Apple (NASDAQ: AAPL) is reportedly preparing to launch a few new services next month. The company is expected to launch a subscriptions subscription service based on Texture's acquisition last year. It will also launch a streaming video aggregation service anchored in $ 1 billion in original content.
But Apple has taken the lead with some well-known media companies when it comes to their revenue share. Apple wants to retain 50% of revenue from its news subscription service, as described in The Wall Street Journal . Meanwhile, Apple is reported to receive 30% of the video revenue for subscriptions to its video service.
Not surprisingly, companies are struggling with these fees, which are higher than Apple's usual fees. Netflix (NASDAQ: NFLX) eliminated the ability to subscribe to its service in the app due to the fees charged by Apple. To think that it would pay a higher fee if Apple still has more access to its viewer data makes no sense.
Apple Must Consider a Strategy for a Loss Leader
If Apple wishes to make its content aggregation services a success, it should consider using services such as Netflix or AT & T offer for free. Owned (NYSE: T) HBO Now. Both services are so popular that subscriptions revenue is low, but the ability to introduce customers to Apple's new service could be great.
According to a Parks Associates survey, 36% of households subscribe to two or more streaming video services. By offering subscribers a convenient way to view all their paid content in an app, Apple should attract many viewers to their platform. This gives Apple the opportunity to sell additional subscriptions to lesser-known services related to more popular channels such as HBO or Netflix.
Apple will find it much harder to persuade consumers to change their behavior otherwise. Sure, they spend a lot of their own content attracting viewers, but that does not necessarily make it a hub for video entertainment.
It's not clear how Apple wants to split Apple's subscription service revenue. If the formula weights the contents of Entertainment Weekly with the same value as the detailed coverage of The Wall Street Journal or The New York Times It's easy to see how the latter two could get excited. The Wall Street Journal charges up to $ 39 a month for a subscription, while EW costs less than $ 2 a month.
Apple does not really prevail  What Apple offers media companies like Netflix, HBO, The Wall Street Journal and the New York Times has access to its 1.4 billion active devices – 900 million of which are iPhone users. However, these larger companies do not need direct access to Apple's audience.
Netflix spent over $ 2 billion on marketing last year. Everyone knows Netflix and its hundreds of originals. HBO led the world in Emmy nominations for 17 years before Netflix peaked this year. It would be difficult for you to find a news reader that was never considered The New York Times or The Wall Street Journal .
It's about whether consumers want to find quality content they can find the above companies with or without Apple's help. Apple only values smaller media companies that can focus on smaller niches or do not have the marketing budgets to reach their full potential audience. Here, value can be gained.
Apple must stop worrying about the margins of its services and negotiate special terms with the leaders of subscription videos and news to bring them on board with its services. It will be challenging to win customers without these offers, even though all 900 million iPhone users will instantly gain access to $ 1 billion in content. A smaller margin of a larger business is much more valuable than a large margin of a small business.
Adam Levy owns shares of Apple. The Motley Fool owns stocks of and recommends Apple and Netflix. The Motley Fool has the following options: long January 2020 calls of $ 150 at Apple and short January 2020 – $ 155 calls to Apple. The Motley Fool has a disclosure policy.