What Apple TV+ Needs to Become a Big Player in Streaming Video
The service has developed some hit shows, but needs a proper library to become a successful streaming service
Out of the gate, Apple TV+ resembled its hit TV show Ted Lasso; that is to say — what is this thing and who is it for? If you haven’t seen Ted Lasso yet (and you should; it’s great), the premise is this: an American football coach is brought in under somewhat misleading circumstances to coach a Premier League team. The character of Ted Lasso originated in a commercial in 2013 for NBC to advertise its new sports rights and hinged on Jason Sudekis’s likeability and that “football” is used by folks on both sides of the Atlantic to describe two very different sports.
Based on that pitch, Ted Lasso sounds inessential yet that charming, funny, and heartfelt series became a breakout hit of 2020. The show has become arguably the streamer’s biggest hit (metrics can be iffy, but a two season renewal and plenty of air time in Apple’s Summer 2021 teaser certainly suggests something is going right). The same could be said for Apple TV+ — out of the gate it felt off. The Morning Show failed to become the House of Cards-level hit Apple desired despite its starpower and buzz for the service focused more on TV development snafus and shuttered release plans than content.
But like Ted Lasso, there’s more than you’d first suspect: fellow launch shows All Mankind and Dickinson grew their audiences in ambitious second seasons, earning renewals for more episodes. There are still misses (Little Voice anyone?), but more shows seem to be finding an audience, whether that’s something broad like “horror” (Servant, Lisey’s Story) or a relatively more narrow topic like “child mystery solving” (Home Before Dark). Apple’s service is finding some traction, but despite that it still feels a bit unsubstantial. Despite getting its original content on track, Apple TV+ is lacking something important: a catalog.
Original content gets the headlines, but catalog provides depth
New shows are the lifeblood of any streaming service. Netflix wouldn’t be pushing towards the endless scroll if that wasn’t true. Despite that, Netflix recently spent about $1B to license new theatrical movies and catalog from Sony, the only MPAA member without a large streaming service in the United States (though it’s worth noting — after those films leave Netflix, they’ll be on Disney owned outlets).
But Apple TV+ is probably not competing to be the next Netflix — if anything it’s trying to be the successor to HBO. But as recently as 2016, ~70% of HBO’s viewing came from films, not their critically acclaimed and successful series. Back then, HBO would get movies a few months after they were released into theatres — commonly referred to in the industry as a “Pay 1” deal — not only from sister company Warner Brothers but also from 20th Century Fox and Universal (all told this gave HBO ~40% of the box office dollars from 2016). Even against a stacked lineup of HBO shows — Game of Thrones, Westworld, Veep, Silicon Valley, Ballers — most viewing came from films.
So if Apple wanted to invest more in non-originals, what could it get?
Content is going to integrated streaming services
If Apple TV+ did want to follow the HBO blueprint and start acquiring film output deals, it would be nearly impossible. Not only because the theatrical film industry is increasingly concentrated (Disney/Fox took about ~40% of the domestic box office in 2019 by itself, and the top 6 distributors and their various sub-brands account for most box office receipts ), but media companies increasingly want to keep their best content for themselves. Here’s how the Pay 1 deals for those six biggest distributors (plus legacy player MGM) are currently set up:
- Disney’s pay deal goes straight to Disney+. With the acquisition of 20th Century Fox, we can expect output from that studio to get redivided: big budget family-focused films will likely get Disney distribution, while films from Searchlight will likely go to Hulu
- MGM is committed to Epix and Paramount+ through 2023, but it’s hard to imagine that not going to Prime Video afterwards
- Paramount is (unsurprisingly) redirecting it’s pay deal to Paramount+
- Sony, as mentioned earlier, is moving from Starz to Netflix
- Starz, which previously had Sony’s pay output, opted for an internal deal with Lionsgate, its parent company once its current deals expire
- Warner is unlikely to move its output from HBO (it’s been there since the 80s)
- The only wild card was Universal’s theatrical output, but that shifted to Peacock (for the first few months), with Netflix and Amazon getting it after that.
Taken all together, it’s clear most new release movies are largely out. Sure Apple can try and cobble something together from the smaller distributions (A24, Neon, etc.), but those companies have existing deals in place and you’re not going to get the biggest titles of the year. Again looking at 2019, the biggest title not from any of the firms mentioned above was The Upside, the Bryan Cranston/Kevin Hart remake of the French hit film Intouchables (27th overall). Apple is going to make its own original movies, but that’s hardly a differentiator as all the other major streaming services are committed to streaming-only films as well.
Alternatively, Apple could look to TV to bolster it’s catalog. That’s arguably how Netflix built its subscriber base in the early days — it was the place to watch Breaking Bad and other TV shows before it was the home of House of Cards. However, despite the increasing number of TV shows being made, most of the increases are coming from streaming outlets themselves, not cable and broadcast outlets that may be willing to sell to Apple.
