Apple's Real Strategy for TV Plus Isn't to Compete with Netflix, It's This

Aside from the announcement of the iPhone 11, the most eye-popping moment of Apple’s event on Tuesday was the reveal that its streaming service Apple TV+ will be very, very cheap when it launches on Nov. 1. at $4.99 per month, with a free year thrown in for anyone who buys a new Apple device.

At first glance, it looks as though Apple is aiming to undercut Netflix, which charges $12.99 for its standard plan, and the glut of current and future services like Hulu, Amazon Prime Video, Disney+, and HBO Max. But with a small slate of original programs and no back catalog of licensed TV shows and movies, it’s clear that the company isn’t going head to head with the other streamers when it comes to watching content—it just wants you using Apple services on Apple products as much as possible.

“Apple’s not competing with Netflix, Hulu, and everyone else. It’s competing with the limited amount of time that we all have in the day to consume content,” says Dan Rayburn, principal analyst at research firm Frost and Sullivan. “Apple’s endgame is to provide more content services to consumers and to package more content across their entire platform. They own an ecosystem: the hardware, the device, the operating system, the browser, Safari, the Store, the Card. So, adding more content, whether it’s music, whether it’s news, whether it’s video, brings more people to Apple’s platform.”

Jockeying for a consumer’s time is becoming the larger battleground in the streaming wars, as it’s clear that no one service will truly dominate the field. According to a Deloitte survey from June, the average American has three streaming video subscriptions, and it’s likely that the more frugal customers will end up hopping between services. Stopping and restarting a subscription is painless, allowing users to, say, sign back up for Netflix when the new season of Stranger Things debuts then move to another the following month for whatever’s the hot release of the moment. But it’s increasingly a share of your time that these companies want.

“Nothing highlights that more than when Netflix, on two earnings calls ago, said one of the biggest things they saw competing with them was Fortnite,” says Rayburn. “Fortnite is not a replacement for Netflix: one is gaming, and one is watching movies and TV shows. But their point was, it’s competition because we all only have a limited amount of number of hours in a day, so they’re all competing for our eyeballs.”

The low cost of Apple TV+, as well as the free year for iPhone and iPad buyers, also gives the company the advantage of almost being an afterthought when it comes to a consumer’s monthly streaming bill. “At $5 a month, you’re talking Starbucks coffee, you’re talking a beer,” says Rayburn. “I don’t think it’s the type of thing where people will go, ‘Oh my God. I forgot to cancel my service this month and I spent $5.’ There are plenty of consumers who will be like, ‘Even if I didn’t watch something for that month, it was $5. I’m okay with that.’ And the fact that Apple gives it away for free for a year potentially hooks people in, too: ‘Hey, this is great content. I’m getting it for free, but I’d pay $5 a month for that.’”’

Apple’s ability to get people hooked on its programming looks likely with its A-list talent. There’s The Morning Show with Jennifer Aniston, Steve Carrell, and Reese Witherspoon, the Emily Dickinson comedy Dickinson starring Hailee Steinfeld, the action show See with Aquaman and Khal Drogo himself, Jason Momoa, and future projects with Steven Spielberg and Oprah among a slew of other originals. As Fortune reported in July, original content is key when it comes to customer loyalty, not the depth-and-breadth strategy of having a huge library like Netflix did at its launch, so Apple TV+ is poised to garner a lot of people’s free time there.

The other key to Apple’s strategy of being the all-consuming ecosystem, as Rayburn sees it, will be its ability to make this subscription even cheaper. Even if it acquires a studio like Sony and gets that catalog, he sees the cost of paying for Apple’s services going down, thanks to bundling. Combining TV+ with Music and News+, which are both $9.99 a month, and the upcoming Arcade, a $4.99 video game subscription, into a lower price is the logical move.

“That’s only a matter of time,” he says. “What does that do? It fuels consumption on their platform, fuels consumption on their devices. It’s a further way for Apple to get more entrenched into the services business. Unlike Netflix that only makes money as a streaming service, Apple isn’t reliant on Apple TV+ for the revenue. It’s keeping you on the platform.”

In other words, users of iPhones and other Apple products will soon find it hard to resist signing up for all of these services. What remains to be seen is if Apple TV+ is will be the gateway drug for new users of Apple’s services, which already saw a 17% year-to-year rise in revenue as of May 2019.