David Paul Morris/Bloomberg
Apple Inc. is very much still in the investment phase when it comes to original-video content, but one analyst predicts these efforts could turn into a profitable endeavor in just a few years.
Amit Daryanani of RBC Capital Markets wrote Monday that a combination of Apple’s original-video efforts and its Apple Music service could lead to between $10 billion and $12 billion in annual revenue three years from now. Music and video could also contribute between 25 cents and 75 cents to the company’s earnings per share, he added.
Analysts currently project that Apple will post $13.72 a share in earnings in its 2021 fiscal year, according to FactSet.
RBC’s prediction is notable because Apple’s original-content ambition is often thought to be a money-losing endeavor for the company, merely part of its efforts to hook more users into the ecosystem. Apple is expected to spend upward of $1 billion on video this year, but Daryanani’s thesis is that these investments will more than pay off by helping to make Apple Music stand out among rivals.
Daryanani’s model assumes that the company is able to amass 100 million or more paying Apple Music subscribers within three years and that the company continues to price the service at $9.99 per month. Apple has perhaps 40 million Apple Music subscribers currently, but analysts in general model fast growth for the industry. Analysts tracked by FactSet predict that Spotify Technology SA will have 122 million paying members by the end of 2019 and 151 million by the end of 2020, up from 75 million as of the end of the latest quarter.
Though Daryanani doesn’t factor in a price increase, he contends that Apple might have the leverage to do so, given that Spotify and Hulu charge $12.99 for a package that includes both music and video.
Apple recently said that it has formed a content partnership with Oprah Winfrey. The company also has deals with Reese Witherspoon and Jennifer Aniston. Daryanani wrote that Apple has roughly 40 people working on its content team, including two former Sony executives who are heading up the efforts.
The company’s initial attempts at original content, which included a series-length version of the “Carpool Karaoke” sketch and a show about the creation of iPhone apps, were viewed by many as lackluster, especially with companies like Netflix Inc. and Amazon.com Inc. spending billions of dollars on content each year.
Apple shares are up 24% over the past 12 months, while the Dow Jones Industrial Average has gained 13%.