Apple Just Bought Its First Original Movies

0 0 Julius Choudhury September 13, 2018 Edit this post

In this representational picture, former Apple Chief Executive Steve Jobs introduces full-length, high resolution movie downloads from the iTunes website to the crowd at an Apple media event at the Yerba Buena Center of the Arts theater in San Francisco, Sept. 12, 2006. Photo: REUTERS/Dino Vournas

By Evan Niu, The Motley Fool

Slowly but surely, Apple (NASDAQ:AAPL) has been amassing a catalog of original video content that it will inevitably include in a video streaming service. On the last earnings call, CEO Tim Cook made the most direct reference to date regarding the forthcoming service, saying that the company is "not really ready to share all the details" about what it "will eventually offer." What's less clear is when the service will be ready to launch, but it goes without saying that Apple will want a strong slate of original content for the debut.

The list of shows that Apple has already bought only continues to grow, but thus far the content has all been TV shows.

Adding movies to the mix

Bloomberg reports that Apple has secured the rights to two movies, both of which are family-oriented films. The first is "Wolfwalkers," an animated movie made by Cartoon Saloon, an Oscar-nominated animation studio based in Ireland. Apple had reportedly been in talks with the studio over the summer, and director Tomm Moore has confirmed the deal on social media.

Here's a concept trailer for "Wolfwalkers" shared by animation news site Cartoon Brew in 2017:

The other film that Apple acquired distribution rights for is "The Elephant Queen," a nature documentary narrated by Chiwetel Ejiofor, according to the report. Apple's TV execs Zack Van Amburg and Jamie Erlicht, which Apple poached from Sony in June 2017, have been on a spending spree, after reportedly getting allocated a $1 billion budget for original content about a year ago.

Video streaming will contribute to services growth

The video streaming service is part of Apple's broader services strategy, hoping to double services revenue by 2020 to approximately $50 billion. The Mac maker continues to make steady progress as it marches toward that goal, with trailing-12-month (TTM) services revenue now at over $35 billion. There are two major reasons why Apple is so interested in growing its services business: Recurring services revenue is highly profitable and is not subject to the seasonal fluctuations that its consumer hardware business

Apple also knows that it can count on broad swaths of its loyal user base to sign up for such a service. The market rate for over-the-top (OTT) streaming services is $10 to $15 per month. If Apple can grow video streaming subscribers to a level comparable with Apple Music, which now has 40 million paid subscribers, that could potentially represent annual revenue of $400 million to $600 million.

"Cord-cutting, in our view, is only going to accelerate and probably accelerate at a much faster rate than is widely thought," Cook said in July. Apple wants a piece of that unstoppable trend.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.