Apple News+ is struggling to attract paying readers, and Apple TV+ is “failing to resonate with customers”
What’s going on with Apple’s Services business?
The company declared 2019 was the biggest year for Services in Apple’s history, and only last week—announcing the financial results for its fiscal 2020 first quarter—Apple announced an all-time record for Services.
But moving beyond the “reality distortion field” of Apple PR, all appears not to be well in the Services family. At least two of its crown jewels, Apple News+ and Apple TV+, are showing signs of trouble brewing.
“No one wants to pay for Apple News+”
The head of business for Apple Inc.’s news app stepped down this week, less than a year after launching a high-profile subscription product that has struggled to attract paying readers, reports Bloomberg.
The outgoing executive, Liz Schimel, joined in mid-2018 after serving as the president of international business at Condé Nast, and Apple is now looking to hire a notable name from the publishing world to replace Schimel, the report said.
No one wants to pay for Apple News+.Caitlin McGarry, Gizmodo’s Consumer tech editor
“Apple News+ appears to be a flop,” says The Motley Fool’s Evan Niu, “with reports suggesting that Apple has been unable to grow the subscriber base beyond a couple hundred thousand. Publishers are reportedly frustrated with the premium news service, as Apple hogs half of all subscription revenue and ad revenue is poor due to the lack of sophisticated targeting.”
To ramp up subscribers count, Apple has been considering bundling News with Apple TV+ and Apple Music as soon as this year, Bloomberg reported earlier. In the meantime, the company has advertised heavily for Apple News+ and offered promotions, apparently without much success.
A CNBC report, late last year, indicated News+ got 200,000 signups within 48 hours, but the company has struggled to add customers since then.
In the earnings conference call last week, Apple CEO Tim Cook said News “draws over 100 million monthly active users in the US, UK, Australia and Canada,” but he didn’t report specific subscriber figures or break out how many publications are participating in the service’s paid version.
While Apple News+ was promoted heavily at launch, Apple hasn’t been highlighting the service much as of late. Apple TV+ instead has been taking the spotlight.
But trouble is brewing on that front too.
Apple TV+ is “failing to resonate with customers”
While Apple didn’t provide a lot of details about Apple TV+ on its earnings call, Bernstein analyst Toni Sacconaghi did some calculations from the scant info the company provided, and found that less than 10% of customers eligible for 12 months of free Apple TV+ have signed up.
That means fewer than 10 million consumers opted to take advantage of the free 12-month trial, less than the number of subscribers rival Disney+ signed up in a single day. That’s surprisingly low, more so since Apple offers a year of Apple TV+ free to anyone who purchases a new iPhone, iPad, Mac or Apple TV set-top box, and roughly 90 million devices were sold in the holiday quarter.
Sacconaghi speculated that Apple TV+ may be “failing to resonate with customers, perhaps due to its limited content offerings.”
An expert panel hosted by UBS suggested that Apple TV+ “needs a mega-hit original series to ultimately retain subscribers,” adding that the company “may likely have to ultimately also acquire an asset with a big backlog of catalog content — most of which will be very expensive at this point.”
Apple’s streaming-video service has gained limited traction with consumers, and this could represent a cautious signal.Ryan Vlastelica, Fortune
“If having just a pair of shows among the top 20 trending shows on Rotten Tomatoes was a bad look for Apple TV+ back in November, that’s two more than it has on that list today,” says The Motley Fool’s Rick Munarriz. “Apple TV+ thought it had a healthy cadence of releases to follow its launch titles, but it no longer has the attention of the fickle streaming customer.”
Meanwhile, in the first 3 months following its launch, new entrant Disney+ has already acquired 28.6 million paid subscribers, the company’s CEO Bob Iger said during its first-quarter earnings call this week, and that too without offering the same level of free promotions as Apple TV+.
A recent study by research firm Piplsay found that 36% of Americans have dropped another subscription in favor of Disney+, and more than 50% say that Disney+ is as good or better than Netflix.
Subscription growth stagnates
Overall Apple’s services business grew less than expected in the first-quarter results, in a performance that was seen as disappointing. Apple’s paid subscription growth seems to have stagnated, as demonstrated in the chart below, by The Motley Fool’s Evan Niu.
Because of high cost, turning a profit on Apple TV+ will be impossible for at least a few years, says Ed Barton, chief entertainment analyst at Ovum.
Analyst Simon Dyson believes Apple Music faces even bigger financial challenges. The streaming music service has a large number of subscribers, but it also has high costs.
It’s competitor Amazon Music revealed its subscriber numbers for the first time—more than 55 million customers worldwide—and based on last reported numbers by both companies, Amazon Music seems to be growing at a faster rate than Apple Music.
It’s a similar story with Apple’s Podcasts, Arcade, and other streaming content, which haven’t generated much revenue, according to a report by Fortune.
Twist in the tale
But it may not be all doom and gloom for Apple services. “There is more to services than profits,” the report notes. “Apple uses its services business to get people to buy its hardware.”
“Everything is designed to drive and retain hardware purchasers, and the ecosystem of Services and content is a critical part of that,” Barton notes.
“Apple snapped out of a slowdown in its smartphone business by introducing new services,” Tripp Mickle from The Wall Street Journal points out.
And in that larger context, the apparent spluttering might actually be the sound of the Apple Services engine revving up, and we still have a long way to go before we reach the end of this story.