Above Avalon Podcast Episode 156: Apple's Content Distribution Arm

Content distribution has been a major theme for Apple in 2019. In episode 156, Neil goes over how Apple’s revised content distribution arm is structured. Neil also goes over his estimates for how much revenue and gross profit Apple’s content distribution arm can generate by FY2022. Additional discussion topics include the difference between Apple’s paid content bundles and content platforms, Neil’s initial estimates for the number of subscribers Apple will be able to grab for Apple TV+, Apple Arcade, and Apple News+, and why Apple’s new paid bundles will likely have lower profits than the App Store.

To listen to episode 156, go here

The complete Above Avalon podcast episode archive is available here

Measuring Apple's Content Distribution Arm

Apple has had a busy year expanding its content distribution arm. With the addition of Apple News+, Apple Arcade, and Apple TV+, Apple has revamped its paid content bundle offerings. Combining these new bundles with platforms like the App Store and iTunes, Apple will be in a position to have a content distribution arm bringing in more than $30 billion of revenue per year by FY2022.

Mapping Out Apple’s Content Distribution Arm

There are two parts to Apple’s content distribution arm: paid bundles and platforms. Paid bundles offer users access to third-party content (first-party content in the case of Apple TV+) for a set price each month. Platforms offer users the ability to consume a wide range of third-party content via paid and free downloads, in-app purchases, and paid subscriptions.

Exhibit 1: Apple’s Content Distribution Arm


Paid Bundles

  • Apple Music. Launched in 2015, Apple Music now has more than 60 million paying subscribers in more than 100 countries. In the U.S., an individual membership that includes a music catalog of 50 million songs goes for $9.99 per month ($99.99 per year) with student ($4.99 per month) and family ($14.99 per month) pricing also available.

  • Apple TV+. Apple’s new direct-to-consumer paid video streaming service will launch on November 1st in more than 100 countries. Built into the Apple TV app, Apple TV+ will include nine original video series and movies at launch, and new series and movies will be added each month. Apple is spending approximately $2 billion per year on original video content. An Apple TV+ subscription will go for $4.99 with Family Sharing although Apple is having a limited time promotion of one free year of Apple TV+ with a qualifying Apple device purchase. A detailed look at Apple’s TV+ strategy is available here.

  • Apple Arcade. Launched two weeks ago at $4.99 per month with Family Sharing, Apple Arcade offers subscribers access to approximately 70 exclusive games, and new titles will be added each month. Available in more than 150 countries, Apple Arcade utilizes a new business model for the App Store with Apple funding game development although ownership rights remain with the game developer.

  • Apple News+. Launched this past March, Apple News+ offers subscribers access to approximately 300 paid magazines and a handful of news publications. Built into the Apple News app, Apple News+ monthly subscription pricing of $9.99 includes Family Sharing with access for up to five other people. Apple News+ is currently available in the U.S., Canada, UK, and Australia.


  • App Stores (iOS, tvOS, macOS). With 2.2 million iOS apps available to download, the App Store remains a cultural phenomenon. Various business models are supported through the App Store including paid and free apps, ad-supported, in-app purchases, and paid subscriptions.

  • Apple TV App. The new Apple TV app offers “channels” through which users can subscribe to approximately two dozen third-party video bundles.

  • iTunes. Despite Apple deemphasizing iTunes by breaking out functionality into different apps, the platform still represents a source of paid download revenue. 

  • Apple Books. Apple offers a wide range of paid and free titles.

  • Apple News. Launched in 2015, Apple News offers users a wide selection of free and ad-supported written content from around the web. Apple News has 90M monthly active users thanks to prime real estate on Apple devices and a heavy emphasis on human curation.

  • Apple Podcasts. Apple is the leading distributor of podcasts with more than 600,000 available. Apple currently doesn’t directly monetize the Apple Podcasts app.  

