Apple v. Netflix - Who Wins? 5-Factor Analysis

Yesterday, I laid out 5 reasons why Apple's newly-rumored "Netflix-Killer" will be an immediate smash hit when it launches.

But, in a direct battle royale, who wins?  Let's analyze 5 individual battles that define the war.

(1) Content/Programming -- Let's take Apple first.  Apple will offer (i) both VOD and live/linear TV (Netflix only offers VOD), and (ii) both ESPN and HBO, the two premium channels that matter most (Netflix doesn't).  How does Netflix counter this attack?  In two ways (i) exclusive original "must have" programming like House of Cards and Orange Is the New Black (although you can bet Apple will get into that game as well - perhaps even buy a studio?), and (ii) a significant depth of content that Apple will not have ... at least for a long time.  Advantage Apple.

(2) Distribution -- Apple's ecosystem is closed.  Netflix's is open.  That means that Apple's OTT video service will be bundled only into Apple products, whereas Netflix comes with virtually everyone else (including Apple TV -- although you can bet that Apple's Netflix-Killer will be front and center and free (at least for a while) on Apple TV's when it launches).  So, Netflix's sheer reach significantly outdistances Apple.  Oh yes, and Netflix already has built a massive customer base -- and is growing fast internationally.  Advantage Netflix.

(3) User Experience -- Virtually everyone on the planet has Netflix.  It's part of our Zeitgeist and its UI is practically burned into our brains.  So, it is easy to use.  But, Apple's hallmark is user experience -- a UI/UX that is both "pretty" (yes, that matters) and intuitive/easy.  And -- and this is a critical "and" -- Apple can do (and does) what Netflix and others can't.  It seamlessly integrates software/services with its hardware (including Apple TV).  That means that Apple's new OTT video service will be front and center and easier to use.  Advantage Apple.

(4) Price -- Netflix charges $8.99 monthly for new users, whereas Apple's "killer" service inevitably will cost significantly more.  ESPN alone costs cable/satellite operators about $6 monthly per sub.  Advantage Netflix.

So, we have a draw here, right?

Well, here's the ultimate rub.  The companies' fundamentally divergent business models.

Neflix is a pure-play video service.  The company monetizes its service only.  That is its business model -- and that means that it must be profitable based on subscription revenues alone (unless and until it finds a way to effectively mine its treasure trove of customer data).

Apple's business model is fundamentally different.  For Apple, its "coming soon" OTT video service can be (and likely will be) a loss leader -- a losing proposition that ultimately wins.  You see, Apple's core DNA is unlike Netflix's.  It is hardware pure and simple.  Apple makes money (boatloads of it) by selling "cool" metal -- iPhones, iPads, Apple Watches, Apple TVs (and ultimately the iTV?).  That means that Apple's new video service is essentially a "marketing" expense that drives incremental hardware sales.  That also means that Apple can (and will) subsidize its content licensing costs in order to keep its subscription pricing down.

How does Netflix match that?