Apple’s Aggressive Pricing on New Services Reflect Their Strategic Importance

on September 13, 2019
Reading Time: 4 minutes

Apple led off its September keynote this week by offering a closer look at its two new upcoming services, Arcade and TV+. The company invited developers on stage to show off some of the new games coming to Arcade, which launches September 19th and showed previews of some of the shows coming to TV+ when it launches November 1st. The company also announced that each service will cost $4.99 a month (after a week-long free trial) and that people who buy a new iPhone, iPad, iPod Touch, Apple TV, or Mac will get a year free of TV+. This aggressive pricing, especially around TV+, represents just how important the success of these new services is to Apple.

Apple Arcade
Apple’s new gaming service will let players access games on their iPhone, iPad, iPod Touch, Mac, and Apple TV. It includes more than 100 new games exclusive to Apple Arcade, and it will first role out Sept 19th with iOS 13. It will come to iPad OS and tvOS on Sept 30th, and to MacOS Cataline in October. Apple has also announced support for third-party controllers including Xbox Wireless Controllers with Bluetooth, PlayStation DualShock 4, and MFi game controllers.

Apple Arcade is interesting in that, unlike other gaming services on the market, Apple has focused on serving casual gamers rather than the hardcore players. This has the potential to cut both ways, as it represents a much larger total available market, but those players are—by definition—less invested in their gameplay. That said, I’ve always questioned the validity of the label casual gamer. Most people who play a game do it to win, and that can mean coming back to a game over and over until they’ve completed it. Just because it’s a “casual” game doesn’t mean people approach it casually.

That’s clearly one of Apple’s goals with Apple Arcade. To offer a wide range of top-shelf games in the hopes that a few catch on with each player. This makes the subscription cost a no-brainer to anyone who wants access to those few games to kill time while they’re waiting in line at DMV, stuck waiting for their kid’s school to let out, or sitting on a plane waiting to take off. By pricing the service at less than $5, I imagine a significant percentage of players will set it and forget it.

Apple TV+
Perhaps more surprising was the $4.99 price point for TV+. Unlike Apple Arcade, there are plenty of comparable services to Apple+, from Netflix to Hulu to Disney+ and more, and they all cost more than five bucks. Plus, as noted, when you buy new hardware from Apple, you get a year-long subscription for free. As others have noted, the free-year-with-purchase means TV+ will scale to huge numbers nearly automatically over its first year, an advantage that can’t be understated. And by pricing the service very aggressively versus its competition, Apple is hoping to bring in non-Apple hardware buyers to take a look, too.

And what they will find is a large and growing slate of all original programming served up without advertising. Apple’s early track record with original video content is spotty at best, but the company has new shows on tap with big-time Hollywood stars such as Jennifer Aniston, Steve Carell, Reece Witherspoon, Jason Mamoa, Snoopy, and even Oprah Winfrey. What it doesn’t have is a back catalog of old shows, a key aspect of the success of other streaming services.

Just like Arcade, Apple knows that subscribers to TV+ don’t have to like every show on offer, but if they love one or two, then they’re going to stick around. That said, unlike games that can be consumed in small, bite-sized bits when you have a few minutes here or there, video content requires a commitment. People will only make that commitment if the quality of the content is good, and so a lot will be riding on Apple’s first slate of shows.

Show Me the Bundles
One thing that Apple didn’t announce at this week’s event was any bundled package of services. Now that we’ve seen the pricing for all of its offerings, and added Arcade and TV+ to the roster, I’d very much like to see Apple offer customers a package inclusive of other services such as News+ and Apple Music. I’d even roll in iCloud storage. Make people a great deal on this broader set of services, and many will take the leap. This has the added benefit of getting people to use Apple services they might not have seriously considered buying individually in the past.
And the ultimate package: Apple’s full suite of services, plus hardware as a service rolled in. This could include a new iPhone, new iPad, and/or a new Mac on a regular one, two, or three-year cadence, inclusive of Apple Care support. This isn’t the type of package for everyone, but I’m convinced there is a market of “all in” Apple users that would welcome the ability to pay a single monthly fee to have everything just taken care of for them.

Bundles or not, Apple’s current announcements show just how serious the company is taking its entrance into these new service categories. Apple and Wall Street expect these services to drive real growth for the company over time.

If things go well, I expect at next year’s September event Tim Cook will spend some time talking about how many subscribers Apple’s new services have acquired. Two key things to watch for specific to TV+: How long does Apple keep the subscription at $4.99, and will it eventually turn off the free year to Apple hardware buyers? When and if those both happen, you’ll know Apple considers the service a success that can stand on its own.