Subscription Estimates

In order to measure the size of Apple’s content distribution arm, one can first estimate the number of subscriptions Apple will generate from its four paid content bundles. Those totals can then be used to derive revenue estimates. The final step is to come up with growth trajectories for Apple’s various content platforms.

Exhibit 2 includes my estimates for the number of paid subscriptions Apple can achieve for its four paid bundles within three years, or by the end of FY2022 (September 2022). These estimates assume additional refinement and a certain amount of evolution such as an improved user interface for Apple News+, a larger video catalog for Apple TV+, and a continuously expanding number of games in Apple Arcade.  

Exhibit 2: Apple Paid Content Bundle - Subscription Estimates (YE2022)


One important consideration found with these paid bundles is that each supports Family Sharing. While my estimates call for the four paid bundles to have a total of 188 million paid subscriptions, Family Sharing will mean that the number of Apple users having access to at least one paid bundle will likely exceed 350 million. This amounts to roughly one in three Apple users having at least one paid subscription to Apple Music, Apple TV+, Apple News+, or Apple Arcade.

Additional explanation regarding my paid bundle subscription estimates follows:

Apple Music. As shown in exhibit 3, it took Apple a little less than three years to reach 40 million Apple Music subscribers with the service available in more than 100 countries. Apple is currently adding 1.3 million to 1.4 million Apple Music subscribers per month. My 95 million Apple Music subscriber estimate by FY2022 reflects Apple being able to maintain the current growth rate over the next three years.

Exhibit 3: Number of Apple Music Subscribers 

Tailwinds for Apple Music subscriber growth include the paid music streaming pie continuing to expand and Apple seeing continued success competing against Spotify in developed markets. Growth headwinds include Apple already experiencing some of the easier subscriber growth in the U.S.

Apple TV+. Apple has a few things going for it when it comes to grabbing a significant number of Apple TV+ subscribers in the coming years.

  1. Netflix and Hulu have shown that many U.S. consumers see value in paying for direct-to-consumer video streaming bundles. In addition, the market will likely support a number of players and not just Netflix. A similar phenomenon is observed outside the U.S. as Netflix follows a localized content strategy.

  2. Apple went with an aggressive $4.99 per month launch price for Apple TV+ as well as a limited time promotion of one year free with a qualifying Apple device purchase. Such a promotion will introduce quite a few Apple users to Apple TV+ in a very short amount of time.

My 55 million subscriber estimate for Apple TV+ assumes Apple sees stronger adoption for the service than it achieved with Apple Music over the same amount of time. For context, Disney expects Disney+ will be able to grab 60 million to 90 million subscribers by 2024. However, that range is likely conservative.

Apple Arcade. According to Apple, 500 million people visit the App Store each week. After taking into account Family Sharing, the number of families accessing the App Store each week may be closer to 350 million. My 30 million paid subscriber estimate assumes nine percent of families outside of China who frequent the App Store will sign up for Apple Arcade over the next three years.

Apple News+. My 8 million subscriber estimate reflects Apple continuing to evolve News+ in the coming years. Limited availability will remain a major headwind for subscriber growth as it reduces the addressable market to a fraction of Apple’s billion users. In addition, my 8 million subscriber estimate is influenced by larger headwinds found with consumers not seeing value in many of the magazines included in Apple News+. At the end of the day, the scale associated with paid written news simply isn’t in the same league as video and music streaming. For context, the two largest news sites in terms of the number of digital subscribers, the NYT and WSJ, have 3.0 million and 1.8 million digital subscribers, respectively.

Revenue and Gross Profit Estimates

When estimating revenue and gross profit for Apple’s four paid content bundles, the accounting treatment associated with revenue sharing arrangements needs to be considered. Apple reportedly relies on a 50% revenue share arrangement with Apple News+. Similar to how App Store revenue is reported on a net basis, Apple will only report its share of Apple News+ revenue. Apple will report Apple Music, Apple Arcade, and Apple TV+ revenue on a gross basis as those services do not include any type of revenue share arrangement.

