Apple v. Netflix (Or, Maybe Apple Should Just Buy Netflix)

Well, the grand-daddy of all digital media rumors is back again.  Yesterday, Variety reported that Apple's quest to build its long-anticipated "Netflix Killer" is hot again in Cupertino.  More specifically, that Apple too -- like Netflix, Hulu, Amazon Prime, and virtually all OTTs and MCNs these days -- plans to "do an HBO" to accomplish its mission (i.e., have a significant focus on creating its own exclusive original programming to woo customers away from the other established streaming video services).

Variety's article is new, but certainly the inevitability of Apple entering the premium streaming video game -- as well as the article's focus on Apple's quest to create compelling and differentiating original content -- is not (I have written about it several times).  And, much like Apple finally choosing to focus on buying/building its own "Spotify Killer" on the subscription streaming side for music (and finally recognizing that the times had moved away from a "pay per download" model), Apple at long last will go the same route for video (initially focusing on longer-form premium video content like movies and series).

With this most recent story now breaking before Apple's upcoming announcements, it is worth revisiting my earlier analysis where I pit Apple v. Netflix.  In that direct battle royale -- which absolutely will happen -- who wins?  Let's analyze 5 individual battles that define that 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 -- as I wrote months ago -- you can bet Apple absolutely will get into that "originals" game as well (and smartly fast-track those efforts by buying a high-end and highly-respected production house with deep relationships -- or perhaps even buy a major Hollywood 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 likely will cost significantly more.  ESPN alone costs cable/satellite operators about $6 monthly per sub.  Advantage Netflix.

So, we have a draw here, right?

(5) Business Model -- 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 -- and original programming efforts -- in order to keep its subscription pricing down.  Apple's massive cash hoard offers a lot of highly coveted freedom that others simply don't have.

How does Netflix match that?  Maybe, Apple simply buys Netflix with all that cash -- after all, as massive as Netflix is, its market cap is a downright paltry $49 billion compared to Apple's $643 billion, which includes about $200 billion in cash).  Now THAT would change the media landscape ....

Apple's iTV With Rollable Display This Fall? 4 Tantalizing Clues ...

5 years ago I was one of the first to predict that Apple would invade your living room in the form of an all-in-one beautiful, integrated "iTV" -- which is definitely NOT the Apple TV you know (and 25 million of you love) today.  It would be the real deal.

Yes, I was early (way early!) - but, content was always the problem (not the hardware/tech) and timing is finally right for this to happen later this year (just in time for the Xmas season).  Several things lead me to this conclusion:

(1) Apple's "hallmark" is seamlessly marrying compelling software/services with beautiful hardware, with the effect being to create what the Apple faithful consider to be the best customer experiences out there.  That's why the Apple brand means so much.  So, as I have always written, Apple could not enter the real iTV game without first having the compelling content package (including live/linear TV like ESPN and HBO) necessary to pull that kind of user experience off.

Well, now it appears that Apple may have finally cracked that inhibiting code -- with rumors abounding that Apple's "Netflix-Killer" will launch this fall (here's my separate 5-reason analysis why Apple's OTT video service will be a smash hit at launch).  As soon as I heard that news, I immediately concluded in my own mind the next logical step -- time was right for the iTV to finally see the light of day.

(2) Giving more credence to me, I was told by a credible source (who, in turn, heard from a credible source -- yes, I concede this is indirect) that the iTV is being manufactured right now and will feature a rollable display -- which truly would revolutionize the mass-market "TV" business.  And, Apple generally doesn't release anything -- especially when it is as late as it is here in this TV game -- unless it believes it has a marketing story that is untouchable.  And this "hardware as software" headline would be pretty damn good:

THE NEW PORTABLE "ANYWHERE" ITV, WITH ROLLABLE DISPLAY, ESPN & HBO

(3) Steve Jobs always called the current Apple TV a "hobby" -- implying that it was only the prequel to the main event.  And, Walter Isaacson's authorized biography of Steve Jobs' put an exclamation on this point, underscoring, in Jobs' own words, that he absolutely was going there to build a full-fledged integrated "TV":

“I’d like to create an integrated television set that is completely easy to use ... It would be seamlessly synced with all of your devices and with iCloud.  No longer would users have to fiddle with complex remotes for DVD players and cable channels. It will have the simplest user interface you could imagine. I finally cracked it."

