Over the next two years, Apple’s growing services business, including the App Store and Apple Pay, could account for 20 percent of the company’s earnings. That achievement could happen even sooner if Apple launches a subscription TV service this fall, according to a report from AppleInsider.
AppleInsider received a copy of a note sent by Morgan Stanley research analyst Katy Huberty to investors this week. In the note, Huberty reacts to the recent reports indicating that Apple might be venturing into the streaming TV business. Huberty believes, based on the amount of news the rumor has generated, that such a service is more likely now than ever before.
Huberty says the price cut on the Apple TV hardware and the exclusive launch deal with HBO Now puts Apple in an excellent position to foray into streaming television. This assumes, of course, they can just work out the details with the content providers. Based on current research, Huberty believes that Apple could add 15 million subscribers to its TV service in the first year alone.
Morgan Stanley recently conducted a survey that found 20 percent of pay TV subscribers are planning to cut the cord and move away from cable television in favor of streaming options. While the 18- to 29-year-old age group is the highest demographic intending to cancel, those aged 30 to 44 and those making more than $75,000 a year are also exhibiting stronger intent to cut the cord. “These data points suggest that cord cutting should no longer be viewed as a phenomenon taking place primarily among younger and lower income cohorts,” Huberty said.
Huberty believes the services category is a key driver of Apple’s increasing revenues, and that this category could constitute 20 percent of the company’s total revenue over the next few years. The services category includes the iTunes and App Stores, Apple Pay, Beats Music, and the rumored television service.
Whether or not Apple’s television service turns into that much of a revenue stream depends heavily on pricing and content availability. There are definitely less expensive alternatives out there to the rumored $30 to $40 price point, including Sling TV. Apple would need to offer a plan that was substantially better than the competition to pull that much business away. Apple is expected to unveil its TV offering in June at WWDC, with an expected launch in the fall.