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Morningstar | Apple TV+ Opens With a Thud; New Service Launches Into Very Competitive Market in Fall 2019

At its Show Time event on March 25, Apple unveiled its long-awaited video streaming service, Apple TV+, which will feature its original content. The service will launch this fall as an ad-free service in over 100 countries for a price to be disclosed later. While Apple has secured projects from several high-profile creators and actors, including Oprah Winfrey and Steven Spielberg, the amount of content available at launch appears paltry when compared with Netflix and Disney+. By waiting to launch until this fall, Apple will be competing against not only established services like Netflix and Hulu but also against other new services from media firms with much deeper content libraries like Disney and WarnerMedia. We maintain our wide moat rating and $130 fair value estimate for Disney along with our narrow moat ratings and fair value estimates of $200, $135, and $37 for Apple, Netflix, and AT&T, respectively.

After an overly long video about creativity, Apple essentially held a network upfront presentation with creators and actors coming onstage to discuss their respective shows. However, the presentations did not feature any clips from the shows, and Apple overall showed one brief montage video for the entire TV+ presentation. While the star power of the celebrities on stage was impressive, we found the lack of show clips disappointing.

Between the lack of clips and price point, we did not see any reason for either Netflix or the traditional media firms to be worried about Apple at this point. While Apple’s entrance into the space will drive up the ever-increasing cost of producing content, we note that the estimated $3 billion in content spending by Apple prior to launch is equivalent to the combined annual spending by Discovery and Scripps as separate firms. While the two media firms focus on lower-cost unscripted content, we think the relatively low total spending by Apple highlights the lack of content that will be ready for the service's launch in the fall.

The firm also redesigned its Apple TV app to highlight Apple TV Channels, which allows users to purchase subscriptions to individual streaming networks like HBO Now, CBS All Access, Starz, and others. The app will be the home to Apple TV+. In order to increase the reach of the app, Apple TV will be available on smart TVs along with Roku and Amazon’s Fire TV.

Among other services shown at the event, the firm previewed Apple Arcade, a mobile video game subscription service that will feature new and exclusive games for a flat fee. Apple will support smaller studios with both financial and development support in exchange for exclusivity for iPhone, iPad, Macs, and Apple TV. The service will launch with 100 new full-feature titles that will not have any microtransactions. Arcade games will be downloaded via the App store and will be available to play offline. The service will launch in the fall with pricing not yet disclosed. Given the exclusive nature of the service, we don’t expect major releases from the major publishers to join Apple Arcade.