Apple’s TV offering may struggle due to revenue-split demands

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Apple's TV service could cost $15 per month.
Photo: Jim Merithew/Cult of Mac

Jefferies analyst Tim O’Shea foresees big challenges ahead for Apple’s planned video subscription service.

In a note to clients, O’Shea suggests that Apple will struggle to get studios and networks on board for its plans. He also thinks Apple’s original content may run into problems compared to Netflix’s most established offerings.

As to the former issue, O’Shea thinks Apple’s demand for a percentage of revenue could prove difficult. We’ve already seen some evidence of this with Netflix looking to circumvent the App Store to keep more of its money.

Apple currently takes around 30 percent of revenues from app developers. With regards to its new news subscription service, however, it supposedly wants an even 50-50 split with publishers. A TV service could ask for around 30 percent from networks and studios.

On the original TV show front, O’Shea seems skeptical that Apple can compete. That’s not because of a lack of big names signed by Apple. Instead, it’s because Cupertino is spending less money than Netflix. This means Apple is likely to be more reliant on third-party content.

“There are only a handful of players that make content that matter,” O’Shea writes. “If you lose one or two of them, it makes your service much less attractive.”

Apple TV service for $15 per month?

Previous reports suggested Apple could give away its TV shows for free. O’Shea thinks it is more likely that a combined service will package Apple’s original content with third-party material. This is likely to come with a price point of around $15 per month. That would put it $5 over the monthly cost of Apple Music.

Finally, O’Shea points out that — even if Apple is able to hit 250 million video subscribers by 2023 — this would still only be around 5 percent of Apple’s revenue. In other words, don’t expect this to make up for declining iPhone sales.

Source: Business Insider Prime (paywall)