Exhibit 4: Apple Paid Content Bundle - Revenue Estimates (FY2022)


For this exercise, my gross profit estimates reflect costs tied directly to each paid content bundle. For Apple Music, the approximately 70% of every dollar that is paid out to music rights holders is taken into consideration. For Apple TV+ and Apple Arcade, the amount of cash spent on content is taken into consideration. It is important to point out that SG&A costs are not reflected in these calculations.

Exhibit 5: Apple Paid Content Bundle - Gross Profit Estimates (FY2022)


Apple’s Other Content Distribution Businesses 

With estimates for Apple’s content bundles in hand, attention turns to estimating the amount of revenue generated by Apple’s content platforms. While Apple does not break out the amount of revenue generated by the App Store or iTunes, management has provided various financial clues that allow one to back into accurate App Store revenue estimates.

In FY2019, my estimate is that the App Store will be responsible for approximately $13 billion of revenue and $8 billion of gross profit. Apple reports App Store revenue on a net basis, reporting only its share of revenue although the full costs to run the entire App Store (84% of apps don’t bring in any revenue) are passed through the income statement. After taking into account every other content distribution platform, including iTunes, my estimate is that Apple will bring in close to $15 billion of platform revenue and $9 billion of gross profit in FY2019.

When forecasting revenue trends for Apple’s content platforms over the next three years, it is important to consider the possibility of Apple’s new content bundle offerings cannibalizing a percentage of paid downloads and in-app purchases. For example, a portion of App Store revenue will likely flow to Apple Arcade over time while iTunes revenue continues to decline due to Apple Music. Assuming 10% of App Store revenue ends up being cannibalized by Apple Arcade, my estimate is that Apple’s various content platforms will see 6% growth year-over-year leading to $16 billion of revenue in FY2022.

Adding my $15 billion revenue estimate for Apples four paid bundles with my $17 billion revenue estimate for Apple’s platforms leads to an overall content distribution arm expected to bring in $32 billion of revenue and $15 billion of gross profit per year by the end of FY2022. 

Exhibit 6: Apple’s Content Distribution Arm - Revenue and Gross Profit Estimates (FY2022)



The following items represent risk factors to my estimates:

  • Industry dynamics. The single largest risk factor is mostly out of Apple’s control – the degree to which people will be willing to pay for written content from traditional magazines, rent music and videos, and pay a set price each month to access games.

  • Competition. My estimates do not assume much adoption among users in China. Accordingly, China / WeChat do not represent risk factors to my estimates. Instead, Amazon’s digital content distribution aspirations represent a much larger risk. 

  • Regulation. There are a number of parties looking to attack the App Store on antitrust grounds. At this time, my estimates do not reflect any material adverse change to App Store economics from these efforts.


Based on the preceding estimates, there are a number of takeaways:

  1. A $32 billion revenue run rate per year is roughly double the amount of revenue Netflix currently earns in a year. However, when considering Apple’s overall business, the content distribution arm will likely represent approximately 11% of Apple’s overall revenue. This reinforces the view that content distribution will continue to represent a relatively small fraction of Apple’s overall business.

  2. Apple’s paid bundles will likely have lower profit margins than Apple’s content platforms given how Apple is funding original content for Apple TV+ and game development. Apple Music revenue being reported on a gross basis also pressures overall margins found with the paid bundles.

  3. The App Store will likely remain the most profitable piece of Apple’s content distribution arm for the foreseeable future given that revenue is reported on a net basis.

  4. While Apple’s overall content distribution arm will be highly profitable, it likely still won’t be as profitable as Apple’s other services including AppleCare+, iCloud, Search Ads, and Licensing. While different accounting treatments (net vs. gross revenue recognition) play a role in driving down profitability, the larger factor is that Apple will need to continue investing in Apple TV+ and Apple Arcade.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.

