Carmbo

lkrupp said:

Carmbo said:

The most important piece of this puzzle is the price. The price Apple has announced hits the sweet spot. It’s low enough that quite a few people will give the service a try, even early on with a small number of titles. As to how consumers are going to respond to specific offerings, I would imagine Apple will have hits and misses, just like every other content provider. No content provider has or likely ever will get it right 100 per cent of the time. But a percentage of the offerings will be excellent, no doubt, and at about $5 a month, the service will flourish, as long as Apple resists the urge to significantly increase the cost in the long run. 

What good is a price that “hits the sweet spot” if you can’t make any money with it. No matter what subscription price is asked by content providers someone will rage on about how they would pay $2 but not $7 for the service. And if it turns out Apple is actually offering TV+  as a loss leader or below cost there will cries of anti-competitive practices, predatory pricing designed to hurt competitors, and “LET’S CALL THE LAWYERS”! You know that’s coming. I’m surprised the usual suspects aren't already pushing that narrative. We have absolutely no idea what the cost of TV+ is for Apple compared to the $4.99 they are asking. 

It seems to me that if you have enough subscribers you can make fabulous money at $4.99 a month. Keep in mind that it’s $60 a year so for every million subscribers, you bring in $60 million in revenue. If your total cost to deliver the service is let’s say $1.5 billion annually, then you would need 25 million subscribers, to reach break even. Here’s the thing. As big as that number may be, blowing well past it is not at all ludicrous considering the potential audience Apple has access to, especially on a global scale. I would imagine Apple already has the infrastructure in place to deliver content to a huge audience. There is no cost to Apple in terms of hardware at the end-user level. If anything, Apple makes a profit on selling hardware to consumers. The Internet connection also falls to the consumer. For Apple there is obviously a huge production cost for the content and it has to have in place and maintain the infrastructure to deliver content at its end. Yet, it’s not as if you incur $60 of additional cost annually for every additional subscriber so once you get past a particular point, it could be argued that all additional subscribers are feeding $60 each, annually, of pure profit into Apple’s coffers. This scenario is not the same as selling a product that has a clear cost per unit involved so it alters what makes sense in terms of making money. Less is more in that if your price is attractive enough, you draw in so many subscribers that you make more money at the lower cost than you would charging so much that the number of subscribers is below what you need to cover your costs. Four times as many subscribers paying $4.99 a month is preferable to what you get from a quarter of those subscribers paying $9.99 a month. You could bring in $2.4 billion from 40 million subscribers or $1.2 billion from 10 million subscribers. I doubt the cost of delivering content to an additional 30 million subscribers would cost Apple in the neighbourhood of $1.2 billion. Producing the programming would cost about the same and the delivery would only cost more if Apple didn’t already have the capacity to accommodate more subscribers.


Obviously I’m not privy to the costs involved and no doubt this is a complex process that I can't expertly speak to. Yet I’m willing to bet Apple is better off with 40 million subscribers paying $4.99 a month than 10 million subscribers paying $9.99 a month. Further, increasing the price from $4.99 to $9.99 would, I believe, have that significant an impact on the number of subscribers. My guess is that Apple setting the price so low comes down to it having the potential to generate more profit, not less. Keep in mind that Apple routinely offers decent titles for a lower cost than most other content providers so keeping costs down on this front would not be out of character. When 4K first hit, Apple made the 4K versions of films available, free of charge, whereas to this day, studios are offering 4K blurays at a significant premium to plain old HD blurays. Apple sees this sort of thing differently which is why it makes sense to do its own content, hence controlling the process without the interference of content producers clinging to an outdated model.