Apple TV+’s $5 pricing lays the smackdown on Netflix and Disney [Opinion]

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Apple TV+ image
Apple fires a $4.99 shot across the bow of rival streaming companies.
Photo: Apple

It’s rare that the take-home message from an Apple keynote is, “Wow, that’s far more affordable than I expected.” But that’s exactly the reaction Apple prompted when it revealed the $5-a-month price tag for its new Apple TV+ streaming service.

In one fell swoop, Apple just threw down the gauntlet to its streaming rivals. Your move, Netflix!

Apple TV+ pricing: Apple’s secret weapon

There’s a scene at the end of Ridley Scott’s Gladiator in which Russell Crowe’s Maximus is battling Joaquin Phoenix’s cruel Emperor Commodus in a sword fight. Maximus winds up (spoiler alert) winning the battle and killing Commodus, but not before the emperor stabs the gladiator. They both wind up dying. But who wins the fight? Maximus, obviously — because he ultimately doesn’t care if he gets hurt so long as Commodus dies first. It’s a great secret weapon to have.

I thought about that when Apple revealed its $4.99 per month price point for Apple TV+ at Tuesday’s iPhone 11 event. No, I don’t think Apple plans for its streaming video service to shuffle off this mortal coil anytime soon. But the secret weapon part is the same as that sword fight. Apple has an ace up its sleeve because it can afford to undercut many of its rivals. Netflix might be able to throw money at original content, but ultimately it must have a business model that’s going to be affordable (and profitable) for it in the near term. Apple doesn’t have this obligation.

Cupertino can throw down the gauntlet by pricing its service at, literally, half what others thought it would charge. Forget the rumored $9.99 pricing. Apple TV+ costs just $4.99 per month. Not good enough? Well, if you buy a new Apple device after November 1, Apple will throw in a year’s subscription. Oh, and the Family Sharing option means a whole lot of you can share one account.

Apple CEO Tim Cook says Apple isn't always interested in short-term money
Tim Cook says Apple isn’t always interested in short-term money.
Photo: Apple

Apple TV+ pricing isn’t (just) about the money

I wrote about Apple’s financial advantage in this capacity last month. At the time, I noted it was like going underwater with the world’s largest oxygen tank and daring others to follow you. Apple’s got the largest set of lungs and, when it surfaces, the water’s going to be clear.

Apple played this advantage before with Apple Music. “We’re not in it for the money,” Apple CEO Tim Cook told Fast Company. He’s not being 100% truthful. Of course Apple is in it for the money. But it’s the equivalent of smiling at your opponent at the end of a particularly bruising round of a boxing match when they’re almost ready to drop. It sends a message to rivals (Spotify in this instance) that Apple can afford to treat streaming music as a loss leader. It doesn’t actually need to turn a profit in this area, because it’s got so many other ways to make money.

One of these is hardware sales. If Apple’s offer of “free” Apple TV+ causes someone to shell out $1,000 for an iPhone they might otherwise not have bought, the freebie more than pays for itself.

Other streaming TV companies know all of this. Or, at least, their investors do. Shares in Netflix and Disney plummeted the moment Apple revealed it would undercut its competitors on price. Disney+ will cost $6.99 per month. Netflix costs anywhere from $8.99 to $15.99. Both companies fell more than 2% in trading. Roku collapsed by around 11%. Wedbush analyst Dan Ives calls Apple TV+ pricing a “major shot across the bow” at rivals. He’s not wrong.

Apple TV+ show 'See' is as expensive to make as 'Game of Thrones.' But that's not making Apple drive up the price of Apple TV+
Apple TV+ show See is as expensive to make as Game of Thrones. But that’s not making Apple drive up the price of Apple TV+.
Photo: Apple

Apple TV+ pricing could win Apple the streaming war

This aggressive pricing takes away some of the weaknesses of Apple’s streaming service. Apple TV+ will launch with only a few shows, none of which bring immediate name recognition. Shows like See and The Morning Show are minnows next to Disney+ whale pods like Star Wars, Marvel and the large catalog of Disney-owned TV shows and movies.

Apple’s not an early mover in streaming shows. It doesn’t have valuable intellectual properties up the wazoo. If Apple priced its streaming service at $10 a month, the news cycle today would churn out stories writing it off as a failure. Instead, people think Apple TV+ scored a major win.

The fact that analysts at Piper Jaffray “do not expect [Apple TV+] to be materially additive to Apple estimates for at least the next couple of years” is almost incidental. Rivals today are sweating — and probably working out whether they can afford to shave a few much-needed bucks off their streaming services.

We don’t yet know who will win the streaming TV war. But Apple just won, if not a battle, then certainly a notable skirmish.