Above Avalon Podcast Episode 155: The Apple Keynote

Apple keynotes remain some of the most valuable marketing events in today’s media landscape. Episode 155 is dedicated to going over Neil’s thoughts on the Apple keynote. Discussion topics include the odd criticism facing Apple keynotes, the three primary benefits Apple derives from them, how the Apple keynote has evolved, and areas in which Apple can improve the keynote.

To listen to episode 155, go here

The complete Above Avalon podcast episode archive is available here

Apple Keynotes Still Matter

It didn’t take long for critics to go after Apple’s recent product event at Steve Jobs Theater. However, the backlash had a dramatically different tone this time around. Instead of focusing on the new products unveiled on stage, much of the criticism was aimed at the event itself.

The New York Times ran an opinion piece calling for the end of Apple keynotes and claiming there is no longer a place for such “pageants” in today’s polarizing world. Others took to Twitter to say how Apple’s dessert offerings suggested the company is tone deaf or to complain about members of the audience becoming too emotional while hearing Apple Watch users tell stories of how the device saved their lives.

While Apple cynicism isn’t new, the preceding opinions represent a new kind of outrage. Apple keynotes remain some of the most valuable marketing events in today’s media landscape. In addition, keynotes provide a number of intangibles that it would be difficult for Apple to communicate any other way. It is in Apple’s best interest to continue hosting keynotes and product events, especially as the company moves into the wearables era.

Odd Criticism

In an opinion piece titled, “The Last Apple Keynote (Let’s Hope),” Charlie Warzel wrote:

But what started as a Steve Jobs TED talk has become a parody — a decadent pageant of Palo Alto executives, clothed in their finest Dad Casual, reading ad copy as lead-ins for vaguely sexual jump-cut videos of brushed aluminum under nightclub lighting. The events are exhausting love letters to consumerism complete with rounds of applause from the laptop-lit faces of the tech blogging audience when executives mention that you (yes you!) can hold the future in your hands for just $24.95 per month or $599 with trade-in.

The entire event is at odds with our current moment — one in which inequality, economic precarity and populist frustration have infiltrated our politics and reshaped our relationships with once-adored tech companies. But it’s not just the tech backlash. When the world feels increasingly volatile and fragile, it feels a little obscene to gather to worship a $1,000 phone. Serving journalists pastries topped with gold leaf doesn’t do much to help either.”

My initial reaction to Warzel’s article was that it must have been some kind of manufactured outrage piece since the “pageant” he describes didn't come close to describing an actual Apple keynote. The media doesn’t “worship” Apple at these events. The rounds of applause aren’t coming from the media / press.

The following screenshot from inside Steve Jobs Theater during the recent Apple event does a good job of showing who attends Apple keynotes at Steve Jobs Theater. Contrary to what some may think, the media and press, denoted by the laptops in use, make up 55% to 60% of the audience. The rest of the crowd is comprised of Apple employees, guests, and VIPs.

Apple’s decision to serve refreshments, which did include delicious desserts, isn’t obscene. Instead, it’s a courtesy extended to guests who wouldn’t otherwise have a chance to eat anything. Many tech writers and reviewers spend up to six hours on Apple event days doing their jobs (shooting videos, taking photographs, getting hands-on time with the products, filing reports by strict deadlines).

After reading Warzel’s piece a few times, the only logical takeaway was that the Apple keynote was a victim of a deeper discontent that he holds towards Apple. Warzel sounded uncomfortable with the idea of Apple having the audacity to sell approachable luxury in a world that is apparently turning against tech companies.


Not surprisingly, Warzel failed to recognize any reason why Apple keynotes still matter and are of immense value in today’s media landscape.

Apple derives three primary benefits from its keynotes:

  1. Earned Media. Apple keynotes command days of media coverage during an era when the news cycle is measured in hours. No other company is able to grab the kind of attention that Apple earns. When taking into account previews published ahead of Apple events and the various reviews in the days that follow, it is conceivable that Apple receives hundreds of millions of dollars of free press from a single keynote.

