Why Apple is spending billions to make TV nobody watches

Apple TV+ has a busy March. Ridley Scott’s Napoleon launches on the service starring Joaquin Phoenix as the great man. There’s Kristen Wiig’s new comedy Palm Royale, about Palm Beach society in the late 1960s. And there’s Manhunt, a show that could only appear on Apple TV+, with Tobias Menzies playing Edwin Stanton, Abraham Lincoln’s secretary of war, trying to hunt down the ex-president’s killer John Wilkes Booth.

It follows February’s drop of the heavily Oscar-nominated but zero Oscar-winning Martin Scorsese film Killers of the Flower Moon – a movie that grossed $137 million against a budget of $200 million. For most studios, this would be a deep breath moment. But at the start of February, Apple’s first quarter results saw the company post revenue of $119.6 billion, up 2 percent year over year. It has $162 billion in the bank. It’s currently valued at $2.7 trillion. It can absorb the pain.

The question Hollywood keeps asking is – why would it? It’s making so much money through its other business, the TV operation seems an unusual diversification. Apple is now in a peculiar place. On the one hand, Apple TV+ excels at what GQ recently called Prestige Dad TV. It’s home to projects from Steven Spielberg, Tom Hanks, Martin Scorsese, Michael Douglas, Gary Oldman, Idris Elba, Ridley Scott, Matthew Vaughn, Samuel L Jackson, Brad Pitt and George Clooney. Stars and creatives are lining up to work with them, just as they did with HBO in the 2010s. It’s a safe, non-interfering and highly lucrative home for their latest passion projects.

The company is spending $1 billion annually on movies destined for cinemas and $6.5 billion on TV programming. The budget for season one of the cerebral sci-fi series Foundation was $45 million – which is around the same as the most expensive BBC TV show to date, His Dark Materials, but small fry compared with The Morning Show’s $15 million per episode. Apple has also been buying up projects others can no longer afford. Masters of the Air was in development at HBO from 2013 but in 2019 Apple acquired it when HBO balked at the $250 million price tag.

Coming up this year, we have: Michael Douglas starring in Franklin, a deluxe period drama about Benjamin Franklin trying to persuade France to recognise the newly independent USA; Cate Blanchett, Kevin Kline and Sacha Baron Cohen in a thriller written and directed by Gravity’s Alfonso Cuarón; Sugar, a “genre-bending” private eye mystery starring Colin Farrell; and Presumed Innocent, a legal drama starring Jake Gyllenhaal. To name just a few.

On the other hand, not that many people are watching. Whilst Apple hasn’t released official subscriber numbers since 2019, estimates for its UK base hover around two million, compared to Netflix’s 16.3 million, and in the US, it has 15-20 million compared to Netflix’s 80 million. Only Ted Lasso and Idris Elba’s Hijack consistently made it into the US Nielsen streamer ratings, although an episode of The Morning Show’s third season popped in last October. Apple doesn’t release viewing data in the UK.

There’s also a brand recognition problem, as made clear by a 2023 survey conducted by the industry insider’s website Puck. It found that 20 per cent of viewers who watched Ted Lasso had no idea who actually made it.

This isn’t because it’s making terrible shows. Slow Horses, with Gary Oldman delivering a career best performance, has been critically lauded, as has the Tom Hanks-produced Second World War spectacular Masters of the Air. The likes of Bad Sisters, For All Mankind and Severance are some of the finest TV shows of our time. Yet despite the quality, the vast majority of Apple TV+’s titles have not broken into the zeitgeist.

Remember Nicole Kidman’s Roar? Tom Hanks writing and starring in Greyhound, about a Navy commander tasked with defending Allied ships from German U-boats? How about The Crowded Room, starring Tom Holland – Spider-Man himself – as a patient with multiple personality disorder? Or Tom Hiddleston in the literary period thriller The Essex Serpent? Meryl Streep playing a whale in the futuristic eco sermon Extrapolations? Thought not. What about the Uma Thurman thriller Suspicion? That was cancelled after its first season because no-one showed up. Patricia Arquette’s High Desert, meanwhile, was killed just days after it aired.

