Apple (AAPL) To Reportedly Launch Streaming Service In 2018

Per a CNBC report, research firm CCS Insight released its 12th annual set of industry predictions, which mentions a possible launch of a streaming service next year by Apple Inc (NASDAQ:AAPL) .

CCS Insight’s vice president of multiplay and media, Paolo Pescatore was quoted by CNBC saying, “Everyone is jostling for position and everyone is jumping in on the area of video. When you look at Apple, it has a very strong hardware offering and their services business is on the march. The real battleground is in the area of original content, but original content would feature prominent and Apple would be very well placed to do that.”

We believe Apple’s strategy to diversify into the streaming business is a positive, primarily due to favorable industry trends. Apart from a shift in viewer preference to online streaming from legacy platforms, binge viewing is catching up fast.

Apple’s Original Content Efforts

For some time now, Apple has been ramping up its original content efforts. The iPhone-maker reportedly plans to invest $1 billion in 2018 in original television (TV) shows and movies. In June 2017, the company hired former Sony Corp (T:6758) executives Jamie Erlicht and Zack Van Amburg and now they are in charge of buying/producing content for Apple Music.

They played a pivotal role in bringing acclaimed series such as Breaking Bad, The Goldbergs, Justified, Preacher, The Blacklist, Bloodline, The Crown, Rescue Me, The Shield and Sneaky Pete to Sony.

So far, Apple has launched two shows namely Planet of the Apps and Carpool Karaoke, a series based on a segment of the James Corden’s Late Late Show. The response to both the shows has been lukewarm.

In October, Apple collaborated with Steven Spielberg’s Amblin Television and NBCUniversal to revive Amazing Stories. Critically acclaimed Amazing Stories, a sci-fi anthology series created by Spielberg, ran from 1985 to 1987 for two seasons. It has won five Emmys. Apparently, Apple will shell out $5 million per episode for the reboot series.

The collaboration with Spielberg indicates that Apple is trying to keep its programming in line with its brand. The company reportedly wants premium stuff for its programming and is in talks with top Hollywood actors, producers and directors.

A few days back, it was reported that Apple signed Jenifer Aniston and Reese Witherspoon to star in a new series. Both of them will also be the executive producers of the show.

Streaming to Boost Services’ Revenues

The research firm also added that launching a streaming service will help Apple double its Services segment revenues. Apple targets to double Services revenues of $24 billion earned in fiscal 2016 by 2020.

In a short span of time, Services has become an important contributor (second after iPhone but the difference is huge) to Apple’s revenues. Revenues from this segment are now equal to that of a Fortune 100 company.

In the fourth quarter of fiscal 2017, Services, which includes revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, surged 34% year over year to nearly $8.5 billion. App Store sales were a big contributor. Across the segment, the number of paid subscribers grew 25 million to 210 million in the last three months. In the last reported quarter, Apple Music saw 75% year-over-year growth in subscriptions.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM) | Apple Inc. Quote

Intensifying Competition

However, Apple needs to watch out for increasing competition in this space both from established players like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) and new entrants like Facebook Inc (NASDAQ:FB) and Snap Inc (NYSE:SNAP).

Netflix and Amazon dominate the space with their award winning series. Amazon recently announced a TV series based on The Lord of the Rings novel.

Media powerhouse Walt Disney has ditched Netflix and is now coming up with its own streaming service. Disney will start online streaming services for ESPN sports in early 2018. Its branded direct-to-consumer streaming service in 2019 will air Disney movies as well as TV shows.

CCS Insight also predicted that with changing landscape Netflix could unveil new pricing plans and services to boost revenues. Pescatore added, “The prediction is that Netflix gives new pricing options for video to allow people to buy videos or rent them on an a la carte basis. Equally, we expect Netflix to move to other areas and cross-sell games and music into their basis."

Zacks Rank and Share Price Movement

Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the company has outperformed the industry in the past year. Shares of Apple have surged 53.8% compared with the industry’s 52% rally.

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