Appl TV. Big Show?

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Apple

TV finally launched on Friday. How many years have they been working on that? It’s funny really. When a company does something awe-inspiring and spectacular many simply stop questioning when the company rolls out what’s next. We know. You’re thinking “Apple’s wonderful.” Well yes, of course.  They make the most amazing devices, ones that don’t catch fire when you’re flying home for the holidays.

 

Apple’s indeed the biggest and the best. Yet keep looking. How many Apple Music subscribers are there? Do you know? Ever heard of the Apple Newton, or the Apple Pippin? The tiny core of “Apple TV. Big Show?”

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-C O R R E C T I O N-

We

initially launched this piece with errors.  Our math was wrong.  We failed to multiply the monthly subscription rate to reflect the annual price.  Fixed.  Additionally, it would have been better, were we to use current Apple Music subscriptions as the basis for comparison.

 

Apple Music currently has 60 million subscribers.  60 million subscriptions times Apple TV’s $60 annual fee equals $3.6 billion in revenue.  Apple’s FY2019 revenue estimate is $274 billion.  That means if Apple TV instantly acquired 60 million subs, all of which stayed and paid for an entire year, Apple TV would generate $3.6 billion in revenue, equaling 1.3% of FY2019 estimated revenue.

 

The journey from there to earnings is a very costly one, in a very crowded arena which includes heavy hitters like Disney, Prime video, Netflix, and coalescing ones such as AT&T’s WarnerMedia, and their high quality HBO content. 

 

 

HBO
HBO was begun in New York in November of 1972. They’ve been in the media business for 47 years. That translates into experience, know-how, and reputation for quality programing. That also means that Apple is not competing with the third-string, regardless of their mountain of cash. Raw cash is not king in this business, unless you simply attempt to buy everyone. That makes you a vacuum cleaner, not a “go-to” streaming service.

For

perspective’s sake, Apple Music has taken four years to reach 60 million subscribers, and did so against fewer competitors.  Netflix has been building it’s business for 22 years, owns by far the best predictive, algos, a massive vault of original content, and scads of relationships with working content professionals.  They have a reputation for “hands-off” production, one beloved by creators.  With all that, they now sit at 151 million subs.

 

In media “content is king,” it’s extremely expensive, takes time, and Apple doesn’t have any.   Yes Apple has money, but competition is fierce, and creators want to be seen.  That often means going with services with lots of subscribers, using long contracts–like five years.  Netflix is yet looking for a profit, after more than two decades.  Our point is with cheerleading analysts when it comes to selling AAPL using Apple TV.  Apple’s strengths are myriad.  But TV simply isn’t one of them.  

 

 

Apple, Tim Cook
Apple CEO Tim Cook. Following Steve Jobs is a very tough act. Cook’s been magnificent. You gotta love a relentless cheerleader as a front-person. He simply ignores any question asked and makes his own statement. He’s a clinic of technique for any political candidate. He even seems to have charmed the Chinese. Take about a tough act.

Is

Apple TV important?  At last count Apple is a 1.1 trillions dollar operation.  Now an analyst or two have cited the stunningly infinitesimal Apple TV which launched 11-1-19 as a reason to look at the stock.  Do you know how many shows the service offers?  Nine, maybe twenty-four.  More than a few analysts are just confused by the service.  Why?  They simple can’t fathom Apple’s game.

 

What’s 1% of a trillion?  Eleven billion.  How much money does Netflix make?  None.  Netflix has 5000 movies, and 167 TV shows, and zero EPS.  Why?  Because building the business is ghastly expensive.  The AT&T owned WarnerMedia’s HBO Max just spent $1 billion for the exclusive right to domestically stream two shows–The Big Bang Theory and Friends.  The deal doesn’t include global rights, and lasts only five years.  Two shows–one billion dollars.

 

In the eyes of many Apple is beloved. Yet warranty and insurance charges and iPhone prices are premium any way you slice it.  Check the replacement charges for “insured” earbuds.  Two years ago Netflix was affordable as an acquisition.  Did Apple buy it?  Instead Apple jabbered for years about an invisible Apple TV, until Friday.  Friday they launched Apple TV.  Result?  For $60 bucks a year you can watch 9, or maybe 24, shows.

 

Following years of promotion and bannering, Apple music now has approximately 60 million users, again after what–four years?  Apple TV has none.  What’s the plan?  Some speculate the plan may be to “bundle,” it in, for free, with the iPhone or something, unless regulators twist off with a public case of anti-trust diaper rash.  Think Microsoft and Internet Explorer.  The feds went to war for a decade over that one.

 

Seinfeld
Content is king. That’s the mantra for programming success. Wanna draw? But quality. Netflix now has a five year deal for the global rights to air all 180 episodes of Seinfeld. The secretive industry chatter suggests that “Netflix paid far more for the rights then did Universal’s $500 million paid for The Office,” the rights to which NFLX gave up.

What’s

1% of 1.1 trillion dollars?  $11 billion is 1%.  Netflix can’t even count that high, let alone make that much.  So what chance do you think Apple TV has?  Zero.  Takeaway? 

 

Simply stated, AAPL is both the most stunning success as a company and a stock.  But just keep moving when you hear any analyst suggest that Apple TV is another reason to own the stock.  Some suggest, imply, that TV will be EPS meaningful–buy now.  Apple TV will not likely prove significant to Apple’s bottom line any time soon, and possibly never.  Apple is fighting the brutal “law of very large numbers.”  If every infant, woman, and man in the United States instantly became a subscriber at the current $60 a year, the service would have 327 million subs, or more than 2x what NFLX has.  That total would create $19.6 billion in annual revenue. Full year 2019 revenue is projected at $274 billion.  That means TV would equal 7.13% of total 2019 revenue.  Again, that’s if they were magically and instantly gifted with 327 million subscribers right now.  Four years of Apple Music has resulted in 60 million.  Netflix was founded on August 29, 1997.  It took Netflix 22 years to reach 151 million subscribers.  Netflix also offers over 5000 titles.

 

Simply do the math when analysts suggest Apple TV is a factor worthy of consideration for buying Apple.  Remember Apple Music, now with 60 million subs, as of this summer, four full years after launch.  It has 50 million songs, not 9, or 24.  The fact is Apple is a buy, anyway you slice it.  Put that on TV.  As always good luck and good investing.

      

 

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2 thoughts on “Appl TV. Big Show?

  1. NEVER OWNED AN APPLE PHONE, COMPUTER OR SERVICE OF ANY KIND.
    I love my Samsung phone tv.’s, monitors, and sound bar. I guess you could say I’m a cheap bastard. My Nephew would absolutely go nuts without his apple phone and services. God forbid we ever loose power for an extended period of time, those 3-30 year old’s would absolutely go into cardiac arrest. Apple has a huge loyal following and some kids will live with Mom so they can afford an Apple phone. Sorry Sis. Along with free education, and health care, why don’t we just give everyone under 35 an Apple phone too? After all this is Socialist America, or half think it should be. Full disclosure I’m not in that half. Apple has more money and influence than any company I can think of with the possible exception of Koch. Historically Apple has been an outstanding investment, and given the younger generation’s fascination with their products, I can’t see that ever changing.

    Like

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