Apple TV+

Apple TV+ is the subscription video-on-demand (SVOD) streaming service from technology giant Apple Inc. Launched on November 1, 2019, it represents Apple's ambitious entry into the so-called “streaming wars.” Unlike competitors such as Netflix or Disney+, which often feature vast libraries of licensed movies and TV shows from other studios, Apple TV+ has taken a different path. It focuses almost exclusively on “Apple Originals”—high-budget, premium original content featuring A-list actors and creators. This curated, quality-over-quantity approach is designed not just to compete for your screen time, but to serve a much larger strategic purpose. For a value investor, Apple TV+ isn't just another streaming service; it's a critical component in the powerful Apple ecosystem, a tool designed to enhance the value of its hardware and lock customers into its high-margin services.

From a value investing standpoint, the most interesting question about Apple TV+ isn't whether it will “win” the streaming wars, but how it strengthens Apple's overall business. It's a classic case of looking at the entire puzzle, not just one piece.

Apple is famous for its “Walled Garden“—a closed ecosystem where its hardware, software, and services work seamlessly together, making it difficult for customers to leave. Apple TV+ is a key brick in this wall.

• A Strategic Loss Leader: On its own, Apple TV+ is likely not a massive profit center. Its relatively low price and the astronomical cost of producing original content mean its standalone margins are thin or even negative. However, its true value is in what it encourages: sales of iPhones, iPads, and Apple TV devices. It's often bundled for free for a period with a new hardware purchase, making Apple's expensive products even more attractive.
• Increasing Stickiness: By offering compelling content like Ted Lasso or The Morning Show, Apple increases the stickiness of its ecosystem. If your family loves an Apple Original show, you're less likely to switch to an Android phone or a Windows PC. This raises the switching costs for consumers, a key feature of a business with a strong competitive advantage.
• Fueling the Services Engine: Apple TV+ is a headline product in the Apple One bundle, which packages several services like Apple Music, iCloud, and Apple Arcade for a single monthly fee. This strategy pushes users deeper into Apple's services, which are the company's fastest-growing and highest-margin revenue source.

Apple has reportedly spent billions of dollars on its original content. For an investor, this “content spend” is a crucial line item to understand. The costs for creating a show are capitalized as an asset on the balance sheet and then expensed over time through a process called amortization. The key question is about the Return on Investment (ROI). Is Apple getting a good return on these billions? The answer isn't just about subscriber revenue. The true return is measured in increased hardware sales, lower customer churn, and the overall growth of the high-margin Services division. Apple is playing a long game, betting that premium content will fortify its brand and ecosystem for years to come.

When analyzing Apple and the role of Apple TV+, you need to look beyond the headline numbers and focus on the metrics that truly matter.

Apple is often coy about releasing specific subscriber numbers for Apple TV+, partly because so many users are on free trials or promotional bundles. While the total number is a useful guide, these metrics provide deeper insight:

• Average Revenue Per User (ARPU): This shows how much money Apple makes from each user. A rising ARPU is a healthy sign, indicating that the service is successfully converting trial users into paying subscribers or upselling them into more expensive bundles.
• Churn Rate: This measures the percentage of subscribers who cancel their service each month or year. A low churn rate suggests customers are happy with the content and see value in the subscription. It's a direct indicator of stickiness.
• Engagement: While Apple doesn't release viewing hours, investors can look for proxies. How many awards are Apple's shows winning? Are they part of the cultural conversation? The success and buzz around a hit show can have an outsized impact on attracting and retaining subscribers.

You won't find “Apple TV+” as a separate line item in Apple's earnings reports. It's rolled into the 'Services' category, alongside the App Store, Apple Music, iCloud, and others. This is the most important takeaway for an investor: Apple TV+ is a key driver for the growth of Apple's Services revenue. This segment is critically important because its gross margin (the profit left after accounting for the cost of providing the service) is significantly higher than the margin on hardware like the iPhone. By growing its Services division, Apple becomes less reliant on cyclical hardware sales and transforms into a more resilient, more profitable, and more predictable company—all qualities that a value investor cherishes.

For a value investor, Apple TV+ should not be analyzed in a vacuum. It's not a standalone business fighting to be the next Netflix. Instead, it is a brilliant and expensive marketing tool, a strategic weapon designed to protect and enhance Apple's fortress-like business model. It strengthens the company's powerful brand, increases customer loyalty, and fuels the growth of its most profitable division. By helping to widen Apple's overall economic moat, Apple TV+ is a perfect example of a single product serving the greater good of a dominant and highly valuable enterprise.