Shares of Apple (NASDAQ: AAPL) are approaching their 52-week high and many analysts believe AAPL shares could exceed $200 a share by the end of the year. If this is the case, it is not solely due to: iPhone sales (although those sales are still strong).
As many shareholders know, Apple has been expanding its “Services” business unit for quite some time now. In its most recent fiscal year, that unit generated about $80 billion in revenue. For a given context, that was about a quarter of the total turnover that the company generated for the year.
And Apple is still a relatively small player in the streaming market. But it has big plans that we will discuss in this article.
A pioneer in streaming
Apple entered the streaming game in 2007 with AppleTV. At the time, the service did not offer original or syndicated content. It was largely a way for existing Apple customers to cut the cord.
However, it soon became apparent that cutting cables was as much about composite content as it was about digital delivery. That’s what made the success Netflix (NASDAQ: NFLX) and coined the phrase Netflix and chill. And Netflix quickly realized that if it could attract consumers to its library of syndicated content, it could attract even more subscribers with original content.
That strategy has worked, but it comes with a price. Original content is expensive to produce, and as Netflix discovers, you can only raise your prices so much before consumers stop talking. Unless, of course, they use someone else’s Netflix password. That’s another problem with the streaming model.
For its part, Apple largely ignored the original content model until they couldn’t ignore it anymore. But in keeping with the company’s business model, the company focuses on quality over quantity. And the strategy seems to be working, the company has recently won awards for Apple originals such as: severance pay and Ted Lasso.
Live Sports becomes the cash cow of streaming
However, original content will only get you so far. Consumers are apparently getting smarter. An industry trend is for consumers to sign up for a service, binge-watch a show they wanted to see, and then unsubscribe. While this may be just a small portion of the overall audience, it’s a potential problem in an industry where quarterly numbers can have a significant impact on a company’s stock price.
That’s where the interest in live sports comes in. After all, the advantage of live sports is… it’s live. So consumers need to stay engaged with a platform to access the live sport they want to watch. And in the United States, one of the main draws when it comes to live sports is the National Football League (NFL).
According to some industry insiders, Apple is leading the bid to get the NFL Sunday Ticket contract when the existing contract with DirecTV expires after this season. This is a logical extension of Apple TV’s foray into streaming Major League Baseball games this season.
It will come with a price. Forbes reports that it will cost Apple approximately $2.5 billion for the rights to the Sunday Ticket. That’s significantly more than the $85 million the company pays to Major League Baseball. However, investors need not worry too much. Apple generated nearly $93 billion in free cash flow in 2021.
Broadening the ecosystem
According to Wedbush, as of January 2022, Apple is still lagging behind its competitors in terms of total streaming numbers. The streaming service has about 20 million paid subscribers that is about 6% of the total market. Since Apple isn’t a company known for doing things halfway, the move to live sports makes sense.
Apple’s decision to go “below the line” to broadcast live sports is a direct opportunity for a company like Amazon (NASDAQ: AMZN) holding the rights for the NFL. obtained Thursday night football contract. It also helps position Apple against other companies like ESPN whose parent company, Disney (NYSE: DIS) has both its own streaming service and NBC’s Peacock streaming service.
And that doesn’t say anything about the effect Apple’s move could have on a company like… fubo TV (NYSE: FUBO) which has touted the combination of live sports with an integrated sportsbook as its unique selling proposition as a streaming alternative to traditional cable.
Ultimately, your decision to buy AAPL stock should depend on many factors, and AppleTV’s growth is not the most important factor. However, Apple makes no secret of how important its revenues from services are to overall growth. With that in mind, it’s also not something to be ignored, especially with possible integrations with augmented reality and virtual reality.