Why Apple Is Getting Into Original Content

In what has become something of a trend, Apple uses an opening film to kick off its product unveilings. The video shown at the start of Apple’s Services event two weeks ago at Steve Jobs Theater stood out to me.

Apple relied on a retro opening credits film theme to give a pretty clear hint of what was to come: a Hollywood-heavy event with nearly a third of the stage time given to celebrities talking about Apple’s upcoming video streaming service, Apple TV+.

The video served a few other functions as well. The “A Think Different Production” was telling the world that Apple was about to enter original video content in a very big way. The video was also meant to show how Apple now has a growing number of cast members (hardware, software, and services) that come together to create the film (user experience).

Event Surprises

Apple’s Services event contained a number of surprises when it came to its revamped content distribution arm:

  1. Apple is directly funding iOS game development for Apple Arcade. While third-party game developers will retain ownership of the games that will begin as Apple Arcade exclusives, Apple isn’t too far from playing in the realm of producing its own iOS gaming content.

  2. With Apple News and News+, Apple may be as close as it gets to doing original written content. Apple continues to move down the path of having its team of editors curate news and investigate reporting. The only way for Apple to move further into original written content would be to hire a team of reporters and journalists for actually reporting and breaking news. This isn’t likely to occur for a number of reasons.

  3. Apple TV+ represents Apple’s first comprehensive move into original video content. There were plenty of questions as to how Apple would position its original video content within its broader TV strategy. We know Apple TV+ will be an ad-free subscription service, the implication being that it will be some kind of paid service that lives within the Apple TV app. This app will then be available in more than 100 countries via iPhones, iPads, Macs, Apple TVs, most of the leading smart television set platforms, and Roku and Amazon Fire TV.

My full Apple Services event review is available for Above Avalon members here (major themes) and here (full notes). 

History

One of the more crucial questions found with Apple’s event involves why the company is moving into original content in the first place. The answer speaks volumes as to how the content consumption landscape has changed in just a few short years.

In order to answer the “why” behind an initiative like Apple TV+ and Apple’s move into original video content, one has to go back to the late 1990s. Apple has long held a desire to distribute content through its devices. Part of this desire is rooted in Apple’s content creation ambitions via Mac software such as iMovie. Apple introduced iMovie in 1999. As told in ‘Becoming Steve Jobs’ by Brent Schlender and Rick Tetzeli, Steve Jobs handed out Sony digital camcorders to six Apple executives for shooting and editing four-minute home movies. The clips were then shown at Macworld 2000.

Jump ahead a few years, and Apple’s iTunes empire played a major role in expanding the Apple user base and eventually setting the stage for iOS and the App Store. In 2018, Apple earned an estimated $20B of revenue from selling digital goods.

As Apple grew its content distribution arm, the thought of Apple producing its own content remained a pipe dream. While there has been a continuous stream of suggestions from analysts and pundits that Apple buy video content companies such as Disney or Time Warner (HBO), the rationale behind such acquisitions never made much sense from Apple’s perspective. The content libraries that would be purchased in a deal were already available to Apple users (and likely weren’t going away), each target company contained too much corporate baggage regarding other business segments, and there would surely be significant culture clashes.

The first signs of Apple genuinely starting to open up to the idea of original content appeared after the Beats acquisition in 2014 and Apple’s subsequent entry into music streaming with Apple Music in 2015. Jimmy Iovine looked at original video as a way to have an Apple music streaming service stand out from Spotify. In addition to various music-related video projects, including documentaries, Apple’s Beats 1 put the company firmly into original audio content territory.

Shows like ‘Carpool Karaoke’ and ‘Planet of the Apps’ served as an original video test run for Apple. The biggest takeaway was that management needed to hire outside talent and place a much larger bet on original content if it wanted to develop a coherent video strategy and stand out from the competition.

In terms of the broader video landscape, Apple’s video distribution strategy is entering a third phase:

  1. Offer video creation tools to users

  2. Offer video creation tools to users + distribute paid third-party content

  3. Offer video creation tools to users + distribute paid third-party content + distribute original video content

Too Much Content

Many people correctly predicted the slow death, or unbundling, of the large cable bundle. However, very few people projected the flood of new content from entirely new players including Netflix and Amazon. These new players are now forcing the old guard to double down on even more original content. Both Disney and WarnerMedia (formerly Time Warner) are placing big bets on ramping up original content budgets to support their respective new direct-to-consumer streaming services. Add YouTube into the mix, and it’s easy to see why Netflix says sleep is its biggest competitor. There has never been as much video content to consume than there is today. With a finite amount of time each day, there is only so much content that we can consume.

