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The Long Game

Tim Cook, pushing to Prime?

Moving the Market: Tim Cook's push into Hollywood, which will manifest today with the launch of Apple TV+, is often portrayed as part of a simple strategic pivot taking place at Apple: iPhone sales are slowing, so Apple is investing in services like music, games and TV to offset the declines.

• This is only a small part of the story. There is a much more significant shift taking place at Apple, which is that it is likely transitioning away from one-time sales of specific hardware and services and toward an all-encompassing subscription model not unlike Amazon Prime.

• In an Apple Prime scenario, Apple would charge subscribers a single monthly fee that would give them access to free hardware upgrades (new iPhone, new Apple Watch, etc.) as well as the full slate of Apple services, including iCloud storage, Apple Music, Apple TV, etc.

• Rather than paying, say, $699 for a new iPhone, $199 for Apple TV, plus $2.99 a month for iCloud storage, plus $9.99 for Apple Music, plus $4.99 for Apple TV+, then having to pay $699 again two or three years later for a new iPhone, you'd pay one set monthly price and get all of these things.

• For the consumer, the subscription would provide everything Apple has to offer at a discount. For Apple, it would give them an even more entrenched consumer base while freeing them from their overreliance on iPhone sales.

This is where Apple TV+ comes in. Just as Prime TV helps Jeff Bezos get more consumers to buy a monthly subscription to get all their household goods on Amazon Prime, Apple TV+ could sweeten the deal for consumers who are considering a subscription to this future, all-inclusive Apple bundle.

• If you're skeptical that a small library of original content (Apple TV+ has nine shows so far) is going to tip the scales in consumers' minds, remember this: One, the library will grow significantly. Two, all it takes are a few big hits to garner attention.

• More importantly, Apple has roughly one billion phones out in the world, and Apple TV+ will also be available on Roku, Amazon Fire and Samsung smart TVs. So even if just a small percentage of them are enticed by Apple TV+, that will be significant.

The big picture: Contrary to much of the conventional wisdom, Apple isn't just investing in services to offset declines in iPhone sales. It's investing in a future where iPhones and services are sold together to drive subscriptions and keep people in the Apple universe, using both the hardware and software.

• Which means Apple TV+ doesn't need to live or die based on its ability to compete with other streaming services like Netflix or Disney+. It just needs to provide Apple ⁠— or, Apple Prime ⁠— with a little extra added value.

What's next: "My perspective is that will grow in the future to larger numbers," Cook said of subscriptions during his earnings call this week. "It will grow disproportionately,”

What's next: The weekend.

See you Monday.