Last week, Apple Inc. (Nasdaq: AAPL) surprised investors by announcing a new deal with Oprah Winfrey to create exclusive original content for Apple. Apple has a long way to go to catch up to Netflix ( NFLX) and Amazon.com ( AMZN) when it comes to original content, but analysts say the Oprah deal will be the first of many big content deals Apple announces in the next couple of years.
Apple has already teamed up with director Steven Spielberg, actors Reese Witherspoon, Jennifer Aniston and Octavia Spencer, basketball star Kevin Durant and others to create original programming, but Oprah is by far the biggest name Apple has landed up to this point.
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The financial terms of Apple’s deal with Oprah have not been announced, but the company previously said it is committing about $1 billion to original content in 2018. GBH Insights head of technology research Daniel Ives says that number will start to climb very quickly if Apple fully commits to competing with Netflix and Amazon.
“We believe this is just the tip of the spear for Cook and Co. launching an aggressive video content strategy over the next 12 to 18 months,” Ives says.
He predicts Apple’s content budget could more than triple to between $3 billion and $4 billion in 2019. But in a fiercely competitive environment and with content costs rising by the day, even $4 billion may not be enough for Apple to make up any ground for Apple. Ives estimates Amazon will spend about $6 billion on content in 2019, and Netflix could top $10 billion in content spending next year.
Nevertheless, Apple has a unique distribution network of roughly 800 million global iPhone users and a balance sheet that is brimming with cash, and Ives says Apple isn’t afraid to take a chance on streaming.
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“Now is the time for Cupertino to pave the way for a standalone subscription service to launch by late 2019, in our estimation, as the content strategy could represent a key growth vehicle for further monetizing the all-important software/services, which we believe is key to Apple’s growth prospects over the coming years,” Ives says.
If the Oprah deal is a sign of more aggressive content spending from Apple in the near future, Ives says it’s certainly a positive for investors.
GBH Insights has a “highly attractive” rating and $200 price target for AAPL stock.
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Oprah Deal Hints at Apple Inc. (AAPL) Streaming Service originally appeared on usnews.com
