We think Apple will win an Oscar in the next five years. That’s how long it will take for Apple to scale its original content spend from less than $200m today to $5-7b. The reason why expect $5-7b in Apple original content spend in five years is because Apple must catch up to Netflix and Amazon, the former of which will likely be spending more than $10b per year at that point. Before diving more into the question, here are a few key data points that we think are relevant to the discussion:
- Amazon recently beat rival Netflix to be the first streaming service to receive significant Academy Award acknowledgement for Manchester By The Sea, with 6 nominations including one for best picture.
- Netflix has received a total of five Oscar nominations, all in the best documentary category, since it began purchasing the rights to original content.
- Apple is serious about content. The company will debut two exclusive shows, “Planet of the Apps” and “Carpool Karaoke”, this spring on the Apple Music platform.
- Revenue from Apple’s Services segment, including the iTunes Store and Apple Music, is a key growth driver for Apple over the next several years. See more on Apple’s Services business in our piece, The 5 Focuses, which outlines Apple’s top five priorities, including Services.
- We expect 2017 original content spend of about $7b from Netflix, and $6b from Amazon. Amazon includes a la cart cost. Excluding a la cart we estimate Amazon original content spend is $4b. While we expect Apple to increase its content spend gradually over several years, the company has more than enough resources to participate in the same way.
As we’ve written before, we believe Apple innovates by taking small but deliberate steps forward (see our piece on Apple’s baby steps here). They did it with the iPod, they did it again with the iPhone and the iPad, and we see them doing the same in original content for their entertainment platforms. On their most recent earnings call, Tim Cook said, “In terms of original content, we’ve put our toe in the water doing some original content for Apple Music, and that will be rolling out throughout the year. We’re learning from that, and we’ll go from there.” His comments remind us of the way the company has talked about Apple TV for the last decade, often describing their work in the category as “pulling a string” to see where it leads.
Any vibrant entertainment ecosystem needs exclusive content. iTunes and Apple Music, for example, already leverage exclusive relationships with app developers, music labels, and artists, along with TV and film content providers in order to gain an edge over competing services. Owned content is the ultimate exclusivity. Apple’s new “Planet of the Apps” show, for example, will give the company the freedom to reach viewers in new ways. The show, which is a “Shark Tank”-like reality show for app developers to pitch their latest apps, creates obvious synergies for Apple. For example, we envision “Planet of the Apps” streaming on iPhones and Apple TVs, with a direct links to download the winning apps in the App Store.
But Apple’s new TV shows are just the beginning. We expect Netflix, Amazon, and Apple to continue to increase their spend on content over the next several years. And you pay for what you get. Eventually, Netflix and Apple will achieve the type of critical acclaim for their exclusive content that Amazon has already seen. We’re big believers in the benefits of disaggregated content delivery and disaggregated content owners. Apple is well positioned to invest significantly in original content, distribute it in new ways, and drive synergies across it’s massive device and user ecosystem. That virtuous cycle, we believe, will eventually result in a big winner for the company. Until then, enjoy the Oscars!
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.