Apple’s hit factory

by Jan Dawson   |   April 23rd, 2014

I’ve spent time over the last few months poring over technology and content company financials. I’ve been struck by the fact Apple resembles as much as anything a movie studio, with results much lumpier than most tech companies, driven by big hits. I’ve been meaning to write something about this for ages, but never got around to it. Walt Mossberg has penned a piece making a very similar comparison, though with some important differences. My initial inclination was “oh well, I guess I won’t write that post after all,” but a Twitter discussion with Brian S Hall changed my mind, because there are other ways in which Apple resembles a movie studio beyond those which Mossberg highlighted. And perhaps more than any other studio, Apple resembles Disney.

How so? Well, there’s the obvious comparison about big hits – just as the iPhone is the biggest selling phone, Disney’s Frozen just became the biggest selling animated movie ever, as many of Disney’s previous films have before it. But less obviously, Apple has created a business in which several product lines feed each other in a virtuous circle. I recently re-encountered this diagram from 1967, which shows how Disney thought about all the different parts of its business and how they fed each other:

disney synergyYou might need to click through to see the details, but you’ll see all the different parts in a very synergistic way – movies providing material for books, opportunities for merchandising, ride ideas for Disneyland, etc., with other parts reinforcing each segment of the business, but with the Walt Disney Studio very much at the center.

At Apple, hardware products, notably the iPhone, iPad and Mac, are at the center. But they also feed other parts of Apple, most importantly the parts currently growing most strongly: iTunes, Software and Services, and especially the App Store. Growth rates for Apple’s various reported segments are shown in the chart below, on a year-on-year, trailing 4-quarter basis. Even as hardware sales in all four categories have slowed, growth has stayed fairly strong in iTunes and Software and Services.

Apple growth ratesiTunes, Software and Services (and especially the App Store) in turn are a big part of the appeal of Apple’s hardware, providing a wide range of content, games, productivity tools and so on, which make Apple’s devices more compelling. And though these content businesses once existed almost solely for that reason, they now likely make money in their own right. Then there’s the increasing integration between Apple’s hardware lines with things like iCloud, Notification syncing, Maps and so on, which further strengthens the virtuous circle. These things taken together are some of the reasons why Apple continues to be uniquely successful with its very focused business model, premium focus and emphasis on the user experience.

The challenge for Apple is I suspect investors do see it as a movie studio, but only in the sense it’s a company heavily reliant on hits, about which there’s extremely limited visibility before they arrive. This overlooks two important facts: firstly, the virtuous circle described above, which means much of the appeal of Apple’s two major product lines isn’t the new hardware, but everything else that’s tightly integrated into it. Secondly, Apple is, like Pixar, producing hit after hit after hit, however improbable that may seem. Yes, it’s theoretical Pixar will release a dud at some point, but its core values and creative process ensure it never has so far, and unless those things change it likely never will. And it’s no coincidence Steve Jobs helped found both companies.

So yes, Walt, Apple is like a movie studio. But not quite in the way you suggested it was.

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw, a technology research and consulting firm focused on the confluence of consumer devices, software, services and connectivity. During his thirteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.
  • Kenny

    while i agree with some of your observation, however i do not believe that you can compare Lets says Apple to disney for many reason.

    Good or bad the majority of parents will watch the next Pixar movies with their children because is a cheap family activity, compared to buying an iPhone that most consumers consider as an investment. therefore a bad iPhone launch or a bad Apple’s product Launch will not be the same as a bad Disney movie.

    • http://www.tumblr.com/blog/his-divine-shadow His Shadow

      Your reply is why no one should ever use analogies ever. Many people are far too literal in their thinking to refrain from making unwarranted extrapolations from the analogy.

  • stefnagel

    Spot on. And like Disney, Walt, was fascinated with light and motion, Jobs was fascinated with the magic of our moving electrons around to make things happen.

  • klahanas

    Absolutely excellent piece!

    I lurk around the arguments of Wall Street vs. Apple (lurk, because I just don’t care). This sheds a fresh look on the matter, and cuts through ambiguity like a hot knife through butter.

    Apple is extremely like Disney. All Disney, all the time. I just don’t care too much for Disney either…

  • Jared Porter

    And like Disney, Apple will grow stronger and reach even higher despite the death of its iconic founder.

  • Mauryan

    Is this because Steve Jobs learned something by working with Pixar and eventually Disney? If Apple follows a model that resembles Disney, I somehow see an influence of Disney on Steve Jobs.

    • http://www.beyonddevic.es/ Jan Dawson

      Steve Jobs was co-founder at Pixar as well as Apple. I think certain of his key principles heavily influenced Pixar as well as Apple. Not least waiting until the product is just right before “shipping” even if it’s painful and delays launches. So I think it’s more accurate to say Jobs influenced both, rather than that Disney (which only acquired Pixar later) influenced Jobs.

      • http://www.yourmaclifeshow.com/ Shawn King

        Sorry but no, he wasn’t. He bought Pixar from George Lucas. Pixar was founded as The Graphics Group in 1979. Jobs bought the company in 1986.

        • http://www.beyonddevic.es/ Jan Dawson

          Pixar as a company was created when Jobs purchased that business from Lucas. Hence, Jobs was a co-founder of Pixar. Toy Story was launched in 1995. As such, fair to say the culture that created Toy Story (and all the hits since) was heavily influenced by Jobs as a co-founder of the company he helped start. The technology existed before, but Pixar as a separate entity with its own culture was heavily Jobsian.

  • jimstead

    You’re right. And Mossberg is right. And then there’s the fact that Steve admired and wanted to emulate Disney the man.