With iPhone Sales Faltering, Apple Places Its Bets of Survival on TV and News

The iPhone is running out of juice. To go beyond the device that made Apple Inc. AAPL -1.21% a global colossus, Tim Cook is betting on a suite of services—marking the company’s biggest shift in more than a decade.

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The chief executive’s strategy, years in the making, takes Apple out of its comfort zone into areas where it has failed in the past, and that today are replete with risks and competition. Apple will take a giant leap toward its goal on Monday, when it plans to announce video- and news-subscription services that it hopes will generate billions of dollars in new annual revenue and deepen ties between iPhone users and the company.

In some ways, Apple helped create its own predicament when it launched the app industry a decade ago. The goal was to make the iPhone more powerful.

Over time, though, apps and services, from Spotify to Netflix to China’s WeChat , have often become more important to users than the devices that run them. That allows consumers to hold on to phones longer or switch to less expensive versions. In January, Apple reported its first decline in revenue and profit for a holiday quarter in over a decade.

By contrast, revenue from the services business grew 33% last year, to nearly $40 billion—accounting for about 15% of the company’s total of $265.6 billion.

The company’s ambition in video is to become an alternative to cable, combining original series with shows from other networks to create a new entertainment service that can reach more than 100 markets world-wide. It is the tech giant’s latest attempt to reinvent television, something it has tried to do for about a decade with limited success.

On Monday, the tech giant plans to unveil the first footage from some of its new original TV shows, according to people familiar with the event. Apple has used a $1 billion budget to buy dozens of original TV shows in hopes it can land a breakout hit. It has cut deals with Hollywood stars including actor Reese Witherspoon and director J.J. Abrams, who have been invited to attend Monday’s event on Apple’s campus, according to those people.

Apple declined to comment for this article.

Apple hasn’t said what it will charge for the programming. People working on the projects said the company plans to charge a fee, after previously saying it would be free to Apple device owners.

The original series will be delivered in a new TV app that staff have been calling a Netflix killer. It will make it easier for people to subscribe with a single click to channels such as Starz, Showtime and HBO, with which Apple has been negotiating to offer their shows to users for $9.99 a month each, people familiar with the talks said.

Apple has been negotiating to bring its new TV app to multiple platforms, including Roku and smart TVs, according to people familiar with the talks—an unusual move for a company that has long preferred to limit its software and services to its own devices. Some of those distribution agreements are expected to be announced Monday.

At the same event, Apple plans to showcase a revamped News app that includes a premium tier with access to more than 200 magazines—including Bon Appétit, People and Glamour—as well as newspapers, including The Wall Street Journal. It plans to charge $9.99 for the service and believes the premium news content can lift engagement on its devices, people familiar with the plans said. The New York Times earlier reported on the Journal’s participation.

As part of the arrangement, much of the Journal’s content will be available through the service, although certain types of stories—particularly general news, politics and lifestyles news—will be showcased, while business and finance news won’t be displayed as prominently, accordin to people familiar with the situation. The deal will result in the Journal hiring more reporters focused on general news to help feed Apple’s product, one of the people said. The Journal sells its own subscriptions for $39 a month.

The news subscription offering follows Apple’s 2018 acquisition of a Netflix-for-news app called Texture. The deal gave Apple rights to most major North American magazines for at least five years and up to two decades in an agreement that splits revenue 50-50 between the tech giant and publishers such as Hearst Magazines and Condé Nast, according to people familiar with the deal.

The terms rankled some newspapers Apple courted, including the New York Times and the Washington Post, which sell monthly subscriptions for $15 and $10, respectively. The Washington Post and New York Times aren’t participating in the new app, according to people familiar with the situation.

Pushing services

When Apple last found itself on the ropes in the early 2000s, co-founder Steve Jobs reinvented the company by pushing it into mobile devices. The iPod and its accompanying iTunes service revived a company that was largely dependent on Mac computer sales. The subsequent iPhone helped Apple become the first company to surpass $1 trillion in market value last year.

Mr. Cook, who succeeded Mr. Jobs, is attempting a similar feat in the approaching twilight of the smartphone era. He began pushing the services strategy hard in late 2017, after Apple launched its 10th-anniversary smartphone, the iPhone X. While a big price increase to nearly $1,000 was helping boost revenue, the iPhone X wasn’t selling more phones, and higher prices made sophisticated, lower-cost rival devices more appealing.

Mr. Cook, who had vowed earlier that year to double Apple’s services revenue by 2020, began meeting regularly with the services division.

At the monthly sessions, the 58-year-old CEO has peppered the team with detailed questions. He wanted services team members to tell him which apps were selling well, how many Apple Music subscribers stuck with the service, and how many people were signing up for iCloud storage, a costly service that required spending billions of dollars to build data centers around the U.S., according to people familiar with the meetings.

“You couldn’t say, ‘I don’t have that information. I’ll get that tonight,’ ” said one person involved. “You had to have a dictionary of backup.”

Apple’s biggest source of services revenue comes from distributing other companies’ software through its App Store. The company is now battling Spotify and Netflix, two of the most popular apps, over its practice of taking 30% of sales or subscription revenue from apps.

Netflix recently stopped letting users sign up for its service on Apple devices, and said it won’t participate in Apple’s video subscription service. Spotify AB this month filed an antitrust complaint in Europe claiming Apple abuses its control over the App Store, something Apple denies.

Apple’s music-streaming service, its biggest attempt so far to build its own subscription business, has about 50 million global subscribers—far behind Spotify’s 96 million.

Apple’s base of 1.4 billion iPhones, iPads and Macs in use globally gives it a distribution platform. Yet the businesses of selling gadgets and services can conflict. To reach the biggest possible market for video service, Apple would have to offer it on non-Apple devices—something it has been loath to do in years past.

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SOURCE: Wall Street Journal, by Tripp Mickle

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