Apple’s hotly anticipated entry into video streaming, which is it likely to unveil March 25, will ramp quickly and could rack up 100 million subscribers in just five years, according to a forecast from Wedbush Securities analyst Daniel Ives.
In a note to clients, the analyst said the company has some ground to make up against streaming rivals, but it should be able to close the gap. Ives called reaching 100 million subscribers in three to five years a “realistic medium-term goal” for Apple. The video service is expected to blend some originals but mostly third-party video, consistent with the company’s recent emphasis on services revenue. Multiple reports have indicated the company could take a distribution fee of about 30% for other companies’ apps, in a model similar to those operated by Amazon and Roku.
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The subscriber comparisons are not entirely apples-to-apples, of course. Netflix, Hulu and others report tallies for subscribers who sign up just to obtain their content, as opposed to in Apple’s case, where they will be accessing the Apple-designed platform and order cafeteria-style, as they do in Apple’s iTunes or App stores.
Nevertheless, the endgame is revenue. And if Apple manages to spend at a competitive level (currently $1 billion on original content and rising, Ives estimates) and doesn’t encounter any unforeseen speed bumps, video could reach $7 billion to $10 billion in annual revenue, the analyst predicts.
While video will be a growth story, Ives ready concedes that significant strategic challenges remain.
“The company is definitely playing from behind the eight ball in this content arms race with Netflix, Amazon, Disney, Hulu, and AT&T / WarnerMedia all going after this next consumer frontier investing significantly more dollars ($20 billion combined and counting per annum) on content,” Ives wrote in the note.
In order to stand out in this crowded field, Apple could buy a movie studio or another content engine to plug into its streaming operation, Ives said, identifying A24, Lionsgate, Sony, CBS and Viacom as free agents of interest.
“While acquisitions have not been in Apple’s core DNA, the clock has struck midnight for Cupertino,” Ives wrote. “Building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A.”
Ives said he was maintaining his “outperform” rating on Apple stock, with a 12-month price target of $200. Shares today have risen almost 2% to about $192.
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