  2. Theater and Design. Apple events are productions built and designed to provide an experience to those in attendance. This is one reason why Steve Jobs Theater is so important to Apple. The event venue ends up telling guests a little bit about the people who built the products announced on stage. The typical Apple keynote audience will include representatives from various Apple partners, industry leaders, and special guests.

  3. Employee Morale Boost. No one wants the product that they have spent two or more years working on to be unveiled to the world in a press release. Instead, to have that new idea unveiled on stage at an event watched by a few million people provides an amount of satisfaction and accomplishment that goes a long way given the sacrifice that went into making that product a reality.

Any one of those items by themselves would be reason enough for Apple to continue putting on keynotes. With all three factors on display at most keynotes, there is no valid or logical reason for Apple to stop hosting these events. Holding keynotes is a smart and rational business decision for Apple.


The Apple keynote isn’t a static entity. What used to be smaller affairs targeting technology writers and gadget reviewers have evolved into global events bringing together people from different continents and diverse backgrounds.

Although it is now difficult to believe, Apple keynotes weren’t even live-streamed as recently as a few years ago. Instead, event live blogs were the only way to find out what Apple was even announcing. Meanwhile, the recent event at Steve Jobs Theater was live-streamed on YouTube for the first time and reportedly had three million viewers.

The now iconic iPod unveiling at Apple’s Town Hall auditorium back in 2001 doesn’t look anything like the modern day Apple keynote.

Apple events used to be targeted toward tech writers and gadget reviewers who would publish the all-important “yes” or “no” decision as to whether or not a new Apple product was worthy of purchase. Walt Mossberg, the dean of gadget reviewers, symbolized this era. Things are dramatically different today. No single reviewer or publication holds enough influence to make or break a new Apple product.

The Apple keynote presentation itself has changed dramatically as well. Fifteen years ago, Apple keynotes consisted primarily of Steve Jobs going through slide after slide with a few demoes here and there. In January 2007, during the iPhone unveiling, Steve Jobs was on stage by himself for 88% of the 103-minute presentation. Much of his focus was spent on making the case for why a certain new Apple product should exist. Apple had a user base that was a fraction of its current size. Steve ended up selling more than just the product announced on stage. Steve was selling Apple.

In contrast, last week’s Apple keynote had nine different presenters, Apple employees who worked on the product being unveiled. Tim Cook, in what has become his usual role of a master of ceremonies, was on stage for approximately 14% of the time.

Leveraging Video

A few years ago, the Apple keynote was thought to be on its last legs. Thanks to the rise of social media, Apple events were expected to have trouble remaining relevant in the news cycle for longer than a few hours. In addition, it wasn’t entirely clear how Apple would handle critical product unveilings, demos, and “one more things” that had been handled by Steve.

As it turned out, the Apple keynote went on to not just maintain its influence, but to actually gain value in today’s media landscape.

What changed?

Apple bet big on video.

Apple keynotes now include a heavy reliance on video for handling many segments of the traditional presentation. Everything from showing off products for the first time to going over the product’s sales pitch is handled by video. It helps that these videos are very well done.

While Apple’s initial move to video was viewed as a way to handle the presentation role that had been given to Steve, the increased usage of videos began to serve other purposes. Videos shown during Apple events now go on to be watched and passed around on social media. In 2007, the iPhone unveiling consisted of six short videos, most of which were just clips of TV shows and movies, representing 2% of stage time. At last week’s Apple event at Steve Jobs Theater, 11 videos were shown, representing nearly 22% of stage time. Three of those videos, some of which went on to be included in ad campaigns, have a collective 55M views on YouTube.

