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.
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.
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)