(4) And, finally, at Apple's latest major press event a few weeks back, CEO Tim Cook expressly teased about even more compelling things to come later this year -- and he wasn't talking about the Apple Watch.  And, it makes sense to me that he drops the price of the current "hobby" Apple TV by $30 in advance of the main event -- think of it as being the Nano-ization of the TV ecosystem.  You have a mass market, extremely inexpensive Nano-ized Apple TV (the current one) -- and then you have the fully-featured, fully-priced iPod-like iTV (the coming one).

Yes, the television game is one of historical low margins.  But, if Apple has demonstrated anything, it is that consumers are willing to pay significantly higher prices (with significantly higher margins) for its products.  The mass market PC (v. Mac) is one prime example.  And, don't forget this additional critical piece -- an iTV with an integrated OTT streaming service gives Apple immediate access to a treasure trove of our personal data (viewing habits, etc.) that, in turn, offers the potential to accelerate sales of all Apple products (not just iTVs).  In other words, it could be a powerful driver of the entire Apple eco-system.

If true, is Apple done dominating our world wherever we are?  Where else can the Cupertino crew take us in its quest for hardware world domination?

On the road, naturally.

Apple's iCar -- Apple buying Tesla -- something I first speculated (and analyzed the logic of) nearly two years ago (well before those rumors abounded).

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? 

5 Reasons Apple's Netflix-Killer Will Be a Smash Hit

The worst-kept secret is very much alive again -- i.e., Apple hopes to launch its long-anticipated (overdue?) OTT video service by fall.  To be clear -- with Apple, it has always been a question of "when," not "if" (I wrote about this about one month ago in a detailed overview of the entire OTT space).

Here are 5 reasons Apple's "Netflix killer" will be a massive hit when the inevitable becomes reality:

(1) It's Apple!  That's all many of you need to know.  You will immediately sign up in droves just like you line up in droves anytime Apple launches a new hardware product.  No product reviews are necessary for you.  You just trust that it will be good.  It's downright Pavlov-ian -- you can't help yourselves.

(2) Many of you will ditch Netflix.  Yes, you and the rest of the planet already have Netflix subscriptions.  But, unlike Netflix, Apple will offer both VOD AND live/linear TV (Netflix's Achilles heel).  And, switching costs are low (essentially non-existent -- with two important caveats below).  All you need to do is go online and cancel. That's the beauty of Netflix and other non-linear TV OTT services for you.  (But, that's certainly not beautiful for Netflix, Amazon Prime, and Hulu.  That's a real problem that can be countered only with two things: (i) content -- both (a) kick-ass original content like House of Cards, and (b) content depth that Apple will not have for a long time; and (ii) price -- Netflix's price will be lower (although Apple can do what Netflix can't -- subsidize content licensing costs via hardware sales -- a fundamentally different business model)).

(3) Millions of you already have Apple TV's.  That means one software upgrade and BAM!, you got your iTV!  Netflix doesn't have that seamless "hardware/software" advantage (an Apple hallmark).  Of course Apple will place its new OTT video service front and center and give it to you for free (for several months).  The user experience will be compelling.  You will try it!  And, then you will let your credit card auto-renew.

(4) Millions more will buy new Apple TV's.  Heck, those crafty Cupertino-ians are practically giving them away now -- dropping the price to $69.  That's just two weeks of Starbuck lattes!  (And here's a tantalizing thought.  What if Apple's New "Netflix killer" is just the app-e-teaser for the main event -- its launch of the long-anticipated all-in-one real iTV -- something about which I first wrote 5 years ago?  'Tis a real possibility.  After all, Steve Jobs always called the current little Apple TV black box a "hobby."  This could be time for the real thing).

(5) It will feature ESPN and HBO.  This is the programming 1-2 punch.  Apple TV already is alone with HBO's new stand-alone HBO Now service (a 90 day exclusive).  And, Dish's Sling TV already cracked the code with ESPN, so the door is wide open for Apple so long as it pays just like the other Pay TV guys (which it absolutely will for ESPN, the most necessary programming ingredient).  Netflix, of course, doesn't have either.  (One more little detail -- don't forget that ESPN is owned by Disney, and Disney's Chairman & CEO Bob Iger sits on Apple's board.)

Apple's "Netflix killer" -- it came, we saw, they conquered!