Apple TV+ keeps it free

Earlier this summer, as Apple reduced the duration of its Apple TV+ giveaway for eligible device buyers to three months from 12, it appeared the tech giant might be reining in its strategy of building reach by offering its service for free over a generous time period.

But  a new arrangement with T-Mobile, introduced last month, suggested the original theory still holds: Apple TV+ is the service that just keeps giving. Although it was introduced in November 2019 with a $4.99/mo price tag, Apple TV+ rose to scale in another way: as a free giveaway to device buyers. When it launched the service, Apple offered iPhone, Macbook, and other gadget buyers 12 months of free access. Later, Apple extended the largesse on two occasions, in October 2020 and again in January 2021, informing the same customers they could continue to get Apple TV+ free through July 2021.

Now, there’s another path to free access: The wireless carrier T-Mobile has introduced a 12-months-free offer for customers (both new and pre-existing) who have T- Mobile’s high-end unlimited wireless plans.

What that means is that some early users might not have to pay for the service for the better part of three years. Instead, they can transfer their Apple TV+ subscriptions to T-Mobile, which has assured newcomers it will honor the full 12-month giveaway even to those who already have Apple TV+ sign-in credentials.

To be sure, this path to netting 32 months of free access will affect only a subset of the total Apple TV+ user base: those who got in early on the giveaway by buying an iPhone, saw their access deals extended, and now, on the cusp of seeing the giveaways end, take up T-Mobile on the new offer. The remainder of the non-paying Apple TV+ users – say, those who aren’t willing to drop a Verizon wireless plan in favor of T-Mobile – presumably will have to start paying once their freebie periods expire.

Loss leader?
We say “presumably” because it’s entirely possible Apple will find new motivation to continue giving the service away. From the start, we’ve seen Apple TV+ as a loss-leader benefit rather than a bid to make money in the streaming video category. This strategy is apparent not just in the willingness to give the service away, but to be unusually permissive with usage, by allowing up to six simultaneous streams from the same account.

That said, Apple’s “services” business is mighty. In the April-June period, the group that includes Apple TV+, Apple Music, Apple News, the game service Arcade, and other digital applications generated $17.5 billion in revenue, up 33% from the same period a year earlier. Within this group, though, Apple TV+ is a small contributor. Even if Apple TV+ has racked up 10 million paying subscriptions (we doubt it), the associated annualized revenue would amount to only about $600 million: $5/mo x 10 million x 12 months. Instead, the game for Apple is to achieve global scale in streaming, and then figure out how to monetize it without depending on subscription payments.

Today, we estimate there may be as many as 54 million Apple TV+ “subscribers,” defined as people who have working passwords and logins. The percentage of these users who actually pay Apple $4.99/mo to be able to watch hit shows like “Ted Lasso” or the forthcoming Season 2 premiere of the Jennifer Anniston/Reese Witherspoon vehicle “The Morning Show” is small compared with the broader base. Apple sells some 50 million iPhones globally every quarter, with most of these transactions including free access to Apple TV+ (now for three months). That average number of quarterly smartphone buyers, for comparison, is more than Hulu’s entire subscriber base for of 39 million. And the total keeps growing: Although some percentage of device buyers never fire up their allotted Apple TV+ credentials, and others already have credentials, a significant share of device buyers represent net additions for Apple TV+.

This recent T-Mobile deal is unlikely to be the last time Apple finds a way to keep Apple TV+ prominent at scale in the modern streaming environment. Although it’s possible other lookalike pairings my crop up with other distributors, there’s no reason these alliances have to be confined to media/telecom. There’s nothing to prevent Apple from teaming up with a large bank, airline company, or any other consumer brand that has broad reach and ongoing relationships with millions of customers. The field of play might even extend all the way to insurance companies or online dating services, for example.

What Apple really wants from Apple TV+ is acceleration of the technology replacement cycle. If having access to the new season of “The Morning Show” compels a consumer to buy a new iPhone a month sooner than they might otherwise, Apple wins. Or, imagine the computer user who’s due for a new laptop. If they’re on the fence about what to buy, a tipping point might be the realization that another year of Apple TV+ is available with one platform, but not the other. Although T-Mobile is the latest Apple partner to dangle free access to Apple TV+ as a drawing card for long-term loyalty, it surely won’t be the last.

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