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A Billion Here, A Billion There

Rumors this week that Apple plans to spend $1 billion on original content in 2018. My first reaction is that, man, those Apple folks have expensive hobbies. My second reaction: $1 billion in Hollywood typically results in a good time followed by total disaster. My third reaction: this could be the smartest thing that Apple has done in a long while.

Why? Read on….

Original Content Has The Highest (Potential) ROI Of Anything In The Video Ecosystem
Imagine if Apple set out to clone one of the existing MVPD services. The biggest cost (by far) would be that of licensing the minimal set of legacy channels needed to be competitive. While these deals don’t generally include big up-front payments, they do require minimum commitments in order to get competitive pricing.

Whether (in this hypothetical situation) Apple was sitting across the table from Disney/ESPN, Time Warner/HBO, Comcast Universal/NBC, CBS, or any of the other major providers (including a suddenly stronger Discovery-Scripps Networks Interactive combination), getting these deals done would require a significant commitment of resources. And for what? Such a service would provide exactly zero differentiation for Apple.  Sure, the content providers love to sign up these deals, collect the minimums and let legacy and virtual MVPDs alike bash each other’s brains in, but what exactly would Apple get for its $1 billion in that scenario? Not much.

Original content is different game. Apple’s original content library will belong to it and no one else. Not just that, original content will give Apple something interesting on which to spend its already-committed marketing dollars, without benefitting other content owners. Do you think Apple enjoys seeing ads (by it or anyone else) showing Game of Thrones? Yeah, me neither. Apple originals completely solve this problem at no marginal cost on the marketing side. Now all those iPhones, iPads, and Macs can just use Apple content to demonstrate their pretty screens, whether in-ad or in the nearly 500 Apple stores around the world.

Make Shows, Not Channels
In the old days, getting into the content business meant you had to launch a linear channel. Among other things, having such a channel meant you had to put something on it, and all the time. In the case of the national broadcasters, this meant primetime shows from fall to spring for three hours in the evenings, and cheap soap operas, game shows, and local affiliate news broadcasts the rest of the time. In the case of Nickelodeon, this meant more Spongebob reruns than any parent would their children to see.

In the new world of TV-as-an-app, Apple faces none of these problems. Apple (and other content providers) can make as few (or as many) shows as it wants. Discovery’s Shark Week only featured about 15 hours of truly new content. The BBC produces only a handful of Sherlock episodes per year. The combination of scarcity and quality makes viewers want the content more, not less. I believe this is the path Apple will follow –- relatively few, high-quality shows that (1) generate some excitement upon release, and (2) have decent shelf life thereafter.

Premium Content Costs Vary (Wildly)
So what should Apple spend its $1 billion on? Well, we can start with what not to spend it on — namely big-budget, star-studded scripted entertainment (i.e., movies). Contrary to what it might think, Apple is not Disney, and trying to create Star Wars would be one of the dumbest moves possible. Just ask the producers of Valerian or The Dark Tower –- two big budget originals which sound good in concept (and even look kind of cool on screen) but were total busts with audiences.

The second area to avoid is anything related to current mainstream sports. Look what Twitter’s $10 million experiment with the NFL got it — nothing. Amazon’s $50 million boondoggle is not likely to do any better, but that’s a different topic. The point is that spending money on existing sports just benefits the sports leagues –- there’s nothing there for Apple.

More promising areas include fun reality series like the aforementioned Discovery’s Shark Week. Perhaps more promising are nonfiction nature or science-themed shows in the vein of Nova or Nation. Sure, that’s a lot, but science is dirt cheap compared to Hollywood titles. As well, this could be a good branding move by Apple –- go with something both universal and a little bit geeky that demonstrates its commitment to quality with maybe even a nod to Apple’s deep roots in the educational world. Go get some starving PBS producers, send a camera up in to space, and shoot it in 4K while you are at.

4. The Best Premium Content Creates Its Own Monetization
As discussed above, Apple can afford to play the long game with respect to monetization. The marketing benefits alone will justify the initial investment, so Apple could, in theory, just give the content away to everyone with an Apple device via iTunes. Obviously, totally free is not a tremendously sustainable business, but high-value content is always more amenable to monetization.

Lady Gaga was able to shift from album sales to YouTube videos and live shows without missing a beat because her fans love her music and she has an extremely unique brand. Not every singer can do the same. Likewise, the Star Wars franchise generates so many dollars that Disney could (almost) give the movie away for free and still make a ton of money.

The point is that the video content team at Apple should follow that old chestnut from a thousand high school graduation speeches : Do what you love and the money will follow.

Apple is not an ordinary content provider. Not many companies on earth can afford to spend a billion dollars on content without much worry (if at all) what they get out of it in the short run. This gives the folks in Cupertino a great opportunity to do something new and unique within the premium TV category. We wish Apple well, and can’t wait to see what $1 billion dollars can do in this market context.

Stick with TDG and stay ahead of the curve.

Joel Espelien is a Senior Advisor for TDG and serves as an advisor and Board Member to technology start ups. He lives near Seattle, WA.