Apple (AAPL) may well be the next major company to enter the entertainment industry, as it has made deals with film studio A24 to produce movies and television programming. This also comes after Netflix (NFLX) recently cut Apple out of a setup in which Apple was receiving 15 to 30 percent of subscription revenue for sign-ups made through the Netflix app on Apple products. Those who have already signed up for the service with Apple will continue to subscribe through that company, and Apple will continue to receive a cut of the subscription, but those new to Netflix will now be directed to subscribe through the Netflix website.
These decisions may indicate an adjustment in strategy of some of the largest corporations, which seem to be shifting alliances and plans according to a changing business environment, especially in the entertainment industry. The recent move by Apple to sign deals with A24 suggest a swift entry into the entertainment industry, which would make them a direct competitor to Netflix, as A24 has already developed hit films and shows for Netflix such as Moonlight, Lady Bird, and others.
Problems and risks for Netflix in 2019
Netflix will face heavy competition in the coming year. They already face a challenging future competing with Hulu, which is now owned by Disney (DIS). Disney has, in this past year, also acquired 21st Century Fox, which owned about a third of Hulu. This means Disney is now in charge of all 21st Century Fox and Hulu products and intellectual properties. Along with the recent news that Netflix had lower-than-expected revenue, this increased competition from Apple and Disney could mean increased risk in Netflix, particularly as bigger companies continue to look to streaming for a more diversified income stream.
The problem with competition from Apple and Disney is the infrastructure both companies would bring to the industry of streaming services. Disney already has major movies and TV shows that will be available only on Hulu, as well as a very diversified line of programming and entertainment. Apple has a major competitive advantage because of its resources and ability to bundle its products on its iPhones, iPads, and Apple TV. Or consider Amazon (AMZN), which is having success with Amazon Prime. Although its original content is not as popular as Netflix, it also deserves mention in the increased competition for digital streaming content and programming.
Apple entering the industry to become a direct competitor to Netflix is very unsettling news for Netflix, especially if Apple is able to take away great studios from Netflix that have produced well-received programming. The year ahead is almost certain to be a challenge for Netflix, but it prove lucrative for Apple, which has been struggling with the challenges of the trade war with China and slowing iPhone sales. They may be looking to diversify their revenue stream with a very profitable product that would give the sort of return investors expect from Apple. They have a large supply chain in place with their products, and Apple TV to create original content that can help diversify their portfolio and mitigate risk to their business.
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