Starting today, Apple Inc. (NASDAQ:AAPL) is beginning yet another assault on the living room. The new Apple TV 4K went up for pre-order this morning, and the company also began rolling out 4K iTunes movies with HDR support.
In a good sign for the company, the shipping time for the most expensive new Apple TV model is already slipping, indicating that customers are snapping up the $199 video streamers.
Apple TV went from hobby to billion dollar business, before falling behind the video streaming competition. This could be the year that Apple TV sales take off again — boosting iTunes revenue along with it — materially moving the AAPL stock needle.
4K iTunes Movies Begin Rolling Out
This morning, Apple began rolling out its new 4K iTunes movies with HDR support. Not all titles are yet available, but the 4K tags are beginning to appear and true to its promise, Apple is pricing the 4K iTunes movies the same as HD versions. My screenshot is from the Canadian iTunes Store, where HD movies are $24.99, but in the U.S. that price is usually $20.
Apple has also promised owners of HD movies purchased through iTunes a free upgrade to 4K HDR versions.
In comparison, other online video services charge a premium to buy 4K titles and buying a 4K Ultra HD disc on Amazon.com, Inc. (NASDAQ:AMZN) can cost $30. Apple is getting 4K iTunes movies at a rate that undercuts most competitors — physical or digital — while retaining an early release window that sees most movies hit iTunes weeks before they are available on store shelves.
That’s a winning combination for the Apple TV 4K and good news for AAPL stock.
Although it wasn’t mentioned during this week’s Apple event, one major studio remains a holdout. Walt Disney Co (NYSE:DIS) is not currently onboard with the plan to sell 4K movies for the same price as HD versions.
Apple TV 4K Launch Supplies Already Running Low
We don’t know how many units the company stockpiled in preparation for the launch, but checking the Apple website early this morning, the shipping time for the $199 AppleTV 4K quickly slipped from Sept. 22 to “2-3 weeks,” indicating consumers are snapping up the launch stock.
The $179 base model (with 32GB of storage instead of 64GB) remains on track for Sept. 22 delivery –at least at the time of writing.
Apple’s set-top streamer, which was first released in 2007, used to rule the living room. A decade later, just 5% of U.S. homes with Wi-Fi own an Apple TV (21% have an Amazon FireTV device) and sales of the Apple TV actually declined in 2016 compared to the previous year.
That low penetration rate actually represents a huge opportunity for Apple.
Lack of 4K support and high price are considered to be the two primary factors that have let Amazon, Roku and others leapfrog Apple in the living room. The new Apple TV 4K may not address the price disparity, but the fact that early buyers appear to be snapping up the more expensive $199 Apple TV 4K over the less expensive option bodes well. The boosted processing power and its implications for gaming may help Apple convince holdouts that its streamers are worth the premium as well.
Obviously the lack of 4K support issue is resolved, and the new Apple TV also fully supports HDR. The 4K iTunes movies pricing is the icing on the cake. At least for now, Apple is cheaper than pretty much anywhere else. If someone were to ditch their existing streamer and replace it with an Apple TV 4K, the cost savings of buying just 20 movies from iTunes could pay for the hardware.
Even better, there are millions of existing Apple TVs out there and you can bet many of those people own a 4K television. Apple’s offer to upgrade existing iTunes movie content to 4K for free is a genius move, because it gives a decade worth of existing Apple TV owners a big incentive to upgrade their hardware. Spent $199 (or even $179) and they also get a library of HD movies automatically converted to 4K HDR versions for free.
Moving to a new Apple TV 4K — whether from an older Apple TV or from competing hardware — doesn’t mean being locked into 4K iTunes content. Apple announced Netflix, Inc. (NASDAQ:NFLX) and other streaming services will make their 4K content available. Even Amazon Prime Video will be coming to Apple TV 4K later this year, so Fire TV owners won’t miss out by switching hardware platforms.
The new Apple TV 4K offers a lot of potential upside for APPL stock. It could drive an upgrade cycle among a decade’s worth of existing Apple TV hardware. The cheap 4K iTunes movies could also be the carrot that convinces people new to streaming to choose Apple (adding to that Services division revenue with every purchase and rental), and it could also convince owners of competing streamers to switch. This could be a very big holiday quarter indeed for Apple, and the new Apple TV 4K could be leading the charge.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.