Why Apple is Primed to Take a Bite Out of Live Sports
Apple is still a relatively small player in the streaming market. But it has big plans which we'll be reviewing in this article
Shares of Apple (NASDAQ: AAPL) are approaching their 52-week high and many analysts believe AAPL stock could cross over $200 per share by the end of the year. If it does so, it won't be exclusively due to iPhone sales (although those sales still are strong).
As many shareholders know, Apple has been growing its "Services" business unit for some time. In its most recent fiscal year, that unit generated some $80 billion in revenue. For some context that was about a quarter of the total revenue the company generated for the year.
And Apple is still a relatively small player in the streaming market. But it has big plans which we'll be reviewing in this article.
A Pioneer in Streaming
Apple entered the streaming game back in 2007 with AppleTV. At the time, the service offered no original or syndicated content. It was largely a way for existing Apple customers to cut the cord.
However, it soon became clear that cord-cutting was as much about curated content as it was about digital delivery. That drove the success Netflix (NASDAQ: NFLX) and coined the phrase Netflix and chill. And Netflix quickly realized that if it could get consumers attracted to its library of syndicated content, it could attract even more subscribers with original content.
That strategy has worked but it comes at a cost. Original content is expensive to produce and as Netflix is finding out, you can only raise your prices so much before consumers say no more. Unless of course, they are using someone else's Netflix password. That's another problem with the streaming model.
For its part, Apple largely ignored the original content model until they couldn't ignore it anymore. But in fitting with the company's business model, the company is focusing on quality above quantity. And the strategy appears to be working the company recently won awards for Apple originals such as Severance and Ted Lasso.
Live Sports is Becoming the Cash Cow of Streaming
However, original content only takes you so far. Consumers are apparently becoming savvier. A trend in the industry is consumers who sign up for a service, binge-watch a show that they wanted to see, and then cancel the subscription. While this may only be a small part of the overall audience, it's a potential problem in an industry where quarterly subscriber numbers can have a significant impact on a company's stock price.
That's where the interest in live sports comes in. After all, the benefit of live sports is … it's live. So, consumers must stay engaged with a platform to access the live sports they want to watch. And in the United States one of the primary draws when it comes to live sports is the National Football League (NFL).
According to some industry insiders, Apple is the leader in the bidding to get the NFL Sunday Ticket contract when it's existing contract with DirecTV expires after this season. This is a logical extension of Apple TV's foray into streaming Major League Baseball games this season.
It will come with a price. Forbes reports that it will cost Apple approximately $2.5 billion for the rights to the Sunday Ticket. That's significantly more than the $85 million the company is paying Major League Baseball. However, investors shouldn't be too concerned. Apple generated nearly $93 billion in free cash flow in 2021.
Broadening Its Ecosystem
According to Wedbush, as of January 2022, Apple still lags its competitors in terms of total streaming numbers. The streaming service has approximately 20 million paid subscribers which is about 6% of the total market. Since Apple isn't a company that's known for doing things halfway, the move into live sports makes sense.
Apple's decision to go "below the line" to broadcast live sports is a direct shot at a company like Amazon (NASDAQ: AMZN) which obtained the rights for the NFL Thursday Night Football contract. It also helps position Apple against other companies like ESPN whose parent company, Disney (NYSE: DIS) has its own streaming service as well as NBC's Peacock streaming service.
And that says nothing of the effect Apple's move could have for a company like FuboTV (NYSE: FUBO) which has touted the combination of live sports with an integrated sportsbook as its unique selling proposition as a streaming alternative to traditional cable.
Ultimately, your decision to buy AAPL stock should depend on many factors, and the growth of AppleTV is not the primary factor. However, Apple makes no secret about the importance of its Services revenue to its overall growth. With that in mind, it's also not something that should be ignored particularly with possible integrations with augmented reality and virtual reality.
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