Friday, November 1, 2019

The TV App Strategy Tax

Joe Cieplinski:

Take a look at the TV app on your iPhone, iPad, or Apple TV. At first, when I saw the way Apple was mixing and matching all the content from available channels, iTunes rentals, purchases, and streaming services like Prime, I was annoyed. How am I supposed to find shows specific to certain sources in here? And more importantly, how can I tell the difference between what I already have access to with my existing subscriptions, and what is going to require a new subscription or a one-time payment?

And that’s the rub. You can’t easily get a screen with all the content you already have access to. Sure the library tab will show you movies and tv shows you’ve purchased on iTunes. But my HBO subscription? Prime? These are just mixed in with all the rest of the content. You can dig and find HBO specific pages, sure. But they are buried behind multiple layers of UI. And there’s a good reason for that.

The TV app is not an app. It’s a store. And Apple knows a thing or two about running stores. They know the more you walk in and hang out, the more likely you will spend some money while you are in there.

In other words, the app is designed to optimize for Apple’s needs rather than the customer’s. I prefer the old strategy where Apple makes its money from hardware, so it’s free to design the software to do the right thing. “Only Apple could do” didn’t only apply to the technical aspects, but also to what it could do because of its business model. Now, the strategy is that Apple, too, can spend money to buy content, creating constraints for itself that didn’t need to be there. The whole effort is clearly a distraction from product concerns for Tim Cook and various company departments. And it gets in the way of making partnerships with other content companies, which didn’t have to be enemies.

The question is why? Does TV content further the mission of empowering people through technology? I don’t see how. Is that even still the mission? Does it provide a better return on investment than technology R&D, documentation, or QA? Sadly, maybe, at least in the short term.

Lesley Goldberg and Natalie Jarvey:

By several accounts, the company already has well outspent its initially projected $1 billion annual content budget. Morning Show alone costs $15 million an episode for a total of $300 million for two seasons, per sources, due in large part to the $2 million-an-episode fees that Witherspoon and Aniston negotiated. (Their deals are said to be even higher with producing fees and ownership points.) See also is expensive, with sources estimating $240 million for two seasons. These costs are at the high end of premium streaming but represent pocket change for Apple.

The reason they are doing this:

Though Apple makes significantly more — $167 billion in 2018 — from the sale of the iPhone, as people hold on to their devices longer, services like TV+ will be key to ensuring Apple ecosystem loyalty. “There’s a lot at stake,” notes Wedbush analyst Daniel Ives. “TV+ is going to play a major role in them further monetizing their 900 million iPhone users. The next leg of growth for Apple is going to be services.” Apple declined to participate in this story.

I see a lot about how this will increase services revenue but little about net services income. Netflix has only recently become profitable, and there is now more competition in streaming.

And does “ecosystem loyalty” mean keeping people buying Apple hardware or getting more revenue per hardware customer?

The logic for the latter is clear, although I’m not sure why customers should care. No one seems to expect Apple to lower prices and make its products more widely accessible because it’s making the profit up from services.

For the former, the idea seems to be that Apple is going to make TV shows so good that they keep people from considering Android or Windows. But that seems kind of nutty and is belied by the availability of Apple TV+ on Amazon Fire as well as various TVs.


Update (2019-11-02): Jason Snell (tweet):

Consider the soul-sucking term ARPU. It stands for Average Revenue Per User (or, alternately, Unit), and it’s a useful-yet-noxious lens through which businesses can view their customers. Of course, businesses should be aware about how much revenue their customers are generating—the issue is more that focusing on ARPU is often a sign that a business is on a path that will attempt to wring every last penny out of its customers. It’s a sign of nickel-and-diming, sliding in hidden fees, and all sorts of other questionable practices that make sense if you’re looking at a balance sheet—but are so infuriating if you’re a customer.

On the phone call, Evercore Analyst Amit Daryanani asked Tim Cook directly about whether Apple’s growth in services revenue was based on growing the overall number of people using Apple products, or scratching more money out of the collective wallets of existing Apple customers. Cook walked that line[…]

Update (2019-11-06): Nick Heer:

Apple TV Plus doesn’t fit that archetype — not yet, anyway. This becomes plain if you compare it to the closest television equivalent to an Apple product that I can think of: HBO — a premium cable channel that features must-watch shows that are defined as much by their quality as their budgets, all without being interrupted by ads. Apple TV Plus is, so far, serving up fine shows with astronomical budgets, all for either a low monthly cost or, if you’ve bought a new Apple product recently, a free year’s trial. Are they going for subscription volume?

Apple TV Plus has just launched, and the app is more of a storefront for more established players in the streaming video market. They can get better at this, and they should. But I want to hear a reason for Apple to be in the streaming business beyond ARPU and subscription stickiness.

Update (2021-01-26): Tom Harrington:

Apple’s TV app on macOS supports having a local library of videos. But the “search” feature only looks at things you can buy from Apple, not things you already have. iTunes got this right.

Maybe it’s not a big thing but it reinforces the idea that Apple’s more about rent seeking than features these days.

2 Comments RSS · Twitter

"In other words, the app is designed to optimize for Apple’s needs rather than the customer’s. I prefer the old strategy where Apple makes its money from hardware, so it’s free to design the software to do the right thing"

I know why you say that Michael but I think Apple have recently been very good at using software tricks to persuade people they have to buy new hardware...

My iPhone (32GB iPhone 7) is getting a bit full and, having to shoot some video for a project, I decided to investigate freeing up space. I've already offloaded apps and subscribed to more iCloud storage) the main space hog is my music library (8.5GB) but bizarrely the next biggest is Notes at over 5GB. I knew for a fact that I had all my old work notes from being a photographer in London years ago in a folder on iCloud so I thought great I'll delete from the phone but retain on iCloud. But I cannot for the life of me find a way to do that - at least in a way that will no longer sync them back once i re-enable iCloud.

I also tried archiving locally from Notes on Mac but that wasn't available on my admittedly old Mac Mini running El Capitan.
(I have no idea how the 1700 notes can equal 5+GB as they are all text only and mostly 100 - 200 words max)

Sadly I think the profit motive has usurped customer experience for quite a while - especially when it's 'cleverly' hidden.

[…] There’s no way I can better sum up this attitude and the problems it creates for customers than this summary post by Michael Tsai. […]

Leave a Comment