Apple TV+ subscriptions & ads predicted to generate $25 billion per year by 2025

Posted:
in AAPL Investors edited December 2019
JP Morgan analyst Samik Chatterjee says that more than three years after Tim Cook started highlighting Services revenue investors are starting to appreciate that aspect of the company -- and Apple TV+ plus the potential of dramatic advertising revenue growth will lead the charge.




In a note seen by AppleInsider, Samik Chatterjee from JP Morgan is predicting a big future for Apple TV+ and Apple's services, driven not just by subscription volume, but by the potential to grow advertising dollars flowing into Apple's coffers. As a result of this strength, Chatterjee sees only upsides for Apple, reflected by his growing his stock price estimate by $10 to $290.

Chaterjee sees a big advertising opportunity within Apple's services, given larger market trends. The user base of about one billion iPhones, and Apple's "successful exploration of advertising to-date" may entice Apple to do so, predicts the analyst.

Apple Search Ads in the App Store

If Apple amped up advertising in Apple TV+ and the App Store, Chatterjee says that revenues could increase 33% per year to $11 billion in fiscal year 2025, growing from an estimated $2 billion now.

It's not at all clear if Apple will do any of what Chatterjee thinks it will, however. At present, other than trailers for other Apple TV+ programming and product placement for its own line of hardware, Apple isn't running ads in Apple TV+. However, in the last fiscal quarter, Apple reported its highest-ever revenue from Apple Search ads in the App Store.

To further grow this line of business, Chatterjee says that Apple will have to expand the one ad per keyword search limit that it presently has on the App Store.

Apple Search ads have been controversial. The primary argument against them, is that they confuse discovery in the App Store for all, with some reports that they aren't generating adequate revenue from sale conversions versus what they cost.

Another avenue of possible growth is by charging Google more to be the primary search engine on iOS. Apple accounts for about $14 billion of Google's $30 billion in traffic acquisition cost annually. Chatterjee predicts that this equates to about 17% of global advertising revenue, which Apple could theoretically claim more of, if it expands its own efforts.

Introduced in 2016, Search Ads added promotional listings for apps at the top of searches within the App Store, targetable by keyword, device type, location, schedules, and other metrics. In 2017, Apple added a basic tier that catered towards smaller developers and teams, including a streamlined sign-up process, simplified developer payments, and fees based on installations rather than ad interactions.

Apple TV+ is only in the early days

Chatterjee isn't basing his stock price valuation hike on imminent revenues from Apple TV+. He predicts that paid subscribers will be limited, because of Apple's wide-ranging 12-month trial for purchasers of new devices.

However, given the $4.99 cost, he sees a "slow ramp" of paid subscribers for the next year, and a "healthy percentage" of the early adopters to renew in the fall of 2020.

In September 2020, Chatterjee predicts only 2 million Apple TV+ paid subscribers. Assuming there are no other free offers, he expects that to dramatically expand to 101 million paid subscribers with a growth curve very similar to Apple Music, all of whom will contribute $4.99 a month to Apple's bottom line.

Apple CEO Tim Cook took to the stage at the March 25 event to deliver what he ultimately called a "sneak peek" at the new streaming video service called Apple TV+. In a presentation that was replete with star names, Apple would only say at the time that the service is coming in the fall and be available via the Apple TV app.

The service debuted on November 1, for $4.99 a month. It is not yet known if Apple would offer bundles with its existing Apple Music, the Apple News+ service -- but a report has recently reiterated the report that Apple is looking into bundling.

Comments

  • Reply 1 of 13
    spice-boyspice-boy Posts: 1,450member
    Does anyone else find the Apple TV interface confusing or is it just me. I'm not talking about the main screen where you find Netflx, HBO, etc but within the Apple TV home. Apple is promoting shows from Showtime and other streaming companies adjacent to their own programs. What a mess.
    chemengin1williamlondonricmacrogifan_newtomowa
  • Reply 2 of 13
    thrangthrang Posts: 935member
    spice-boy said:
    Does anyone else find the Apple TV interface confusing or is it just me. I'm not talking about the main screen where you find Netflx, HBO, etc but within the Apple TV home. Apple is promoting shows from Showtime and other streaming companies adjacent to their own programs. What a mess.
    I'm not a fan of it either, but I think it's a very democratized approach to make sure partner providers don't complain they are being given second or third class status when competing for eyeballs.
    pscooter63
  • Reply 3 of 13
    $30 Bln in traffic acquisition ? WHAT THE FUCK. #1 search engine #1 video platform #1 maps app, what the hell is Google spending $30 billion dollars on ? $14 Bln just on iOS, holy shit, wasn't it around $4 Bln max ? $14 Bln seems excessive to me, are these numbers accurate? I mean compered to Google, Yahoo, Bing and Duck Duck are all garbage, does GOOG really think people wouldn't notice the difference if all of a sudden all safari results poped up as Bing powerd Crap ? Yes sure many iOSers have strong feeling regarding Google but how many average joes and janes would stick to a product that was even 10% wost than what they are used to in the name of #"ScrewGoogleTracking", is that default really worth $14 big ones ? I'm having a hard time with this one.
    edited November 2019 cornchip
  • Reply 4 of 13
    All quibbling aside, we're a few days into our 7-day free trial, and we're very much enjoying "The Morning Show" and "See".

