Last Monday at New York’s Beacon Theatre, Apple unveiled a product it hopes can help the world’s most valuable company maintain its cutting edge: the 71-year-old rock god Patti Smith.
Smith and her band took to the stage after a screening of an Apple Music documentary about her classic 1975 album Horses.
To a packed house, and under the watchful eye of the outgoing Apple Music executive (and Patti Smith producer) Jimmy Iovine, Smith’s performance – joined by Bruce Springsteen for two numbers – appeared as a foretelling of Apple’s remedial strategy and future direction.
The world’s most valuable public company releases its latest results on Tuesday and has no doubt, once again, sold billions of dollars worth of iPhones. But as the iPhone ages, it’s increasingly clear that Apple is looking for new sources of revenue, and Smith is part of that effort.
Big tech is moving into content production and distribution. For three years, the company has been hiring from the design and luxury industries – including top executives like Paul Deneve, the former CEO of Yves Saint Laurent, and Angela Ahrendts, the former CEO of Burberry.
It hired or consulted with Iovine, Dr Dre and Nine Inch Nails’ Trent Reznor after Apple acquired Beats By Dre in a $1bn acquisition and briefly repurposed them for the launch of Apple Music, which has now gained 36 million subscribers and is poised to overtake its music streaming rival Spotify in the US.
Rumors have even circulated that Apple is looking to buy parts or all of the troubled magazine publisher Condé Nast, a move that would further its push, initiated with the Apple Watch, to become a luxury fashion accessory, lifestyle and content brand.
Can Apple buy its way out of trouble? On the surface that seems a ridiculous question for a company that made $61bn last year and is expected to have sold 54m iPhones in the last three months.
But no matter its size, Apple still faces a big test on Tuesday. As the tech giant releases its first-quarter numbers, analysts worry they could expose further weakness in consumer demand for the company’s top-line products.
Based on reports from Apple’s Asian supply chain partners, the company could be about to lower production targets for its iPhone X, the $1,000 model that has failed to meet sales expectations.
In mid-March, Apple stock peaked at $182; its stock price fell to about $162 last week, dropping over five straight Wall Street trading sessions.
“The street has gone into ‘full panic mode’,” the GBH Insights analyst Daniel Ives said in a client report.
Ives said that bad news from Asian suppliers correlated with “softer demand and $1,000 sticker-shock price points on iPhone X”. The big question, he added, was what demand for Apple’s iPhone range would look like after the company launched its 12th-generation model in September.
Patti Smith is a small part of Apple’s plan B. Gene Munster, a longtime Apple watcher and Loup Ventures analyst, estimates the company will ramp up its spending on original content in video, music and publishing to $4.2bn by 2022 from $1bn this year and $500m in 2017.
“Historically, Apple has been a platform for distributing content but increasingly they want to create their own content and that changes their whole profile,” said Munster.
Apple, he reasons, is in a similar position to Amazon in that it doesn’t want to make a ton of money from content but views it as a means to growth.
“We think that content is always king and the tech companies are starting to understand how king content can drive their businesses. In Apple’s case that’s selling iPhones, in Google’s case it’s advertising, and in Amazon’s that’s selling Amazon Prime memberships.”
The Condé Nast rumors may stem from Apple’s acquisition last month of Texture, a digital magazine subscription service part-owned by Condé Nast. Senior Apple executives said they were “committed to quality journalism”.
Analysts think an acquisition unlikely. “It’s a well-traveled road of rumors of Apple buying content companies, typically a studio,” said Munster. Sadly for Condé, and others, people are less interested in paying for written content than video and music, he said. “It’s within the scheme of them paying for more content, but I think Apple has their sights set on video and music more than the written word.”
Apple’s increased spending on content still leaves it short of the subscription darling Netflix ($6.8bn), or the surging Amazon, which is expected to increase its spending on original content from $4.5bn to $8.3bn.
“Over the next five years, we think there’s going to be one single offering for video, music and print content. These essentially vertical subscriptions are focused on one type of content – music, video (Netflix or HBO) or print. So the concept is to create all-in-one offerings for different types of media,” said Munster.
Apple’s acquisition of Condé Nast, whose US operation is believed to be losing $100m a year while its foreign operation is marginally profitable on similar revenues of around $1bn, would doubtless be a headline-grabbing move. But while media is a growing business for Apple, and it is reported to want to acquire and produce as many as 10 television shows, it has yet to register an original video content hit.
Apple’s Planet of the Apps, a reality show about app developers, and Carpool Karaoke, a spin-off of James Corden’s hit late night segment that features celebrities singing in a car together, have not gained traction with audiences. Apple also purchased the rights for a TV project from Damien Chazelle, the Oscar-winning writer and director of La La Land, and a Reese Witherspoon-produced comedy show.
“While the reviews have so far been dismal, they have launched their own original content,” said Munster.
In music, too, Apple has missed a beat. Its success with Apple Music comes after five years of struggle that led it to rebrand Beats Music as Apple Music and follow Spotify and others as consumers showed more willingness to pay for music on a subscription basis than by the track.
A future in which Apple offers video, music and publishing content at $15 a month is probable, Munster says. Like Amazon – or Netflix – Apple sees rich sources of future revenue from subscriptions to content in the cloud.
At the Beacon on Monday, Apple learned – as it did when it automatically inserted a free U2 album into customers’ iTunes libraries – that not everyone is grateful for its sponsorship.
When Smith thanked Apple during her performance, her gratitude was met with boos. The singer deftly sidestepped the issue, retorting that maybe one of the hecklers needed the bathroom.
“I normally just piss in a can or dig a hole,” she added before launching into her Radio Ethiopia track “Pissing in a River”.