Apple extended this bet on video to include 120-second comical recaps of its keynotes. The videos have been receiving rave reviews after each event. Such recap videos were unimaginable just a few years ago as they would have been looked at as Apple essentially telling people not to bother watching the full presentation. As it turned out, the recap videos have become a great way for Apple to bring the keynotes to life. Recap videos receive four to five times the number of views as the full keynotes. Relatively speaking, few people go back to rewatch a 100-minute Apple keynote. However, people do go back and watch a two-minute recap video of that 100-minute Apple keynote.


Apple is in a league of its own when it comes to product unveilings. Amazon’s strategy of shipping duds and failures in an attempt to find something that people will like doesn’t support large-scale product keynotes and events.

Google has tried to get into the hardware event mindset, but the company just doesn’t seem interested in following Apple down the big keynote path. Microsoft and Samsung try to emulate Apple keynotes with both companies going heavy on the theatrical side of things. At the end of the day, keynotes from these companies just aren’t able to generate and sustain the level of buzz and interest that Apple creates.

There are two areas in which Apple can improve the keynote.

  1. Onstage demoes need to be rethought.

  2. Aim for greater secrecy.

Giving precious stage time to game or app demoes is increasingly questionable. This isn’t meant to say that we have moved past demoes altogether and Apple should simply fill the time with more videos. There is a role for demoes to play if showing something in the flesh can prove a point more effectively than a simple video can - not an easy thing to accomplish given how good Apple’s marketing videos have become. However, a balance is needed between the tangible demo and video.

It’s been a while since there has been a memorable demo at an Apple keynote. One example that jumps out at me is from 20 years ago when Phil Schiller, Apple’s SVP marketing, jumped off a 20-foot ledge.

Another example is the Steve Jobs’ hula hoop demo. In both cases, the demoes were a clever way of highlighting the “freedom” associated with Wi-Fi on an iBook.

One reason the preceding demos worked so well was that they were performed in front of a massive audience of developers. Even today, Apple’s WWDC keynotes have a different vibe than events at Steve Jobs Theater given the 5,000 developers in the audience.

With on stage demos come risks, and it is understandable that Apple would want to de-risk its keynotes as much as possible. Two years ago, a minor mishap with a Face ID demo ended up being one of the most talked about items from Apple’s event with some going so far as to say the demo failure meant the feature wasn’t ready for prime time. Such a demo failure probably wouldn’t have been made into as big of a deal ten years earlier.

Well-done demos can give keynotes a certain amount of soul. During Apple’s Services event this past March, the “demo” involving Hollywood celebrities played out well from the perspective of being in the audience. Apple had a message that it wanted to push forward - it had the ability to grab the biggest names in Hollywood for Apple TV+, and the “demo” effectively reflected that message.

As we move further into the wearables era, Apple demoes involving smart glasses could prove to be a great way of unveiling new ideas and concepts to the world. The recent string of AR demoes at Apple keynotes have left much to be desired as people simply run around empty tables or desks with iPads in hand.

The other area that can always be improved upon is secrecy. There is something about seeing or learning about a product for the first time when it is announced on stage. Google’s decision to soft unveil the Pixel 4 removes much of the oxygen from its upcoming Pixel hardware event. While it’s not easy for Apple to maintain secrecy around unannounced products, the company has seen more success on the secrecy front recently. Last week, Apple was able to surprise the world by positioning an always-on display as a key feature of the Apple Watch Series 5. The feature didn’t leak beforehand.


Apple keynotes end up reminding me a lot of Apple retail stores. The success found with each item ultimately depends on the product being sold. If Apple doesn’t have compelling products that people are interested in, the keynotes used to demonstrate such products will fall flat.

While some may hold cynicism towards a trillion dollar company unveiling $1,400 Apple Watches and $1,100 iPhones in an underground theater that cost more than $100M to build, such a stance ignores the impact Apple products are having on people’s lives. Apple keynotes end up being a way for the people building these tools to tell the world why such products should exist and how they can be used to improve the lives of a billion people. There is still a role for the Apple keynote to play in today’s always-changing world.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.