You will be redirected back to your article in seconds

Apple Poised to Take on Streaming Biz as Services Segment Flourishes

The vast majority of Apple’s revenue still comes from iPhones, Macs, iPads and other hardware. But its Services business has become its fastest-growing segment — and hidden within that unit is a content business that’s growing tremendously.

A little more than 80% of Apple’s total revenues over the past year have come from hardware sales, with iPhones accounting for nearly two-thirds of the total and iPads and Macs another 20%. But Apple’s Services segment generated around 13% of the total.

The segment includes iTunes, iBooks and the App Store as well as revenues from Apple Music, Apple Pay and money Google sends to Apple for featuring its search engine in its Safari browser. It’s become the fastest-growing part of Apple’s business, averaging 20% growth year on year even as Apple’s iPhone business has shrunk a little.

source: Company Reporting, jackdaw research Analysis and estimates *excluding Parks & Resorts

The Services business has become so important to Apple that the company has set a formal target of doubling revenues from the segment between 2016 and 2020. But the segment is also something of a black box, containing many different parts of Apple’s business across a range of areas, none of which Apple breaks out explicitly.

Yet it’s possible to arrive at some pretty decent estimates of the size of the constituent parts and, specifically, to break out the content business. That business generated about $15 billion in net revenue for Apple in 2016 — around 7% of its total revenues.

If we look at Apple’s gross take from its content business, the number is even more impressive. On that basis, revenue was nearly $8 billion in the March 2017 quarter, and the scale of the content business is approaching that of some of the largest congloms.

source: Company Reporting, jackdaw research Analysis and estimates

That quarterly revenue number was roughly double CBS’ quarterly income; it was about the size of total 21st Century Fox revenues toward the end of last year; and it eclipsed NBCUniversal business (minus theme parks). The only major content businesses bigger were Time Warner’s and Disney’s. And Apple is rapidly closing in on Time Warner.

This scale and rapid rate of growth make Apple’s content business unique among its peers, and that puts it in a powerful position to invest, even in original content. We’re seeing the start of that effort with a series of acquisitions for videos to play in Apple Music, including a series from “The Late Late Show” host James Corden. But Apple could easily increase that spending if it becomes serious about a stand-alone subscription video offering. So far, the company isn’t trying to compete directly with Netflix, which it sees as a partner and a customer. But there’s no financial reason why Apple couldn’t begin to challenge not just Netflix but Amazon, HBO, Hulu and any number of other players that invest in original content.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

More Voices

  • Stock market Stock buyback

    Stock Buybacks Leave Firms Without Funds to Invest in Future (Column)

    Corporate giants on the S&P 500 have spent more than $720 billion during the past year on stock buybacks. Media and entertainment firms account for only a fraction of that spending, but even $1 million spent on share repurchases seems a foolhardy expenditure at this transformational moment for the industry. The record level of spending [...]

  • Hollywood Has Come Far With Diversity

    An Insider's Look at Hollywood's Diversity Efforts and How Far It Still Needs to Go

    I am a white man working in Hollywood. I grew up in Beverlywood, an all-white, predominantly Jewish, Los Angeles neighborhood sandwiched between 20th Century Fox Studios and MGM, where my elementary school had only one black student. I am compelled to write about diversity in Hollywood because “diversity” — in front of and behind the camera [...]

  • Venice Film Festival A Star is

    How Venice, Toronto and Telluride Festivals Stole Cannes' Luster (Column)

    In all the years I’ve been attending film festivals, I have never seen a lineup that looked as good on paper as Venice’s did this fall, boasting new films by Alfonso Cuarón (“Roma”), Damien Chazelle (“First Man”), Paul Greengrass (“22 July”), Mike Leigh (“Peterloo”) and the Coen brothers (“The Ballad of Buster Scruggs”) in competition, [...]

  • Black Women in Medicine BTS

    Hollywood Needs to Include People With Disabilities on Both Sides of the Camera (Guest Column)

    In five years, nothing has changed. Despite open calls for greater diversity and inclusion, recent research shows that there was little change in the number of characters with disabilities in popular films in 2017. A study conducted by the Annenberg Inclusion Initiative of the University of Southern California’s Annenberg School for Communication and Journalism found that [...]

  • Seven Seconds

    Fighting the Racial Bias at the Core of Hollywood’s Cop Shows (Guest Column)

    If fiction is the lie that tells a deeper truth, the TV crime genre has been, for the most part, the lie that simply tells a lie. As a storyteller (Veena) and an advocate for racial justice (Rashad), we collaborated for the past two-and-a-half years in an attempt to reimagine the roles of cops, victims, [...]

More From Our Brands

Access exclusive content