An RBC Capital Markets analyst has stated that Apple’s plans to set aside $1 billion for the acquisition and production of original video content should worry Spotify more than either Amazon or Netflix. In a client note Amit Daryanani wrote that the investment will most likely take away from Spotify’s market share and will likely not affect online video streaming giant Netflix or Amazon, which already have a headstart in original programming.
Currently Netflix is planning to spend $6 billion on original video content while Amazon has set aside $4 billion. HBO, which is owned by Time Warner and which is known for such hits as Game of Thrones will spend $2 billion to acquire and produce original content.
According to Daryanani, if the Cupertino, California-based tech giant manages to add another seven or eight million subscribers to its Apple Music service, the iPhone maker would be in a position to recoup the original programming investment of $1 billion in a matter of three years. Daryanani added that with music streaming growing in double digits and due to the fact that Spotify has about 20 million more subscribers than Apple, gaining market share is worth the investment since it also opens other business possibilities in the future.
“… over the longer term, content investments open multiple possibilities including strengthening iTunes media sale/rental business, launching an Apple TV exclusive streaming service, leverage in negotiating with media companies, and driving M&A strategy,” Daryanani wrote in a client note.
Revenues from services
Currently the number of Spotify subscribers is 50 million while Apple Music has 27 million subscribers. But between the two Apple Music has a bigger catalog of music as well as more exclusive deals which it has signed with artists.
Apple’s investment in original programming is also part of the tech giant’s strategy of increasing the amount of revenues from services, which is a growing category. This is important as concerns have risen among investors that sales of the iPhone have started stagnating. At the moment the iPhone is Apple’s flagship product and biggest revenue earner. Apple’s goal is to double revenues from services by the year 2020.
Darynani’s client note was triggered by reports which appeared last week stating that Apple was delving into original programming. It also comes after the iPhone maker hired two Hollywood veterans, Zack Van Amburg and Jamie Erlicht, from Sony mid this year.