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Apple’s plan to invest USD1 billion in original content will not disrupt pay-TV or OTT video markets

Martin Scott Principal Analyst, Research

"Apple's willingness to offer original video content merely as one video service alongside, and separate to, other services, potentially limits its ability to innovate."

The Wall Street Journal revealed in August 2017 that Apple plans to spend USD1 billion on original video content investment in 2018.1 On the surface, this may appear to be a threat to TV and video businesses. However, this article argues that this investment will not disrupt the market.

Apple's success has been built on tight control of the value chain, which has allowed it to develop disruptive devices (the iPhone) and services (iTunes). However, except for occasional 'great leaps' in product launches, Apple practices incrementalism: it retains tight control of the UI and UX in order to command brand power; it makes content deals like any other video-on-demand (VoD) player; and it takes commissions from on-platform sales. Planning its own original content is part of this incrementalistic approach – and despite the size of the investment, and the fact that it is Apple making the investment, this is not a significant innovation.

Apple's 'Services' revenue category (which includes music, video and app revenue) is its largest area of growth; services accounted for 42% of revenue growth, year-on-year, in Apple's 3Q 2017 fiscal results. Devices accounted for 84% of its revenue. Analysys Mason believes that Apple's business case for service investment has been motivated by the indirect revenue that it generates through facilitating device sales and reducing churn.2

The video market is moving towards diversification and partnership – not Apple's strengths

Apple TV as a set-top box has had some limited success (fewer than 1% of respondents in Analysys Mason's Connected Consumer Survey 20173 had an Apple TV), but has not shifted the paradigm; the September 2017 update to Apple TV was also incremental. A more-aggressive move into TV may appeal to Apple, but future disruption in the video market is unlikely to be hardware-driven, which is Apple's forte. Even a large-scale acquisition of a studio or TV business, as has been speculated, would not actually disrupt the overall shape, or dynamics, of the pay-TV industry because we anticipate future dynamics in TV and video to be mostly driven by shifts in service and content propositions. Furthermore, the disruptive arrival of iTunes within the music industry has already been replicated by OTT SVoD services in the video space.

Margins for video distribution are generally low, and indirect revenue – such as the money that operators make from cross-selling other, telecoms, services to video customers – is where much of the profit is made. Apple is following a similar approach: it is 'bundling' video with devices to reinforce high-margin device sales. In following a 'video-to-promote-something-else' strategy, while not broadening the manner in which it monetises that content, Apple is distancing itself from developing a stronger video business. It does not appear to be aiming to be the primary interface through which premium video content is consumed. For now, Apple seems to be content for iTunes to be just one of a number of apps that is accessible from the home screen, each of which offers original content. In the meantime, many of the other apps and services providers have been working to diversify the ways in which they can generate revenue from video content and services. Some of them will also offer more-engaging content in greater volume.

Players are diversifying in the following principal ways:

  • Players are, in some cases, making that content available via competitors' services. For example, in France, Orange's video/TV service OCS is available as a premium bolt-on to competitors' IPTV services and to's OTT service.
  • Many players sell content to non-competing third parties. For instance, Amazon sold the broadcast rights to Amazon Originals to networks in Asia; multinational operators that are investing in original content are also looking to gain revenue from the resale of the international rights to their own original content endeavours.
  • Players will increasingly serve as the platform provider and integrator of others' OTT video services. Comcast XFINITY, for example, fully integrates the Netflix library into its own VoD platform; Airtel TV in India, AIS Play in Thailand and myTV SUPER in Hong Kong all integrate content from multiple OTT sources. Amazon Streaming Partnerships Programme is another good example of this.

Apple has little to no involvement with the above diversification practices, apart from third-party content that is available through Apple TV. Their first-announced content investment is a co-production with NBCUniversal, which suggests that content will be available through other channels. However, there is no indication that international sales will be available anywhere other than via Apple.

The most-successful video service providers will be those that integrate content and collaborate

Historically, the pay-TV provider was the primary relationship manager for consumers' video content: it would aggregate, broadcast and bill. We are now in the midst of a market reconfiguration where networks go direct-to-consumers (D2C), consumers subscribe to multiple OTT services, but also often retain a traditional pay-TV service. In the next 10 to 15 years, OTT providers may evolve into the equivalent of today's TV networks, their streams of live and on-demand content sold by, and integrated into, pay-TV platforms and services offered by the companies that offer the best UI, the sleekest platform, and the most-open attitude to collaboration and flexibility.

It is highly likely that consumers will continue to pay for Apple devices; it is also very likely that Apple will continue to grow service revenue. However, when it comes to video, Apple's incrementalistic approach and focus on services as a support strategy for devices only – and its willingness to offer original video content merely as one video service alongside, and separate to, other services – potentially limits its ability to innovate. Unless Apple makes a large move into video via acquisition, or a bid to become the central platform for video consumption, it is likely that its video revenue will remain small and its video services rather removed from those of traditional pay-TV providers. On this basis, Apple's USD1 billion investment will do little to disrupt TV and video players.

1 Wall Street Journal (New York, NY, 16 August 2017), Apple Readies $1 Billion War Chest for Hollywood Programming. Available at:

2 This view, articulated in Analysys Mason’s The Connected Consumer report series since 2012, has more-recently been echoed by former Apple executive Jean-Louis Gassee in Medium’s Misunderstanding Apple Services (17 August 2017). Available at:

3 Analysys Mason will be publishing a new series of reports between December 2017 and March 2018 based on results from our Connected Consumer Survey, conducted in 2017.