Of course, here once again vertical integration comes into play. Disney’s most high-profile launches aren’t going to its most widely available platform in the United States (ABC), they’re going straight to the platform with the most growth potential and direct corporate control (Disney+). And more-and-more companies are trying to tie in their old distribution platforms (cable channels and broadcast networks) with their new offerings. There are exceptions to this of course, and it’s generally for two reasons: legacy deals and non-owned productions.
For shows that are older, there are often legacy deals in place that govern streaming rights. This is often why you’ll see streamers without access to older seasons of flagship shows. Netflix struck deals for shows like The Walking Dead and Grey’s Anatomy a long time ago, and that prevents AMC+ and Hulu from having them. For newer shows, those disconnects are much less common, hence why all of the new shows in the Walking Dead Universe are only available on AMC+.
Beyond that, there are also times when the producer of a show is a different media conglomerate from the distributor. This usually comes up with properties from Warner Brothers and Sony — the two studios who don’t own one of the four large broadcast networks. This is why you see one-time flagship shows for NBC and CBS like Friends and Big Bang Theory streaming on HBO Max rather than Peacock or Paramount+. Again, this is far less common today than it used to be — more and more networks want to air shows produced by their in-house studios.
Taken together, it seems clear studios have learned a lesson from the rise of Netflix: getting money in the short-term is nice, but you need those rights to build up your own streaming service as legacy distribution channels start to disappear. They’re not eager to let another tech company build up a successful distribution platform on the back of their intellectual property. So where does this leave Apple?
Building a catalog without an existing content library
Consolidation has put most valuable Hollywood IP in the hands of a few companies — Disney, Comcast, ViacomCBS, Sony, and the future Warner Bros. Discovery. All of those companies save Sony (RIP Crackle) owns at least one streaming service and all are looking to aggressively grow those businesses. Short of acquiring one of those players — something Apple seems unwilling (or perhaps because of anticompetition concerns) unable to do — Apple needs to find another path. Luckily two tech companies with large streaming platforms — Netflix and Amazon — provide potential blueprints for how to build out large streaming services; after all, they do operate the #1 and #2 streaming services globally.
Netflix basically invented the streaming game and the rapid growth in originals of all types was made knowing that eventually suppliers would become competitors. Given its entanglement with free shipping and a host of other benefits, Amazon hasn’t grown its original content quite as quickly, but the company is still spending billions of dollars on content every year. In 2020, Netflix committed to spending $16B while Amazon spent “only” $7B. The $9B gap? Well, it seems that Amazon used that loose change to buy MGM and its extensive catalog of movies, TV shows, and — most importantly — IP. But beyond just buying and producing lots of content, both services are following three similar tactics:
- Betting big on future franchises — Whether that’s spending $450M for two Knives Out sequels or $465M for a season of a Lord of the Rings TV show, neither company is afraid to back up the money truck when they see something they want. To be clear these deals aren’t perfect — the original Knives Out film will still be owned by Lionsgate and Warner Brothers has a host of Middle Earth related rights — but both reaffirm that Netflix and Amazon are committed to buying big properties when they can.
- Leveraging Foreign Content — Both companies know success depends on building a global fanbase and have lots of data about what their customers around the world want to watch. Most of Netflix’s subscribers live outside the US and Canada and Amazon, while still smaller globally, is more successful than Netflix in the key markets of Germany, Japan, and India. Both companies are committed to producing local content not only because it should help accelerate growth in those markets but also because it’s becoming clear that non-US content can draw large audiences in the US (even if it’s not in English).
- Don’t give up on Hollywood entirely — Notably, Sony produces The Crown for Netflix and The Boys for Amazon. But it’s important to remember that while the best IP at some of these studios may be off-limits (it’s unlikely Netflix is ever getting another Marvel show), the aforementioned media conglomerates have historically supplied the streamers with content and have units that would like to continue that business.
Apple is already deeply enmeshed in the Hollywood system — many of their shows are produced by major Hollywood studios after all — but they have not indicated a desire to build up its local programming roster and have yet to really throw their money around for a big piece of IP.
It seems Apple is aware of its catalog shortcomings and is trying to pivot. Despite the emphasis on only original content, Apple TV+ has indicated it may try to acquire more second-run content. So far acquisitions have been in the kids’ space (Fraggle Rock, Peanuts) and have set up new originals. Apple even flirted with buying MGM, but talks apparently fell apart.
At the end of Ted Lasso’s first season (spoilers ahead), the team he coaches (AFC Richmond) is relegated (i.e., it’s pushed out of the type division of English soccer down into an inferior league). At the moment, Apple TV+ is in danger of the same fate. That’s not to say the service will go under — the costs of running a streaming service to a $2 trillion company like Apple aren’t onerous — but it’s unclear whether Apple TV+ can really be a contender, let alone the leader, in the streaming space. The service has a lot of great shows and some impressive talent, but it’s going to need a better catalog to contend with the top streamers.