On March 25, Apple (NASDAQ:AAPL) held its first big event of 2019. This one was meant to be a game-changer. Monday’s event was the coming out party for the company’s highly anticipated subscription video streaming offering. It was also meant to mark AAPL’s pivot to a services company — instead of one where revenue and Apple stock value is heavily reliant on sales of hardware — chiefly, the iPhone. However, the reaction to everything Apple announced has been decidedly underwhelming.
How underwhelming? Netflix (NASDAQ:NFLX) was widely expected to face a tough competitor in AAPL’s new Apple TV+ video streaming service. Finally! A competitor with really deep pockets. But instead of Netflix stock taking a hit on the announcement, the script was flipped: NFLX closed up 1.45% while Apple stock was down 1.2% at the end of the day.
Here’s why Apple’s big event got such a “meh” reception.
Apple TV+ is No Netflix Killer, and It Doesn’t Even Have a Price
The tentpole announcement of the March 25 Apple event was the company’s plans for a subscription video streaming service. Netflix now has 139 million subscribers, paying anywhere from $8.99 to $15.99 per month. With those sort of numbers, the prospect of AAPL launching its own video streaming service to challenge Netflix had significant upside for Apple’s services revenue.
There were some wins that were part of the Apple TV+ announcement. The Apple TV app needed to access the content is being made available across a huge range of streaming devices — including devices from competitors like Amazon (NASDAQ:AMZN) and Roku (NASDAQ:ROKU). That’s a big move toward wide-stream adoption compared to AAPL’s usual strategy of sticking with the iPhone, iPad and Apple TV. Plus, an impressive number of Hollywood stars are working on exclusives for Apple.
The problem is there’s no way to tell if anyone will be interested in subscribing. The company showed off some interesting new original shows coming with Apple TV+ but there was no mention of a library of licensed TV and movie content that would be available to subscribers. As Bloomberg notes, inking deals for this content is getting much more difficult than it was in the early days of video streaming. And there was no subscription price announced.
At the end of the day, Apple’s offerings boiled down to a TV app that offers Apple TV Channels — which mostly serves to organize your various video subscriptions and services in a single spot. AAPL may offer discounted pricing on some of those services, but the company hasn’t confirmed that. The TV app will also be the home of Apple TV+, which at this point is only a handful of original content, with no price.
Netflix investors celebrated, while Apple stock paid the price.
Other Subscription Services Failed to Impress
Apple also announced several other subscription services.
Apple News+ was expected to be about newspapers and daily news — a fair assumption given that it lives in the News app — but instead the company focused on magazines. Near the end of the announcement, it was noted that several prominent newspapers would be included in the $9.99 News+ subscription, but there are key holdouts that refuse to participate including The Washington Post and The New York Times.
Apple Arcade is a video game subscription service that touts 100+ exclusive, high quality titles for Apple devices, with no ads and no in-app purchases required. Getting gamers to commit to paying for a monthly subscription runs contrary to the whole “casual gaming” market that Apple’s App Store helped to launch. Apple Arcade is also going to be running head on into a growing number of subscription gaming services when it launches in the fall, including Stadia, from Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google. The price? Apple didn’t reveal what that subscription will cost.
Why Apple Stock Took a Hit
Apple’s Services division is becoming increasingly important to the company’s bottom line. Annual revenue for Services has more than doubled, from $18.1 billion to $39.7 billion in just five years. But to take the sting out of declining iPhone revenue — which was nearly $52 billion in Q1 alone despite a 15% decline — Apple’s subscription services need to ramp up even more quickly.
What the company announced on Monday left as many questions as answers. Worse, there was nothing that stood out as a must-have or killer service, and there was an overall impression that AAPL is running into challenges negotiating with content partners. The lack of pricing on key subscriptions makes it all but impossible to even try to estimate the revenue potential at this point. Subscriptions and services have real upside potential for Apple stock, but with so many unanswered questions, the immediate market reaction had the opposite effect.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