“Apple TV+’s hit rate for films and shows, even factoring in their smaller size as a streamer, just isn’t great,” says Hollywood-based blogger and former streamer analyst the Entertainment Strategy Guy. “They had the most misses among streamers by my tracker in the second half of the year, and the size of their hits just hasn’t made up for it. Even in the cases where they do have hits, in many cases those shows are co-productions with established studios, like Ted Lasso. My old-fashioned position is that ‘making money’ is a sign of success.

“Losing money – even if a big company can afford it – doesn’t somehow make the strategy good. It just means the company can afford it, which isn’t the same thing. They had a better 2023 than 2022, I believe, but I still suspect they lost much more than they made.”

This could be the classic streamer strategy – launch with a high end offering then dilute quality as you grow. It’s in the DNA of television for an obvious reason, argues Alan Wolk, co-founder of New York media analyst firm TVREV.

“In the early days of television, 60 odd years ago, NBC may expensive television like Judgement of Nuremberg for a simple reason – only affluent educated people could afford TVs,” he explains. “It’s the same thing with the early days of streaming – an affluent educated audience loved House of Cards. But the mainstream audience doesn’t like that sort of programming. There was some famous advice to Netflix at one point – ‘stop making snobby shows nobody wants to watch.’”

But Apple TV+ isn’t a straightforward streamer. “Apple is a phone company, and its growth came through selling iPhones, more iPhones and then charging more for iPhones until a couple of years ago it realised that the billion richest people in the world have an iPhone,” explains Tom Harrington, analyst at Enders Analysis. “They’ve topped out and have to look for growth elsewhere, so their next big move is – how do we monetise that base? They’ve decided it’s in providing services to that billion.”

At its launch in 2019, CEO Tim Cook said his intention was to “interlock hardware and software” – software here includes TV programmes. The following year, Apple launched Apple One – a single subscription for Apple Music, Apple News+, Apple Arcade or Apple TV+, costing £18.95 per month. Apple TV+ is £8.99, Apple Music is £10.99… you get the picture. Apple’s gross margin for its hardware is just over 34 per cent, according to Julia Alexander at Puck, while the margin for its services business sits at 70.5 perrcent.

“Apple strategy with Apple TV+ is two-fold, and sometimes folks try to focus on one side or the other,” says the Ent Strat Guy. “On one hand, by having valuable subscriptions like for TV, music or gaming, the goal is to sell more iPhones. iPhone and iPad sales have been slowing for years, and customers are owning phones for longer, so the second goal is to generate subscription revenue. I’d argue this point is more important than selling more phones, since it leverages their dominant market position to drive sustainable revenue.”

On phones and tablets. Apple TV+ is available in the Apple TV app. This also bundles Prime Video, Disney+, ITVX, Now, Paramount+ and BFI Player amongst others as well as iTunes movie rental and purchase. Apple reportedly gets 30 per cent of any subscription fee paid to other streamers if clicked through the Apple TV app – but Apple TV+ is the exclusive content, the retention strategy, the reason to stay with Apple and Apple One. For that to work, the streamer has to have enough good content for people to want to stay with it.

“I don’t know if they have fully figured out what they want to do with TV,” says Wolk. “It’s a bit of a mystery,” Harrington agrees. “They don’t really licence content very much. Their process in terms of commissioning is slower than everyone else. They approach content like a tech company with iterations to perfection rather than the TV model where you throw a bunch of stuff out there and sometimes it works.

“So they now win awards, but they don’t have the volume to be a destination and they’re not able to leverage the few hits they have. Ted Lasso was a hit but were people signing up to watch and then searching through other stuff? Not really.”

Barclays analyst Tim Long believes Apple TV+ contributes two per cent of Apple’s services revenue; the company has the financial freedom to test and learn. But Apple executives will, at some point, need to justify to Wall Street why they’re continuing to invest in expensive, premium content when a $250 million bet on Scorsese didn’t even win an Oscar.