A Blog by Jonathan Low


Aug 19, 2017

Apple Goes Hollywood

$1 billion just doesn't buy what it used to. Especially in an increasingly crowded market in which consumers have neither the time nor income to sort through and download all the new programming.

It is curious that Apple, in looking for a way of supplementing its efforts in one saturated market - mobile phones - is choosing another, entertainment. JL

Nathan McAlone reports in Business Insider and Tripp Mickle reports in the Wall Street Journal:

Apple's $1 billion is half of what HBO spends on programming ( $2 billion in 2016).Amazon would spend $4.5 billion on video in 2017. Netflix will spend $7 billion next year for content. Hollywood has become a battleground as consumers sever cable subscriptions and transition to streaming services. The disruption has fueled competition between tech and traditional media companies eager to sell subscriptions or generate ad revenue with new programming. But the flood of new scripted shows is making it hard to attract viewers
After poaching two TV veterans in June to run its TV and movie business, Apple is ready to drop $1 billion in the next year to make original content.
That makes Apple a real player in Hollywood, something the town has been anticipating ever since Netflix and Amazon crashed into the market with big budgets.
Apple's $1 billion is about half of what HBO spends on programming (about $2 billion in 2016, and a "couple billion dollars" this year). Earlier this year, JPMorgan estimated that Amazon would spend $4.5 billion on video in 2017, though we don't have an official number. And Netflix content chief Ted Sarandos said recently that Netflix will spend about $7 billion next year for content.
The Journal says this $1 billion could go to fund "as many as 10 television shows." And it will likely include at least a few prestige shows, in the vein of Netflix's "House of Cards," to start former Sony execs Jamie Erlicht and Zack Van Amburg's reign off with a bang.

Apple and Hollywood

Apple's road to Hollywood has been rocky so far. Apple's plans to get a TV package off the ground were stymied for years, partially because of Apple's hard-nosed negotiating strategy.
After acquiring Beats and launching Apple Music, Apple dipped its toe in the TV waters by producing a few original programs for the service. They weren't a runaway success. "Planet of the Apps," an app-focused version of "Shark Tank" with celebrity mentors like Jessica Alba and Will.i.am, was mocked by critics. And Apple's "Carpool Karaoke" spinoff was delayed for months for unspecified reasons, before debuting this month.
Apple's upcoming series helmed by Dr. Dre, "Vital Signs," a semi-autobiographical scripted series about his life, is nowhere to be seen. Production began in February 2016, and there were subsequent reshoots, people familiar with the production told Business Insider.
But that era lacked a cohesive strategy, with various Apple execs involved in shows on a case-by-case basis, according to insiders.

Apple has set a budget of roughly $1 billion to procure and produce original content over the next year, according to people familiar with the matter—a sign of how serious the maker of iPhones is about making a splash in Hollywood.
Combined with the company’s marketing clout and global reach, the step immediately makes Apple a considerable competitor in a crowded market, where both new and traditional media players are vying for original shows. Apple’s budget is about half of what Time Warner Inc.’s HBO spent on content last year, and on par with estimates of what Amazon.com Inc. spent in 2013, one year after it announced its move into original programming.
Apple could acquire and produce as many as 10 television shows, according to the people familiar with the plan, helping fulfill Apple Senior Vice President Eddy Cue’s vision of offering high-quality video, similar to shows such as HBO’s “Game of Thrones,” on its streaming-music service or possibly a new, video-focused service
The budget will be in the hands of Hollywood veterans Jamie Erlicht and Zack Van Amburg, poached in June from Sony Corp. to oversee content acquisition and video strategy. They exited their Sony contracts a month early and began work this month from Apple’s Los Angeles offices, where they are taking over programming responsibilities from the Apple Music team, according to the people familiar with the matter.
Apple’s existing video business—movie and TV-show rental via iTunes—has been challenged by the rise of Netflix and other video-subscription services that charge a monthly fee. Last year, iTunes generated an estimated $4.1 billion in revenue, but its share of the movie rental-and-sales market has dropped below 35% from about 50% in 2012.
Apple hopes original video bolsters the appeal of movie rentals and other offerings on iTunes—a critical contributor to its $24.35 billion in annual services revenue. Apple aims to double the business, which also includes App Store sales, Apple Pay and Apple Music, to about $50 billion by 2020.
It won’t be easy to catch up with Amazon and Netflix Inc., which have considerable head starts and far bigger programming budgets. And Apple has to avoid jeopardizing its 15% cut of subscription revenues its app stores take in for services like Netflix and HBO Go—money that is a growing contributor to the services business.
Hollywood has become a battleground as consumers increasingly sever cable subscriptions and transition to streaming services like Netflix or Hulu. The disruption has fueled competition between tech and traditional media companies eager to sell subscriptions or generate ad revenue with new entertainment programming. It has also fueled a major increase in scripted programming, which rose to more than 500 shows during the recently ended 2016-2017 season, nearly double the 2011 total.
In addition to Amazon and Apple, Facebook Inc. has begun acquiring original programming, like a reality show on NBA player Lonzo Ball’s family. Alphabet Inc.’s Google has announced a $35-a-month streaming TV service.
Netflix has aimed to outflank tech rivals by recruiting star TV producers like Shonda Rhimes, who developed ABC hits like “Grey’s Anatomy” and “Scandal.” Meanwhile, Walt Disney Co. announced this month it will pull its movies from Netflix and launch its own streaming service.
David Hill, former senior executive at 21st Century Fox Inc., said Apple’s recent entertainment hires give it a chance to catch up with established players like Netflix and Amazon. But the flood of new scripted shows is making it increasingly hard to attract viewers, he said. “There’s just not enough time” to watch, Mr. Hill said.
Programming costs can range from more than $2 million an episode for a comedy to more than $5 million for a drama. One episode of some high-end shows such as “Game of Thrones” can cost more than $10 million to produce.
When Netflix released its back-to-back successes “House of Cards” and “Orange Is the New Black,” its annual budget for original and acquired programming was about $2 billion. This year it is expected to spend more than $6 billion.
To gain relevance, Apple needs at least one hit, the people familiar with the plan said. Its initial video efforts via Apple Music—“Planet of the Apps” in June, and “Carpool Karaoke” out last week—were criticized by reviewers. But with $215.64 billion in revenue last fiscal year and more than $261 billion in cash on its balance sheet, Apple could quickly ramp up spending on content.
Messrs. Van Amburg and Erlicht have begun meeting with Hollywood agents about shows Apple could acquire, the people familiar said. They have hired Matt Cherniss, former president of cable TV channel WGN America, to oversee development, the people said.
The types of shows Mr. Cherniss made at WGN America have bolstered Hollywood’s expectations that Apple wants high-quality scripted programming—in contrast with Facebook, whose initial programming includes shows about cheese from Business Insider and about dog DNA testing from Mashable.


Post a Comment