This dynamic drove recent comments from Warren Buffett, one of Apple’s largest shareholders, about how the digital entertainment space isn’t something he would be interested in competing in, although he is indirectly doing so with his $50 billion Apple stake. Here’s Buffett:

“You’ve got some very very very big players that are going to fight over those eyeballs…You have very smart people with lots of resources trying to figure out how to grab another half hour of your time. I would not want to play in that game myself.”

Buffett wasn’t alone in his stance. Many analysts and pundits looked at Apple’s event two weeks ago with bewilderment. On the surface, it seemed like Apple had simply announced new revenue-generating services to deliver even more content to its user base.

  • Not reading enough magazines or news? Subscribe to Apple News+ and get $650 worth of magazines per month for just $10 per month.

  • Not playing enough iOS games? Pay for Apple Arcade and play 100 games with no content stuck behind in-app purchases.

  • Not watching enough video content? Use the Apple TV app and watch video from your favorite sources as well as an entirely new slate of video content with Apple TV+.

Some were stumped as to how Apple could possibly compete with Netflix by just announcing a handful of original shows. Such a question demonstrated a complete misread of what Apple had actually announced on stage.

Curation for Casual

Instead of just announcing services for consuming more content, Apple unveiled a strategy for curating content for its user base of a billion people. This curation involves everything from picking out which news stories and iOS games Apple users may enjoy to taking an active role in protecting users’ content consumption habits in terms of privacy and security.

One way of describing this revised strategy is curation for the casual.

  • Apple Arcade appeals to the casual gamer who may be interested in playing a few minutes of an iOS game here or there. Such a user values Apple’s curation in terms of selecting what will be an always fresh lineup of approximately 100 titles.

  • Apple News+ is for the casual magazine reader who may not be interested in subscribing to any one particular magazine but enjoys reading an article here or there. Such a user values Apples’ curation in terms of picking out stories from hundreds of magazines.

This leaves the question: Why is Apple getting into original video content? Apple could have curated video content from third parties to those looking for a handful of interesting shows and movies.

TV+ Strategy

Heading into Apple’s event last week, my thinking was that Apple would position original video content as a way of getting people to spend time within the Apple TV app. More time spent in the Apple TV app would also likely mean more third-party video bundles being subscribed to from directly within the app. However, Apple’s very deliberate original content lineup, including the partnerships with Steven Spielberg and Oprah, told me that Apple’s original content video strategy boils down to something more.

 

Tim Cook, Oprah Winfrey, and Steven Spielberg at Apple Park.

 

Apple is using its own slate of original video content to develop a differentiated curation experience that won’t be found anywhere other than in the Apple TV app. Apple isn’t just developing shows and movies that will then be curated to its viewers. Instead, the shows themselves have already been curated. This explains Apple’s decision to bet on brands (Oprah, Spielberg, Sesame Workshop, J.J. Abrams, etc.) and star power.

Apple’s original video strategy is nothing like that held by Netflix or Hulu (quantity over quality). The strategy also ends up being quite different from Amazon’s play for third-party bundles and some original content (which has been quite bumpy). Apple appears to be taking a different path from HBO too (quality over quantity).

The Apple TV+ equation doesn’t boil down to Apple betting on either video quality or quantity. Instead, the TV+ equation is about selling video curation on a global scale. Apple’s form of curation extends to ensuring privacy and security when it comes to content consumption behavior, something that has received little to no attention up to now in the world of direct-to-consumer paid video streaming.

Turning back to the idea of users having a finite amount of time to consume video content, why is something like TV+ needed in the marketplace? The bet Apple is placing is that curation will gain value as the amount of video content available across various bundles and streaming services continues to increase. Apple’s video strategy isn’t based on grabbing as much time as possible from users. Such a battle will be a brutal one to fight. Instead, Apple is interested in offering its users a truly curated (and private) viewing experience on all their devices. No other company offers such a service.

A Core Technology

Content distribution has become commoditized. Most companies are merely interested in checking off the video streaming box on the list of platform requisites. The same can be said for music streaming, gaming, etc. Apple thinks the resulting flood of content is now opening the door for content distribution to once again turn into a competitive advantage.

It's possible that Apple’s content distribution arm, and the company’s underlying curation for casual strategy, will eventually be considered a core technology powering Apple devices. Notice how Apple News+, Apple Arcade, and Apple TV+ are not going to be available on Android smartphones.

As Apple has been working to control other core technologies powering its devices, all signs point to Apple slowly wanting to reduce its dependency on others when it comes to its content distribution arm. Apple’s move into original video content lays the groundwork for Apple to eventually move into original content in other genres as well.

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