Apple CEO Tim Cook and CFO Luca Maestri confirmed yesterday the company’s Services division was more profitable than ever, bringing in more than $3 billion in December alone through the App Store. As a result, Cook said Apple was looking to double its profits in that sector by offering more exclusive and original content. While the company has already made a name for itself with exclusive apps, games and albums on Apple Music, the next step is television.
Original television content that’s made and produced by Apple isn’t new. The tech giant announced in July it was working on a couple of new series that would be exclusive to Apple Music subscribers and Apple TV owners. Apple confirmed it had bought the rights to a spinoff of late night host James Corden’s popular segment Carpool Karaoke. The show, which will star a different driver-passenger couple each episode, will be available to Apple Music subscribers.
This is Apple’s first foray into original, mainstream television content, and much like Apple Music, it will be an experiment for the company. Apple Music suffered from a couple of issues that initially led to fewer expected subscriptions after it launched, like poor user interface design and lack of access to downloaded tracks. Through consistent fixes and updates, however, Apple has noticed an increase in membership.
“We have grown over the past three quarters,” Maestri said. “We’ve had great success with our original content and exclusives and that’s an area we can grow in.”
Cook echoed Maestri’s sentiments, adding Services (which also includes Apple Pay, iTunes and other licensing deals) has become a much bigger part of the company’s business than they originally anticipated.
“Services are becoming a larger part of our business and we expect the revenues to be the size of a Fortune 100 company this year,” Cook said.
What does all of this mean? To put it bluntly, Apple’s bets are paying off. While the company saw an initial loss following the launch of Apple Music, through exclusive offers with major artists (Taylor Swift, Drake, Frank Ocean) and access to exclusive radio shows (Former BBC Radio host Zane Lowe) it’s become profitable. Apple is getting ready to apply this business model to television, with the end goal to have premium series like Westworld, Stranger Things and other prestigious shows.
According to a Wall Street Journal report, Apple executives are hoping to launch premium television content through Apple Music as early as this year. Based on the financial success the company saw in its last quarter, the time frame makes sense. Much like Apple Music, it seems like the company is ready to go all in on TV, even if it means taking a few losses.
It’s not the first company that would venture into original TV programming, either. Amazon started its Studios division in 2010 and started producing premium television content. Since then, the company has won multiple Golden Globe and Emmy awards for series like Transparent and Mozart in the Jungle. Also like Apple, Amazon has begun to license hit series, offering the shows as an exclusive to Prime members.
Another important trait that Amazon and Apple share is using premium and exclusive content to leverage sales of other products. In June, Amazon CEO Jeff Bezos said they noticed a big co-relation between people who signed up for Amazon Prime as a way to view original series and an increase in purchases on the e-retail site. Essentially, Bezos and his team were able to use the promise of original content to get consumers to spend more time on Amazon and buy more products.
It’s not farfetched to assume Apple has similar goals up its sleeves. Having exclusive content available through Apple Music or Apple TV could potentially mean an increase in sales for products like the Apple Watch, iPads, Apple TV set top boxes and, of course, iPhones. By offering the exclusivity of content through exclusive hardware, Apple wins in every regard. If in the future Apple can refer to itself as an Emmy or Golden Globe-winning studio, it’s just an added level of prestige.
Although Cook or Maestri didn’t specifically mention television in their comments on services, everything is building up to this moment from the company. The second series, Carpool Karaoke, is expected to premiere shortly, with episodes being released on a weekly basis, but there isn’t a set date at this time.