Can Apple Afford to Sell Video for $4.99?

By Douglas A. McIntyre Updated Jan 30, 3:56PM EST · Published Sep 11, 7:00AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Can Apple Afford to Sell Video for $4.99? — © Apple Inc.

Apple Inc. (NASDAQ: AAPL | AAPL Price Prediction) has announced its new Apple TV+ service, along with upgraded iPhones, watches and iPads. The new hardware, management says, is not the core of the company’s future growth. Services are. Apple TV+ is at the core of that strategy.

Apple has a long way to go in the services business if it is going to be the engine of the company’s expansion. In the most recent quarter, the segment had revenue of $11.5 billion, against Apple’s total of $53.8 billion. Apple management reasons that it has one of the largest installed customer bases in the world via its hundreds of millions of iPhones and Macs. Apple has tremendous brand loyalty too, based on large studies of brand loyalty done every year.

What Apple does not have, and is used to having, is a lead. It was first into the mass smartphone business, first with a large music service and first with an app store with tens of thousands of apps that made the iPhone much more useful to consumers. In streaming media, however, it must compete with giants Amazon and Netflix. There also is a small army of other services, including Hulu and extremely well-funded offerings from Disney and WarnerMedia. It is a crowded field. And most people do not subscribe to four, or five or six services. Most research shows consumers subscribe to one or two.

What Apple does have is a below-market price. Apple TV+ is priced at $4.99 a month. Whether it can make money at that level only Apple’s management knows. Based on industry data, it cannot make much.

Apple also has a thin lineup of programs now. It is not even close to the libraries of Netflix and Amazon. It is not an exclusive collection of content like Disney+.

[nativounit]

The base cost of a Netflix subscription is $12.99. Many people have been subscribers for years, and Netflix has 150 million subscribers worldwide. By some measures, it has almost 30% of the streaming customers in the world. Amazon’s streaming service comes with Prime, a subscription service that offers other benefits, from free delivery of products bought at Amazon.com to special prices on items sold at the world’s most popular e-commerce site as well. Prime memberships cost $12.99 a month. Amazon has over 100 million Prime members worldwide. A video-only membership costs $8.99.

Apple enters the market with an installed base of hardware and a below-market price. It also enters the most crowded entertainment market in the world, years and years behind the leaders.

[recirclink id=574741]
[wallst_email_signup]

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.