With Ads, Price Hikes, Apple Starts To Run Its Hobby Like A Business

Aww, look at this: Apple is raising prices on its streaming service, Apple TV+. And the world’s most valuable consumer company is also increasing the places it’s going to be showing advertising, an expansion that reportedly will be coming to TV+ soon.

Throw in those two Best Comedy Emmys, and a Best Picture Oscar and it’s starting to look like Apple TV+ is turning into a real business, rather than a very expensive hobby. How sweet! (For Apple, anyway.)

TV+ launched almost exactly three years ago – Nov. 1, 2019 – with an extremely limited library of originals-a handful of shows featuring big names, but few other reasons to entice folks to watch or subscribe.

In fact, Apple more or less didn’t even charge for the service initially. A year’s subscription came free with purchase of any Apple hardware device, which during the pandemic’s #WFH gold rush, basically meant kabillions of potential viewers thanks to record iPhone, iPad and Mac sales.

Most viewers remained indifferent, though, judging both from third-party viewership studies and the fact that Apple took 20 months before it started charging those early free subscribers.

In the ensuing months, Apple rolled out more shows, won a couple of lesser Emmys and Golden Globes (hah! remember those?), and continued to give away the service.

The situation started to turn when viewers discovered Ted Lasso, whose feel-good, fish-out-of-water story resonated durinh mid-pandemic lockdown. Ted Lasso would win consecutive Best Comedy Emmys and was, incontrovertibly, the reason many watched TV+ at all.

Since then, TV+ has filled out its roster with hit shows such as Severance, Physical, Pachinko, The Shrink Next Door and Bad Sisters. And there was Coda, which won three Oscars, including for Best Picture.

Earlier this year, Apple added its first live sports deal with Friday Night Baseball, which also brought TV+’s first traditional-style video ad sales, and $30 million in ad revenue guarantees to the league.

In June, Apple signed a 10-year deal with Major League Soccer that Apple billed as a historic first for any sports league. It gives subscribers anywhere access to every single MLS game without blackouts or local restrictions.

Apple remains the front-runner for the NFL’s Sunday Ticket package, too. That the league still hasn’t signed that very big deal (Amazon and YouTube are also contenders) suggests another above-and-beyond deal like the MLS contract.

So, is anyone watching? Apple still won’t say how many subscribers it has. Perhaps the company will finally remedy that on Thursday’s Q3 earnings call. Or not, like usual the past three years.

Third-party analysts estimate TV+ paid subscribers at somewhere around 25 million, a Peacock-level non-achievement. Another 50 million subscribers get the service as part of a promotion such as T-Mobile’s, which provides the service free to subscribers of its top-end Magenta Max tier.

The best indicator that more people are watching, however, is that Apple believes it can raise prices. Remember, this is a service Apple gave away for nearly two years.

The price hike hits new subscribers in a few days, rising $2 to $6.99, up 28%. Existing subscribers will be notified when they’ll also see prices rise. The six-service Apple One bundle that includes TV+ also will increase $3 from $29.99, or 10%.

Apple is also expanding advertising into more areas of its vast operations. First up are new ad slots in its lucrative App Store. More search ads are reportedly coming next year. More intriguing, perhaps, are reported plans to put contextually relevant recommendation ads in its Podcast and Book apps.

Doing the same with the TV+ app seems like a very small step. Throw in the expanded sports offerings, with oodles of targeted video ads from traditional brands, on a show that hits Apple’s entire user base, not just ad-supported subscribers, would create a very substantial Apple advertising business indeed.

Apple has a market capitalization of $2.4 trillion, largely because it sells literal boatloads of iPhones at stupendous margins. That Apple is now raising prices and considering more advertising suggests one thing: it’s getting serious about making TV+ a money-maker.

And it has reason to get more serious. Apple needs new sources of growth if it wants to keep investors happy, especially amid the stock market’s brutal downshift these days.

The company’s Services division, which includes Apple TV+, has been growing dramatically the past five years. In Q2, Services set another record with $19.8 billion in revenues, and a ridiculous gross margin of 72.6%. Keeping that remarkable record going may prove difficult in this economy without steps such as Apple is taking.

More problematically, the pandemic wave of Mac and iPad sales has largely crested. iPhone sales are still huge, but flatter than a couple of years ago. Apple even reportedly reduced production orders for one mid-level model of the latest iPhone.

And Apple has been investing an estimated $8 billion a year on programing, a figure that likely will rise as it adds more sports rights. At some point, that investment needs a return, especially given the barking by investors on when break-even will arrive for other streaming services.

Price hikes, more advertising, maybe even a new ad-supported tier, would go a long way toward finally making Apple TV+ pay its own way.

Finally, our little streaming service could be growing up!