BUSINESS

Apple Just Pulled A Netflix And Bought 'Carpool Karaoke'

iPhone sales growth is slowing. Is it time to compete with the streaming giants?

27/07/2016 8:35 AM AEST | Updated July 27, 2016 08:35
Chance Chan / Reuters
Apple's revenue and profits are down, with slowing sales of the iPhone largely to blame.

Apple is getting into the TV streaming business just as the once-gushing revenue stream from selling rectangular, glowing devices seems to be dimming.

On Tuesday afternoon, the tech giant announced the surprise purchase of the unscripted TV show, “Carpool Karaoke,” its second foray into original programming. The series, based on a segment from CBS’s “The Late Late Show with James Corden,” will appear first on Apple Music, its streaming service.

“We love music and ‘Carpool Karaoke’ celebrates it in a fun and unique way that is a hit with audiences of all ages,” Eddy Cue, Apple’s senior vice president of internet software and services, said in a press release. “It’s a perfect fit for Apple Music ― bringing subscribers exclusive access to their favorite artists and celebrities who come along for the ride.” 

The announcement came about an hour before Apple released better than expected but still disappointing third-quarter earnings. The world’s most valuable company posted quarterly revenue of $42.4 billion with profits of $7.8 billion, down from $49.6 billion in revenue and profits of $10.7 billion during the same period last year. Slowing sales of the iPhone are largely to blame. 

Apple’s “services” category, which includes Apple Music and its App Store, is one of the only areas of significant growth at the company. 

“They’re in really good shape as a company,” Jan Dawson, chief analyst at Jackdaw Research, told The Huffington Post by email. “But they need to figure out if they can still grow revenues as the iPhone and iPad mature as products and the smartphone and tablet markets start to slow and shrink respectively.”

If Apple can’t squeeze more money out of its traditional hardware business, diving into the TV streaming industry could help. By buying “Carpool Karaoke,” Apple may be “dipping a toe into TV-production economics before diving into a Netflix-scale” streaming endeavor, according to Andrew Wallenstein, the co-editor-in-chief of Variety, Hollywood’s industry bible. 

Adding a Netflix-like stable of original programming would pit Apple Music directly against Amazon Prime. The $99-per-year membership plan, originally made to provide free two-day delivery to shoppers, features a music- and video-streaming service, which last year won Amazon its first-ever Emmy award for the show “Transparent.” 

“When we win a Golden Globe, it helps us sell more shoes, and it does that in a very direct way,” CEO Jeff Bezos said, according to a recent profile in Newsweek. What he means by that is a must-see show draws audiences to Amazon, thereby getting more potential shoppers in the door. Bezos called it a “flywheel” for the company. 

Apple, with its current market capitalization of about $522 billion, doesn’t need to reinvent the “flywheel.” A show on which contestants ― including most recently first lady Michelle Obama ― belt out their favorite songs while driving around isn’t likely to sweep at any award shows anytime soon. But if the market for Apple’s traditional cash cows keeps shrinking, “Carpool Karaoke” may point to what the company needs to do next. 

“In theory they’re all about building differentiation for Apple Music, but we’re seeing some big buys now including ‘Carpool Karaoke,’ which are starting to strain credulity that it’s really about Apple Music,” Dawson said. “It does feel like Apple might be building up to some sort of subscription video service in a roundabout way.”

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