract customers without these deals even if all 900 million iPhone users instantly get access to $ 1 billion worth of content. A smaller margin for a larger business is much more valuable than a large small business margin.
Adam Levy owns Apple shares. Motley Fool owns shares and recommends Apple and Netflix. The Motley Fool has the following options: Long January 2020 $ 150 calls for Apple and short January 2020 $ 155 calling Apple.