Apple (AAPL - Free Report) is all set to launch its much-anticipated video streaming and news subscription service on Mar 25. The video streaming service is likely to comprise a generous dose of free original programming along with subscription-based streaming offerings like CBS Showtime, Starz and Viacom.
However, Netflix (NFLX - Free Report) will not be part of Apple’s new offering as confirmed by CEO Reed Hastings, per Variety, quoted by TechCrunch. The streaming giant’s protectiveness toward its own app has been cited as the primary reason. Notably, Netflix is also not available on Amazon Prime and Roku’s (ROKU - Free Report) video subscription marketplace.
We also believe that revenue sharing could have been a major issue between Apple and Netflix. The iPhone maker was reportedly pushing for a higher cut in revenue share instead of the rate it usually charges.
In fact, Netflix has stopped allowing Apple users to subscribe through the App store billing feature. This has helped the company retain 30% of the revenue share, which Apple used to get previously.
Revenue sharing arrangement has also been a bone of contention between Apple and a host of major publishers, including the New York Times and Washington Post, for the upcoming paid news service. Reportedly, Apple has demanded a revenue cut of roughly 50%. The paid news service will be integrated into the Apple news app.
Will Netflix’s Absence Hurt Apple?
As iPhone sales growth slows down, Apple’s Services business has emerged as the company’s new cash cow. Apple currently has more than 360 million paid subscribers across its Services portfolio. More than 30,000 third-party subscription apps are available on the App Store.
Expanding App Store, Apple Music and Apple Pay subscriber base has been a major growth driver. The upcoming video service is an important addition to this ensemble portfolio. Apple has spent roughly $2 billion on its content (either through producing or acquiring) and inked a multi-year content deal with Oprah Winfrey.
Per Macworld, Apple has spent $1 billion on original TV programming in 2018. The involvement of Hollywood stars like Jennifer Garner, Reese Witherspoon, Jennifer Aniston, Chris Evans, Jason Momoa along with acclaimed directors and producers like Steven Spielberg and J.J. Abrams surely makes the shows attractive.
However, Netflix’s absence will surely hurt the video streaming service. The growing appeal of the streaming platform, driven by a solid content portfolio, is helping it expand subscriber base rapidly, which is hard to ignore. Netflix hit 139.26 million subscribers globally at the end of 2018. The company now expects to add 8.90 million subscribers in the first quarter of 2019.
Moreover, absence of Netflix also reduces Apple’s competitive strength in the streaming market, which is expected to see a plethora of new services from well-known media giants like Disney (DIS - Free Report) and NBCUniversal.
Among the new entrants, Disney’s video streaming service, Disney+ is expected to be a major player in the streaming market space, due to its strong content slate, brand name and ability to market the service. Notably, Disney+ is estimated to on-board 160 million subscribers worldwide, per CNBC.
Zacks Rank & A Key Pick
Currently, Apple has a Zacks Rank #3 (Hold).
Lenovo (LNVGY - Free Report) is a stock worth considering in the same industry. The company flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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