This killer fact shows Apple has a ton of work to do if it’s going to seriously challenge Netflix

Reuters/Thomas Peter

Apple unveiled its new TV streaming service on Monday, with stars like Oprah Winfrey in attendance at the launch event in California.
But the idea that Apple TV is going to challenge Netflix’s dominance anytime soon may be fanciful, according to an analyst note from investment bank Nomura.
Nomura said Apple will need 8 million subscribers to generate sales of $1 billion. It took Netflix more than a decade to hit 8 million users, while CBS All Access had to wait five years to hit this figure.
But Apple has a big ace up its sleeve: Its pre-existing user base.

Apple unveiled its much-heralded TV streaming on Monday, with Hollywood royalty like Oprah Winfrey adding some stardust to the launch event at the tech giant’s headquarters.

The service, called Apple TV+, is being touted as a rival to Netflix, not least because Apple will use splashy original content to hook potential subscribers and reel them in.

But the idea that Apple TV is going to challenge Netflix’s dominance anytime soon may be fanciful — a reality highlighted in an analyst note from investment bank Nomura.

Apple has spent anywhere between $1 billion and $2 billion on shows for Apple TV+, according to various reports. That cash has helped it lure stars like Reese Witherspoon and filmmakers, including Steven Spielberg.

To access this content, Nomura estimates that Apple will charge people $10 a month for a subscription. At this price, Apple would need 8 million subscribers to break even at $1 billion, Nomura said — the lower end of what Apple is estimated to have spent on original programming.

To put that in some context: It took Netflix more than a decade to hit 8 million subscribers. Founded in 1997, it reached 1 million subscribers in the first quarter of 2003, and did not hit the 8 million mark until the first three months of 2008, according to historical earnings.

Now, these were the days when Netflix was almost exclusively an online DVD rental store and not the online entertainment behemoth it has now become. Perhaps a fairer example — and indeed the one used by Nomura — is CBS All Access. It took CBS five years to secure 8 million streaming subscribers. It did this two years ahead of schedule, but still, it shows the time it can take to build an online audience in a heavily saturated market.

To further highlight the task ahead of Apple in challenging Netflix, the company behind "Stranger Things" now adds more than 8 million subscribers a quarter, such is its momentum around the world. That’s more than it gained in its first decade of existence.

"We assume profitability will be low," was Nomura’s somewhat withering final word on Apple TV+.

Apple’s secret weapon is its giant user base

AP Photo/Tony Avelar

But Apple has a big ace up its sleeve: Its pre-existing user base. Apple, unlike Netflix, has already gained a vast and near-religious following thanks to the success of products such as the iPhone.

Where Netflix had to gain devotees from scratch, Apple already has an army: There were more than 900 million active iPhone users at the end of 2018. Or, as Oprah Winfrey put it: "They’re in a billion pockets, y’all."

Apple faces an uphill battle if it wants to seriously challenge Netflix. But if Tim Cook and company can somehow mobilise Apple’s existing user base it might just stand a chance of toppling the TV streaming industry’s Goliath.

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Source: Business Insider – cwood@businessinsider.com (Charlie Wood)