    These are really quality productions: great casting, intriguing story lines, beautiful camera work, effects, and editing.

    And today we have a new episode of each to watch tonight.

    If Apple can maintain this quality in general, Apple TV+ has a good chance of being yet another success for them.
    cornchipStrangeDayswilliamlondon
  • Reply 5 of 13

    spice-boy said:
    Does anyone else find the Apple TV interface confusing or is it just me. I'm not talking about the main screen where you find Netflx, HBO, etc but within the Apple TV home. Apple is promoting shows from Showtime and other streaming companies adjacent to their own programs. What a mess.
    The Apple TV app aggregates shows from multiple apps. If you click into a particular channel (HBO, ATV+, Showtime, etc) then you see only content from that app. It's not a mess, it's aggregation. If you don't like that, you can also open the apps themselves.
    williamlondon
  • Reply 6 of 13
    gatorguygatorguy Posts: 23,422member

    spice-boy said:
    Does anyone else find the Apple TV interface confusing or is it just me. I'm not talking about the main screen where you find Netflx, HBO, etc but within the Apple TV home. Apple is promoting shows from Showtime and other streaming companies adjacent to their own programs. What a mess.
    The Apple TV app aggregates shows from multiple apps. If you click into a particular channel (HBO, ATV+, Showtime, etc) then you see only content from that app. It's not a mess, it's aggregation. If you don't like that, you can also open the apps themselves.
    I kinda agree with the OP (and several others who have said much the same)... It's a mess for many of us. You like it and that's OK. 
  • Reply 7 of 13
    entropysentropys Posts: 3,594member
    One of the reasons people are prepared to pay for a streaming service is no bloody ads.
    chasmtomowa
  • Reply 8 of 13
    gatorguy said:

    spice-boy said:
    Does anyone else find the Apple TV interface confusing or is it just me. I'm not talking about the main screen where you find Netflx, HBO, etc but within the Apple TV home. Apple is promoting shows from Showtime and other streaming companies adjacent to their own programs. What a mess.
    The Apple TV app aggregates shows from multiple apps. If you click into a particular channel (HBO, ATV+, Showtime, etc) then you see only content from that app. It's not a mess, it's aggregation. If you don't like that, you can also open the apps themselves.
    I kinda agree with the OP (and several others who have said much the same)... It's a mess for many of us. You like it and that's OK. 
    Thanks for your approval!

    Happy to hear you'll have better luck opening the apps directly rather than using an aggregation app. Phew, good thing nobody was forcing you to use one vs the other.
    edited November 2019 williamlondon
  • Reply 9 of 13
    chasmchasm Posts: 2,522member
    It's worth noting that Chatterjee has been one of the most consistently-misguided analysts on the present scene. I'm glad he foresees growth in Apple TV+ but I predict the curve on it won't be anything like that of Apple Music. Apple Music has a 50M song database driving it, Apple TV+ offers a slender amount of all-new content -- this is what makes it different from other services, yes, but that's also a riskier venture than ... oh let's say Disney+ ... and so the subscriber base and growth are going to be a fraction of something like Apple Music or said alternative streaming service.

    If my math is right, a typical person can take on 5-6 streaming video services (at an average cost of about $8/month) and still be saving significant money over traditional cable. And remember, you can "rotate" the services (after a year of Netflix, jump over to Prime Video the following year -- for example). No ads is super appealing for many of my age and younger, as is on-demand. For me, streaming services (even in these early days) is the answer to a long-held dream to pay only for stuff I actually enjoy watching and nothing else.
    williamlondon
  • Reply 10 of 13
    entropys said:
    One of the reasons people are prepared to pay for a streaming service is no bloody ads.
    That's not what the story is saying; it's talking about Search Ads in the App Store. There is no mention of advertising in the section on Apple TV+. Also, if Apple did that they'd be breaking their promise - stated clearly on the Apple TV+ section of their website - "Always ad-free and on demand."
  • Reply 11 of 13
    Honestly, nearly all of the streaming service apps have issues of one kind or other, but Apple has their work cut out for them. For the user who downloads content and has no WiFi connection while watching, the Apple TV+ UI is very poorly thought out. And I’ve noticed the app fails to clear its memory after deleting content, this is called “garbage collection” in programming. This is an example of Apple failing to adhere to their own coding guidelines. 
  • Reply 12 of 13
    19831983 Posts: 1,225member
    At $5 a month or even free, I don’t see Apple TV+ catching on anytime soon. Due to lack of compelling content, and even much of the limited content they already have is weak and hasn’t reviewed well either. It’s by far the weakest of all current streaming services. I personally am not interested at all so far! Over a 100 million payed subscribers for the service within a few years as predicted here...dream on! It’s not the same as Apple Music at all, as Apple is creating the content itself and is not just buying it in like with the music streaming service. And music is just a lot easier to implement and provide immediate gratification for users, everybody loves music! With video it’s a lot more work to get quality content that people want to see.
  • Reply 13 of 13
    All these so-called analysts throwing out ridiculous figures like this...one has to wonder what their motivation is. They’ve obviously got clients that want to to hear this.
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