Apple sharpens focus on original media content

Goal of $50bn in sales from digital services by 2020 highlights growing confidence
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Apple is getting serious about producing its own media content, chief executive Tim Cook signalled on Tuesday, as it looks to step up its nascent efforts to revolutionise the television industry.

After putting a “toe in the water” by commissioning shows including Carpool Karaoke as part of its Music streaming service last year, the iPhone maker expects to “participate in the changes that are going on in the media industry”, Mr Cook said.

“We are learning a lot about the original content business and thinking about ways that we could play in that,” he told Wall Street analysts on a conference call on Tuesday as Apple released its fiscal first-quarter results.

Gene Munster, a former Apple analyst who is now a venture capitalist at Loup Ventures, says Mr Cook’s comments clarify Apple’s position on original content. “We knew they were experimenting with a couple of things,” he says. “I felt like the takeaway from the call was that they are more serious.”

Netflix has found success with in-house commissions of TV series including House of Cards and Stranger Things, while Amazon recently scored the first Oscar nomination for a video streaming service with Manchester by the Sea, a movie funded by the ecommerce group’s Studios arm.

Apple is planning to double revenues from its services business to about $50bn by the end of 2020, Mr Cook said on Tuesday. That would bring its sales from the App Store, Apple Music and other digital services close to the $55.6bn in total revenues generated by The Walt Disney Company in its latest financial year.

Analysts have long speculated Apple might make a big acquisition in the media industry to bolster its content ambitions. Executives last year discussed a bid for Time Warner, the owner of HBO and CNN, the Financial Times has reported.

Asked on Tuesday whether Apple might use some of its $246bn cash pile for “larger” acquisitions, Mr Cook said that “there is not a size that we would not do, based on just the size of it. It’s more about the strategic value of it.”

Potentially facilitating a larger deal, he added he was “optimistic” the new US administration will introduce tax reforms that encourage companies such as Apple to repatriate their overseas cash.

Apple has emphasised the momentum in its services business in the past year, as investors fretted about the iPhone’s long-term growth trajectory. Apple already sells more than 150m subscriptions to services ranging from video services such as Netflix to newspaper apps through its App Store, taking a 15-30 per cent cut on each.

Its new $50bn sales target, which implies maintaining its current 18 per cent growth rate for the next four years, illustrates Apple’s growing confidence in its services, says Ben Bajarin, analyst at Creative Strategies.

Both the total number of people using Apple’s services and average revenue per user continue to increase, the company said on Tuesday. However, sales of the Apple TV set-top box, which promised to “revolutionise” how TV is watched when it was released in September 2015, fell in the last quarter, it said.

“We have more things planned for it but we’ve come a long way in a year,” Mr Cook said of the Apple TV box. “It gives us a clear platform to build off of.”

Original content will help to differentiate Apple TV from rival devices such as Roku or Amazon’s Fire TV, Mr Bajarin says. “They realise they need to have something that is exclusive.”

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