Heading into Apple’s WWDC 2018 event, there continued to be widespread speculation surrounding Apple’s TV and video strategy, largely because unlike Netflix, Amazon and Google – it does not yet have a video subscription streaming service. However, announcements at the gathering were not heavily video or entertainment focussed, further dampening this speculation. But the arrival of Dolby Atmos on Apple TV, “zero sign-on”, a deal with Charter Spectrum, a new TV OS and, perhaps more tangentially, Siri support for third-party apps, all point towards an evolutionary product, rather than a revolutionary one, which we have become accustomed to from Apple over the years.
Despite being pioneering in widening the reach of digital media streamers, Google Chromecast is the number one device in this sector worldwide in terms of installed base (~30m in use at end 2017), but Amazon Fire TV is the key growth device (>26m at end ‘17). This rapidly growing Fire TV base is largely due to persistent customer marketing and attractive, often discounted price points – plus the obvious link with Amazon Prime. Futuresource estimates that there were approximately 21 million Apple TVs in use worldwide at the end of 2017 (similar to Roku) with approaching half of these in the USA.
But Apple TV continues to add features, build partnerships and is clearly striving to offer the best quality digital streamer experience there is – albeit at a higher price than its competitors. Service partnerships will therefore be key to driving the attractiveness of the product and a channels approach, akin or better than Amazon Channels & Roku’s equivalent, will also be hugely important if Apple still wants to become the main entertainment hub in the home – something which Amazon arguably has gained a lead in.
The Charter Spectrum partnership, hot on the heels of its Canal Plus joint venture, is likely to be followed by other similar deals over the coming year. A subsidised Apple TV play, with leading Pay-TV providers worldwide would undoubtedly boost its international installed base; but such an initiative is more likely to attract (and perhaps more likely, retain) existing Pay-TV subscribers than converting free-to-air homes. However, motivating these customers to switch to an alternative Pay-TV service centred around the Apple TV box may require further incentives given that only 13% of US and 11% of French Pay-TV customers are likely to cancel their current service in 2018, according to Futuresource’s Living With Digital consumer survey.
Migrating existing STB customers to the Apple TV solution is not likely to appeal to all Pay-TV providers. Best in class operators such as Sky and Comcast Xfinity continue to push hard on their own leading-edge boxes (Sky Q & X1 respectively), providing further lock-in for customers and ultimately increasing ARPU. Sky’s breakthrough announcement that Sky Q customers will be able to access Netflix via the box with single billing, essentially means that rather than treat them as a direct competitor, it can now at least keep them close and monitor viewing behaviour.
Gradually, the sum of Apple’s TV and video offerings may start to see it become recognised as a viable contender in the battle for the living room, but the likes of Amazon and the larger Pay-TV conglomerates will also continue to innovate, meaning Apple may need to accelerate its evolution in this space if it is to become a serious challenger.
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