All the businesses Apple wants to disrupt — and whether it can

  • By David Marino-Nachison,
  • Barron's
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Apple (AAPL) doesn’t want you to see it as just a hardware company anymore.

The maker of the iPhone on Monday announced four new efforts aimed at growing its services revenue as demand for its flagship phone levels off. Taken together, they amount to a major shift in direction for Apple, which has defined the smartphone era. They also offer a glimpse of the company’s vision for the future of consumers’ relationship with digital services.

Apple stock closed down 1.2% on Monday, on a day the broader S&P 500 (.SPX) was largely flat. But it was back up 2% in Tuesday morning trading, out-pacing a 0.9% gain for the benchmark index.

Two of the initiatives unveiled at Apple’s big event in Cupertino, Calif., were widely expected: the streaming video service Apple TV+, and Apple News+, a newspaper and magazine subscription offering. (News is the only one you can buy today.) The company also announced Apple Arcade, a videogame subscription service, and the Apple Card, a credit card to advance company’s financial services ambitions beyond just digital payments.

Here are the four businesses Apple wants to shake up—and some early indications of the challenges it faces.

Credit cards

Apple already offered Apple Pay, a mobile digital wallet, which it said Monday has 70% retail penetration in the U.S. Now it’s getting further into consumer payments with the no-fee, cash-back Apple Card, a joint effort with Mastercard (MA) and Goldman Sachs (GS).

Much as Apple has offered its services as a health adviser through its fitness-tracking watches, it’s now positioning itself as a financial aide with clear and useful spending summaries, and tools for calculating and choosing repayment options.

Rewards that are more generous if you use Apple Pay, meanwhile, may help grow that product. We’ve written about the possibility of an Amazon.com-like (AMZN) “Apple Prime” product before, and this doesn’t really accomplish that—but it might be a small step in that direction, even if the prices of some of the other services aren’t yet known.

Meanwhile, Apple’s announcement described the physical version of its credit card—for use where Apple Pay doesn’t work—as “beautiful.” Can a credit card be beautiful?

We’ll see. Apple said it would offer substantial privacy protections so Apple itself won’t know “where a customer shopped, what they bought or how much they paid.” Some other important details, such as how missed payments will be handed, weren’t clear.

Visa stock (V) was mostly flat Monday, while American Express stock (AXP) was down 0.4% and Square stock (SQ) was off 0.7%.

Videogames

There has been speculation for some time that Apple, which already sells games by the iPhone-load in its App Store, would get deeper into videogames at a time when the industry is moving into the cloud.

We’ve raised the possibility that Apple might buy a major studio as it looks to quickly acquire high-profile content. Monday’s Apple Arcade announcement took another route.

It will feature more than 100 new, exclusive games. Noted publishers Sega and Konami were mentioned in the launch announcement. Apple said it would include portability across Apple devices, and won’t include any apps or upsells.

Apple didn’t give a price for the service. Also missing: Those major publicly traded studios and their highly publicized, expensive-to-produce, games. This may signal a focus more on the mass market, with the company saying the games “will be great for families.” That doesn’t sound like a shot across the bow of franchises like “Call of Duty” or “Grand Theft Auto.”

Still, the announcement positions Apple as an early mover in subscription-based streaming gaming. Launching in the fall could make it an option for holiday-season hardware buyers—especially if it’s priced right.

Activision Blizzard stock (ATVI) and Take-Two Interactive stock (TTWO) ticked up slightly Monday, while Electronic Arts stock (EA) was down 0.6%.

News

Apple has tried to get major publishers on board with a bundled subscription news product. Some well-known publications, including The Washington Post and the New York Times (NYT), aren’t participating in Apple News+.

But more than 300 newspapers and magazines are in, including The Wall Street Journal, which is owned by Barron’s parent company News Corp . (NWS).

Those that aren’t taking part will surely be curious about those that are. Broadly speaking, the industry faces stiff challenges, and some publishers have balked at the financial and user data requirements Apple reportedly required. TheJournal’s participation, the newspaper wrote, includes the right to drop out and surfaces mainly “general” news, though its entire output is searchable.

Nevertheless, the new service—available now for $10 a month—offers a new potential source of recurring revenue for publishers looking for alternatives to advertising—and sources of new readers.

A platform that publishers find advantageous would be welcomed by the industry, though it’s competing with a widely held consumer preference for free content. Apple executives said Monday that the bundle of content News+ represents would cost thousands of dollars separately, but $10 a month is still a lot more than free.

Streaming video

Apple TV+ was the main attraction. The company announced both a subscription service for original video—promising ad-free, “inspiring and authentic stories with emotional depth and compelling characters”—and a new Apple TV app for a range of devices that will let people watch and purchases channels and individual programs.

The Apple “channels” service, which launches in May, will include HBO and a range of other well-known providers—but not Netflix (NFLX). The offering may sound familiar to those who access other pay channels through Amazon.com or Roku  (ROKU).

Amazon stock closed up less than 1% Monday, while Roku climbed 4.7% to $66.90.

Apple, notably, will make the new app available on Samsung smart TVs this year, with Amazon, Roku, Sony (SNE), and other platforms coming later. That should substantially grow the reach of the marketplace. Some analysts think Apple could grow toward 100 million streaming users, which would put it a fair bit behind the nearly 150 million Netflix projects for the end of the first quarter.

Without more information about pricing, it’s difficult to know the effect Apple TV+ could have on an increasingly crowded marketplace.

Apple clearly isn’t spending on content the way Netflix is. That, combined with Netflix’s absence from Apple’s platform, would seem to point toward it being part of a household’s menu, but not necessarily the first choice.

For now, the increasingly crowded streaming video scene just looks more crowded.

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