Mic Drop #43: Marketing Apple TV+
If Apple solved for marketing TV+ software, only, would that solve for Apple’s pain points around Apple TV+ content marketing?
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Today’s original plan was to write about how both Warner Bros. Discovery and AMC Networks have become bellwethers for understanding how legacy media will navigate cord-cutting plateauing at 40MM-50MM householders in the U.S. (or maybe more if vMVPDs continue to get more traction).
But, this morning Jessica Toonkel of The Information published a must-read update on Apple TV+ today in Apple, a Streaming Punchline No More? ($ - paywalled).
When a piece like this comes out, offering more detail and insight than we had before, inevitably I revisit and re-evaluate what I’ve written in the past year on Apple TV+.
Here is a quick list:
Mic Drop #34: Apple TV+ & Churn (June 2021)
Member Mailing #266: Netflix & Verizon Test Bundling Streaming with Gaming ($ - June 2021)
A Short Essay on Apple TV+ (April 2021)
Mic Drop #13: Apple Extends Its Free Trial for TV+ (January 2021)
Apple TV Plus ($AAPL) at One & the Apple One Bundle ($ - November 2020)
Mic Drop #1: Not one, but *five* mic drops from January 2020 Predictions (September 2020)
The piece worth revisiting after the publication of Apple, a Streaming Punchline No More? is A Short Essay on Apple TV+, which built off Kara Swisher’s interview with Apple CEO Tim Cook on the Sway podcast in April.
I wrote that Cook’s interview offered “a reasonable answer to critiques of TV+”:
Apple is taking their time building out a library of original content (they just hired Jessie Henderson, former executive vice president of feature films for WarnerMedia’s HBO Max, to “ramp up” these efforts), and they can point to success with awards nominations and wins.
But, I still can’t reconcile these answers with the marketing of Apple TV+. Its best marketing message to date is that it is free, and that it will continue to be effectively free for the foreseeable future (NOTE: I imagine they will extend the trial after July, too, simply because they don’t have the catalog, yet.)
But, I also thought his answer was a “red flag”:
as much as Apple understands how to market hardware to consumers unusually well, it does not seem to understand how to market content to consumers. The open question is, will Apple ever figure out content marketing for TV+?
In other words, Apple is a hardware and software company that could not figure out how to market content.
After read Toonkel’s entire article, I realized there is a third question I implied but not didn’t ask, above:
If Apple solved for marketing TV+ software, only, would that solve for Apple’s pain points around Apple TV+ content marketing?
That answer was always been implied in the Apple One bundle marketing (which I wrote about last November ($ - paywalled), and is a “first-party aggregator 2.0” bundle of services).
It also was implied in Roku’s announcement in April that Apple TV+ would replace Sling TV on Roku’s Voice Remote Pro. Toonkel’s piece does a good job of helping to flesh out further this dynamic of Apple betting on software marketing over content marketing":
In the past, Apple hasn’t marketed many of its shows aggressively before they come out, an issue for a number of studio executives interviewed by The Information (though there are exceptions like the heavily promoted “Ted Lasso”). Apple TV’s marketing group—led by Zack Van Amburg’s brother, Chris Van Amburg, also a former Sony Pictures executive—hasn’t shared much detail with its studio partners about the objectives of marketing campaigns: for example, whether they’re aiming primarily to acquire subscribers or to raise awareness for individual shows.
But there are signs Apple is getting more serious about marketing the streaming service and its shows. It plans to spend north of $500 million on promoting Apple TV+ this year, according to a person who spoke to Apple about the topic. It couldn’t be learned how much the company spent in 2020, though it was likely significantly less. Apple’s expected market budget, though generous, is small compared to the $1.1 billion Netflix spent on marketing during the first six months of 2021 alone.
Apple is expected to spend some of that with manufacturers of connected TVs and set-top boxes, people familiar with the company’s spending said. While there are a variety of ways to advertise streaming services on these devices, one of the most coveted spots is a dedicated button on remote controls, which makes it much easier for viewers to access a particular service. Apple’s discussions with Roku over such a deal were led by Peter Distad—a former Hulu executive, now working at Apple, who knew how effective having a button on Roku’s remote controls was in gaining customers for Hulu’s service, according to a person familiar with the situation.
In sum, Apple’s marketing objectives for Apple TV+ content remain fuzzy. Toonkel’s piece includes an anecdote about treating last year’s release of Mythic Quest where Apple “wanted to treat it like an Apple product release,” and was talked out of it by the show’s star and showrunner, Rob McElhenney.
But, in betting more on a software-focused approach to marketing Apple TV+, Apple seems to be finding more wins for the service.
In particular, it seems one of the best answers they have found for marketing their TV+ software is via third-party connected TVs and set-top box hardware.
Michael Beach of Cross Screens Media did some helpful calculations on the cost to Apple (and revenue to Roku) from this bet last week:
So, software marketing seems promising enough that they’re willing to invest at least $60MM per year, or 12% of its $500MM marketing budget, on this approach.
But, that leaves a logical question: how will the remaining $440MM be spent?
$440MM Outside The Apple Ecosystem
As I was writing this essay, this tweet from a Microsoft executive surfaced in my feed:
I think this point about Cost of Goods Sold (COGS) — really Cost of Revenues for streaming — implicitly nails the answer to the disconnect between hardware, software and content marketing that is hiding in the background of this piece.
Effectively, the tweet implies that marketing TV+ as software helps to expand Apple TV’s footprint both within the Apple ecosystem and beyond Apple devices. In other words, a focus on software marketing helps Apple to build its own version of Netflix’s “ubiquitous access”.
Within the Apple ecosystem, more TV+ subscribers and usage leads to more Services revenues from existing Apple device owners.
Outside the Apple ecosystem, TV+ expansion will help to expand the base of Apple Services users. That will drive down the number of Apple devices needed to be sold to expand TV+, while boosting Apple’s Services COGS at at least one-eighth that of Products (Services was $5.3B, and Products was $40.9B in Q2 FY21 alone).
Services revenue is recurring and predictable, and as Apple increases its content production slate to weekly, Customer Acquisition Cost (CAC) will go down.
Users will have less reason to churn out.
Also, marketing for services within Apple’s ecosystem is effectively zero marginal cost.
So, if that $440MM is spend entirely outside of the Apple ecosystem (which I think it will be), it will be only 40% of Netflix’s H1 FY21 marketing budget, and could end up being less than 20% of Netflix’s FY21 entire marketing budget ($2.23B in FY20) by year’s end.
Apple has been laying the foundation for a fantastically cost-effective marketing model for the future of TV+, and one much more cost-effective than Netflix’s at 8x the reach (1.6B Apple devices vs. 209MM+ subscribers). With more users within Apple’s ecosystem than outside of it, $440MM in additional content marketing becomes highly efficient spend.
Conclusion
The answer to the question “will Apple ever figure out content marketing for TV+?” is, yes. It has been doing so beneath our noses the entire time (literally, that is where the Apple TV+ button the Roku remote will be).
With this deeper dive into Apple’s software marketing and content marketing, above, we now have a better sense why it has emphasized the former over the latter, even if at the expense of optics.
Apple is building out its own model of “ubiquitous access” by focusing on software distribution, first.
So, to close, a little mic drop for the original question I asked teasing out the deeper answer here:
