Apple’s Strategy for Profiting from its TV+ and Arcade Services Has Layers to It

Subscription fees alone won’t determine just how much Apple’s (AAPL) two newest services aid its bottom line.

At its Tuesday iPhone event, Apple announced that its TV+ streaming service will cost just $4.99 per month on a standalone basis when it launches on Nov. 1st, and (notably) be free for a year with the purchase of a new or refurbished iPhone, iPad, Mac, Apple TV or iPod Touch. The company also disclosed that its Arcade game-subscription service, which is promised to feature over 100 exclusive titles, will cost $4.99 per month when it launches on Sep. 19th.

Moreover, a subscription to either service will cover up to six family members. As a result, per-user subscription fees could in many cases be well below $4.99 per month. And in India (a pretty cost-sensitive streaming market), a TV+ subscription will cost just $1.40 per month.

Apple does say that its bundling of a year of TV+ with hardware purchases is a “limited time offer,” and that only offer is available per family regardless of how many devices are purchased. However, the company isn’t saying for now when the offer will expire.

Apple TV+’s Potential Impact

Given that TV+ will have a limited content library at launch time — though more will arrive in time, Apple’s press release for the service indicates just nine originals will debut on Nov. 1st — there’s some logic to both pricing the service inexpensively and offering a free year to hardware buyers. In addition to acting as an incentive for making new hardware purchases, providing TV+ for free to tens of millions of Apple hardware buyers should help in terms of creating social buzz for new originals, something that (as Netflix  (NFLX) would gladly vouch) can matter a lot both in terms of gaining viewers and convincing A-list content creators to work with a streaming platform.

Also, since TV+ (though promised to be available on rival living room streaming platforms) won’t be available on Android and Windows, it could help keep some consumers loyal to Apple’s ecosystem, at least if they’re often streaming TV+ content on their iPhones, iPads and/or Macs.

At the same time, given that Apple has reportedly committed to spending over $6 billion on TV+ content, its current pricing and bundling strategy for the service makes it unlikely that TV+ subscription fees will cover the service’s costs in the near-term, and perhaps longer. Rather, just as’s (AMZN) strategy for profiting from Prime Video revolves around using the service to keep consumers signed up for Prime and avidly shopping on Amazon, Apple’s strategy for profiting from TV+ appears to lean heavily on using it to keep consumers loyal to its ecosystem and making new hardware purchases (there are also, arguably, some parallels with Disney’s (DIS)  strategy for profiting from Disney+).

Apple Arcade’s Potential Impact

Given Apple Arcade’s cost structure — Apple is reportedly paying developers several million dollars up-front for each Arcade game, but nothing on a per-user basis — it’s quite possible that the service will eventually be profitable on a standalone basis, provided gamers warm to it. But with the Financial Times having reported that Apple’s initial budget for Arcade games will likely be above $500 million, and with a $4.99-per-month subscription covering an entire family, it could take a little while for subscription fees to cover the bills.

Also, when gauging Arcade’s impact on Apple’s bottom line, one has to consider its impact on App Store transaction revenue, much of which (per third-party research) comes from game transactions. It’s not hard to imagine many of the households that sign up for Arcade, whose titles are promised to feature no ads or in-game transactions, subsequently spending less on App Store game downloads and in-game purchases.

But like TV+, Arcade, which will only run on Apple devices, could indirectly benefit Apple’s bottom line by boosting ecosystem loyalty. Between its pricing, its exclusive titles and its lack of ads and in-game purchases, one can imagine some Arcade subscribers being loathe to lose access to the service by switching to non-Apple hardware — or, for that matter, viewing Arcade support as a selling point when considering the purchase of a second or third Apple device.

And in the cases of subscribers playing more GPU-intensive titles, Arcade gameplay could serve as a motivation for upgrading to a newer Apple device containing a more powerful processor. As the GPU performance claims made for the A13 Bionic system-on-chip (SoC) powering its latest iPhones drive home, Apple continues pushing the envelope when it comes to smartphone/tablet GPU performance….and some game developers are eager to take advantage of the extra horsepower.

Eventually, Apple could try harder to directly profit from TV+ and Arcade by raising prices and/or ceasing to bundle a year of free TV+ with hardware purchases. Nonetheless, for now, the indirect impact of the services on ecosystem loyalty and hardware upgrades are likely to figure heavily when it comes to measuring their success.

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