Apple Hopes Aggressive Pricing Will Boost Its Services Business

The iPhone maker revealed surprisingly low prices for two upcoming service offerings.

| More on:

With the slowing sales of the iPhone as a backdrop, Apple (NASDAQ: AAPL) has been increasingly relying on other areas of its business to generate future growth. The company telegraphed its intentions in early 2017 when Apple CEO Tim Cook announced the audacious plan to double its services business by 2022.

Toward that end, the tech giant unveiled a diverse group of four new services at an event in April, including a subscription news service, a credit card, a monthly mobile gaming service, and a streaming video service. Apple News+ launched immediately for $10 per month, and the Apple Card debuted in August.

Apple finally pulled back the curtain on the two remaining offerings — Apple Arcade and Apple TV+ — at its product event this week, with the prices for these services surprising investors and Apple fans alike.

Would you like to play a game?

The company’s new mobile game entry, dubbed Apple Arcade, will be available via a new tab in the App Store on Sept. 19, for a monthly subscription price of just $4.99. It will feature a catalog of more than 100 curated, exclusive titles, which users can initially play on the iPhone and eventually across a host of devices, including the iPad, iPod Touch, Mac, and Apple TV.

The number of games will increase in the coming weeks, and Apple plans to add new titles every month. The launch includes a 30-day free trial for prospective subscribers. Apple said all the games could be played offline, and a single subscription would include access for up to six family members via the use of the Family Sharing feature.

Joining the crowded streaming wars

The biggest news, however, was related to Apple TV+, the company’s long-awaited streaming video service. Apple revealed that it would launch on Nov. 1 with a monthly subscription price of $4.99 and a seven-day free trial. Additionally, the Cupertino company said customers that purchased a new device would “enjoy one year of Apple TV+ for free.” This was consistent with rumors that emerged late last year that the service would be free to owners of Apple devices.

The aggressive pricing by Apple was a surprise to many, as recent reports had suggested the company was considering a $9.99 price point.

Apple provided some details about its streaming offering at a star-studded event back in March, revealing a virtual who’s who of Hollywood elite that would be in front of and behind the camera creating Apple Originals, including Steven Spielberg, J.J. Abrams, M. Night Shyamalan, Ron Howard, Sofia Coppola, Reese Witherspoon, and Jennifer Aniston (not all of those big names have stayed with Apple — Abrams, for example, is reported to have withdrawn over issues of exclusivity).

Jennifer Aniston and Reese Witherspoon in a scene from the upcoming Apple TV+ original series The Morning Show.

Jennifer Aniston and Reese Witherspoon in a scene from the upcoming Apple TV+ original series The Morning Show. Image source: Apple.

Reports have recently emerged that Apple’s content budget, which was originally set at about $1 billion, has since ballooned to more than $6 billion, ramping up spending to compete with big-name streamers like Netflix and the soon-to-launch Disney offering, Disney+.

Off to a slow start

Apple highlighted nine shows that will be available when Apple TV+ debuts in November. Compare that to the more than 500 movies and 7,500 episodes on Disney+ and the nearly 4,000 movies and an estimated 1,800 multi-episode TV shows on Netflix, and it’s easy to see why Apple was so aggressive with its pricing. Viewers can watch all that Disney+ has to offer for $6.99 per month, and Netflix’s least expensive plan clocks in at $8.99 per month, while both services offer far more available programming.

Apple will continue ramping up its content over time and is hoping that its aggressive pricing and free giveaways will keep customers around long enough to get them hooked on some of the new shows on Apple TV+ — and, in so doing, help the company boost its ever-growing services revenue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Danny Vena owns shares of Apple, Netflix, and Walt Disney and has the following options: long January 2021 $190 calls on Apple, short January 2021 $195 calls on Apple, and long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

More on Tech Stocks

diversification and asset allocation are crucial investing concepts
Tech Stocks

Why I’m More Excited About This Stock Than Any Other Investment

Among all the stocks I hold, this one has completely changed how I think about long-term investing.

Read more »

doctor uses telehealth
Tech Stocks

2 Value Stocks Everyone Is Selling But I’m Buying

Considering their growth prospects and discounted stock prices, these stocks offer excellent buying opportunities for long-term investors.

Read more »

Person uses a tablet in a blurred warehouse as background
Tech Stocks

1 Magnificent AI Stock Down 21% That Could Transform Your Portfolio

If you’re looking for a practical AI stock with strong fundamentals and untapped potential, Descartes might be the one to…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

How I’d Build the Ultimate Tech Portfolio With $15,000

These tech stocks are well-positioned to generate strong returns due to their leadership in AI, digital transformation, and semiconductors.

Read more »

Young adult concentrates on laptop screen
Tech Stocks

Up 60% Since April, Is Shopify Stock a Good Buy Now?

Given its solid underlying business, healthy financial growth, and high growth prospects, the uptrend in Shopify will continue.

Read more »

Woman checking her computer and holding coffee cup
Tech Stocks

Best Stock to Buy Right Now: Shopify vs. Constellation Software?

Shopify and Constellation Software are very different businesses. However, if investors had to pick one, Constellation Software is likely a…

Read more »

Financial analyst reviews numbers and charts on a screen
Tech Stocks

3 Stocks That Can Electrify Your TFSA in 2025

Here's why Canadian investors should consider owning growth stocks such as AMD and BAM in their TFSA.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

1 AI Giant That’s My Technology Sector Pick of the Decade

Meta Platforms is a big tech giant that is gaining traction in the rapidly evolving AI market. Is META stock…

Read more »