September 22, 2019 Finance and Tech Publication

Former Netflix exec: Apple’s streaming service will ‘absolutely’ be able to compete

Apple has joined the front lines of the streaming war, and a former Netflix and Hulu executive told CNBC on Wednesday that he believes the tech giant will immediately be able to compete with existing rivals.

While Apple TV+’s $4.99 per month cost has drawn praise, some have raised questions about whether its initially slim content offerings will be enough to generate subscriptions from people who likely already pay for a competing service such as HBO, Showtime, Netflix and Hulu.

“You’ve seen with Showtime and HBO, it’s only taken a couple of shows each season to encourage people to maintain their … subscription and I think Apple will absolutely to do that with the current lineup they have in place,” Simon Gallagher said on “Squawk Alley.”

Apple’s stock is up 2.82% on Wednesday and is on pace for its best day since Aug. 13, when it gained 4.23%. It also reached a $1 trillion market cap again.

Apple’s service will feature nine original shows when it launches Nov. 1, and a slew of big-name stars are involved: Jason Momoa, Jennifer Aniston, Steve Carell and Oprah Winfrey.

“I think they are being very deliberate in the initial selections and the genres they have gone after. They have popular genres with absolute marquee, best-of-breed talent,” said Gallagher, who served as Hulu’s director of strategy and business development before joining Netflix as its director of content acquisition.

Users can get a free, one-year subscription if they purchase of a new iPhone, iPad, Mac or Apple TV, the company said.

“If they’re consuming great content, [users] won’t churn out of the service and churn is key metric for these services,” Gallagher said.

Gallagher’s remarks come one day after Apple unveiled its new products and services at its Cupertino, California headquarters.

That includes a trio of new smartphones — the $699 iPhone 11, the $999 iPhone 11 Pro and the $1,099 iPhone 11 Pro Max — that have upgraded cameras and longer battery life, as well as the $399 Watch Series 5, which now as always-on display while keeping its 18-hour battery life.

But the bulk of the attention has been focused on Apple’s service offerings, which in addition to Apple TV+ include its gaming subscription, Apple Arcade. Launching Sept. 19 in 150 countries, it provides subscribers access to more than 100 new and exclusive titles to download from their iPhone, iPad, Mac or Apple TV. It will cost $4.99 per month.

Apple’s foray into video streaming and its gaming subscription represent the company’s latest attempt to lessen its reliance on selling hardware to generate revenue. It has recently seen falling iPhone sales, reporting a 12% year-over-year decline in third-quarter iPhone revenue in July.

Many analysts had expected the cost of Apple’s streaming service to be around $9.99, but its aggressive, lower point has been greeted positively by Wall Street analysts.

At the same time, the video streaming space is becoming increasingly crowded, with Disney, AT&T‘s WarnerMedia and Comcast-owned NBCUniversal soon launching services of their own. Disney’s service, at $6.99 per month, will launch two weeks after Apple’s.

In addition to the lowest monthly cost, Apple has many advantages to compete with the established heavyweights and newcomers alike, Gallagher said. For starters, he said the 1.4 billion Apple devices in use around the world gives it a built-in constituency far greater than, for example, Amazon, which has more than 100 million Prime subscribers.

Additionally, Apple’s ability to market its original shows will likely be an attractive proposition for content creators as they decide which streaming partner to work with, Gallagher said. Consider Apple’s brick-and-mortar stores.

“The foot traffic that they get through the stores, if you think about your ability to promote a new film or TV show through that type of venue, that I think is pretty impressive,” he said.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

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