A Wall Street analyst savaged Apple's TV strategy

Apple used to say its TV ambitions were a “hobby.” Earlier this month, Apple CEO Tim Cook has said “
television has intense interest with me and many other people” at Apple.
Apple revealed the next stage of its plan to conquer TV on Thursday: a new app for Apple TV, iPhones, and iPads simply called “TV.” Apple says it’s designed to tie together different video services and put the content you want to see in one place.

At least one Wall Street analyst says cracks are already showing in Apple’s plan. Pacific Crest analyst Andy Hargreaves and team say Apple’s TV strategy “is flawed,” “needs a reboot,” and “demonstrates the weaknesses of Apple’s hand” in a note distributed to investors on Friday.

“We believe its current efforts in TV are flawed and have little potential to develop into a sizable business. A change of direction is likely necessary for consumers, potential partners, and investors to take the company seriously in the space,” Hargreaves writes.

The biggest problem Pacific Crest sees with Apple’s TV strategy is that it is “not meaningfully different than competitors products” and there’s no incentive for the big players in the space — like Netflix or Amazon — to share data or content with Apple.

Apple’s TV app does integrate with HBO, Showtime, CBS, and its iTunes video store, but it does not include Netflix, Amazon Prime Video, or YouTube, which Hargreaves points out are the three most-consumed video services in the United States. “The gap in consumption between these services and the ones included in Apple’s app is massive,” he writes.

In fact, according to bandwidth data from Sandvine, Hargraves estimates the TV app only has content that makes up less than 10% of total streaming consumption.

An alternative strategy

Hargraves sees two ways Apple’s TV ambitions can get back on track. It could:

  1. Try to integrate linear content — TV watched as scheduled — with on-demand content into a better interface for a subscription-type service. Apple unveiled some features to help surface live video in this TV app, especially sports, but it’s primarily a Siri voice-activated feature and not a subscription service.
  2. Buy (or start) a streaming video service “with global scale.” Hargreaves doesn’t mention any possible targets, except for the market leader, Netflix, but does say that Apple would have to pour billions of dollars into this project to get it off the ground. (Netflix has a market cap of $54 billion and Apple would likely have to pay a premium on top of that to buy it. There is no obvious “Beats” of streaming video to target.)

The funny thing is that Apple has tried to build its own linear content-based subscription service from 2011 to 2015, but it was stymied because it could not lock in deals with the content providers, reportedly, because Apple blew the negotiations.

“I find it pretty funny how many people have been calling for a la carte TV, including Tim Cook, and are now wanting all those apps to be put back together into one point of interaction, or ‘guide.’ The big cable bundle has been successful for a reason,” Hargreaves said.

Pacific Crest gives Apple a 12-month price target of $129.

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