A strong contender for Apple’s biggest product launch of 2019 will come in the form of an app for Samsung televisions or Amazon’s home speakers.
As Apple prepares to unveil a streaming service with over $1bn of new television shows from Oprah Winfrey and Steven Spielberg, and TV shows from the likes of JJ Abrams, it is looking for viewers well beyond the owners of iPhones, iPads and Apple TV set-top boxes.
On the eve of the Consumer Electronics Show in Las Vegas on Sunday, Apple said it would bring its existing iTunes movies and TV app to Samsung’s latest TV sets. The move marks the first time that Apple has allowed a TV manufacturer to integrate iTunes.
Owners of Apple’s smartphones and tablets will also be able to stream content from their devices to Samsung’s big screens using AirPlay 2, the same proprietary wireless system that iPhone owners can use to listen to music on third-party speakers such as Sonos.
Apple also revealed a tie-up with TV maker Vizio at CES on Monday. Similar to the Samsung deal, Vizio set owners will be able to stream content from their iPhones using AirPlay.
Until recently, Apple has seen its digital services, such as Apple Music and iMessage, as a way to keep customers loyal to its more profitable devices business. But that strategy is now changing.
The Samsung partnership is “further evidence that Apple is willing to change its hardware-first approach and work with third parties to boost Services revenue”, said Gene Munster, a longtime Apple analyst and tech investor with Loup Ventures, in a note on Monday.
The deal follows Apple’s partnership late last year with Amazon to put Apple Music on the online retailer’s Echo speakers, to be controlled using its virtual assistant, Alexa.
Both steps are unusual for Apple as they hand an advantage to devices competing with its own $179 Apple TV set-top box and $350 HomePod wireless speaker.
Making its software and services available on rival platforms is not a brand new trend — Apple brought iTunes to Windows back in 2003, which fuelled huge sales of Apple’s iPod music player.
Nonetheless, as its core iPhone business comes under increasing pressure, analysts say Apple is looking to build a services business that can thrive outside its tight-knit family of products and generate meaningful revenues of its own.
Video will be central to its renewed services push, as Apple builds on the foundation of iTunes to develop a competitor to the likes of Netflix, Amazon Prime Video and Hulu. Morgan Stanley estimates that a bundle of media services, including video, music and news, could generate $37bn a year by 2025.
Such a sum would vastly outstrip today’s modest sales of the HomePod and Apple TV, which have not been among Apple’s more successful devices.
“Instead of creating software to make its hardware more appealing, as has been the status quo, Apple is now permitting its software services on competing hardware,” Mr Munster said.
Since the beginning of 2016, Apple has worked to convince investors that its services business is both more consistent and faster-growing than the quarterly gyrations of iPhone sales. In 2017, chief executive Tim Cook set a target of reaching $50bn in annual services revenues by the end of 2020.
He reiterated Apple’s commitment to that goal in his letter to investors last week. Despite warning of a sharp drop in iPhone sales in China, Mr Cook pointed to “remarkable strength” in other areas, including record services revenues of $10.8bn.
“They’ve managed to turn their business into something more than a single transactional sale,” said Ben Wood, analyst at CCS Insight. “That is a relatively unique position. Much as plenty of other companies such as Samsung and Xiaomi talk about wanting to do that, they are not delivering against it in the same way Apple are.”
Mr Cook added last week that the number of devices in active use had increased by more than 100m units in the past 12 months — pointing to a likely total of 1.4bn active devices, based on last year’s figures.
Many Apple customers own several of its products, with analysts estimating the company has somewhere in the range of 650m to 800m unique customers (the company has never disclosed this figure itself).
In a series of notes on its services business late last year, Morgan Stanley estimated that Apple could increase annual revenues from that division by more than 20 per cent over the next five years, reaching $101bn by 2023.
Yet, despite striking new alliances with Samsung and Amazon, Apple’s media drive is causing alarm among some of the App Store’s most longstanding — and lucrative — partners.
Netflix has removed the ability to subscribe to its service through the App Store, depriving Apple the 15-30 per cent cut that it takes of such subscriptions. Spotify and Amazon have previously taken similar steps to avoid the so-called “Apple tax”, putting at risk hundreds of millions of dollars in App Store revenues.
As Apple grapples with a sudden drop-off in iPhone sales, analysts have speculated that it might make a big acquisition to bolster its growth. Media groups such as Netflix, Lionsgate or even Walt Disney have long been speculated as potential targets for Apple.
Last week, Mr Cook made a pointed reference to Apple’s existing plan to run down its entire $130bn net cash pile — a figure that is almost exactly equal to Netflix’s current market capitalisation.
“We look at many, many companies including very large companies,” Mr Cook told CNBC last week. “We’ve elected so far not to do those because we haven’t found one that we said, ‘wow, that’s a nice intersection of Apple’. But I’d never rule it out.”
