Why is Apple bundling its subscription services?

By Wendy LeeStaff Writer

Sept. 15, 2020 12:48 PM PT

Apple on Tuesday said it will sell bundles of its subscription services including music and TV this fall as it faces mounting competition from rivals to lure and retain customers.

The bundle initiative, called Apple One, will group the company’s subscription services in gaming, music and video streaming service Apple TV+ and provide 50 gigabytes of cloud storage starting at $14.95 a month.

Additional bundles include a family plan and one that has more of the company’s services, including the new Apple Fitness+, which streams workouts. The most expensive plan is $29.95 a month.

“Apple One makes it easy to get these services and find the one plan right for you,” said Lori Malm, director of services, at a presentation on Tuesday.

Analysts said the bundling will help entice customers to sample more services and reduce the rate at which people unsubscribe. Prior to Apple One, many customers subscribed to each individual service, with Apple Music costing $9.99 a month and Apple TV+ $4.99 a month.

“It could make it easier to sell to consumers,” said Neil Cybart, founder of Above Avalon, a site that analyzes Apple’s business.

Cybart said that the bundling also will provide a boost to the least popular of Apple’s services, such as Apple News+, the company’s news subscription service; and Apple Arcade, which offers access to more than 100 games. (Disclosure: The Los Angeles Times participates in Apple News+.)

“If you’re including them in bundles of Apple Music and Apple TV+, the benefit for Apple would be those two services see increased adoption, increased usage,” Cybart said.

Apple still makes the most money from its iPhones, but services have increasingly become an important part of its business. The services segment in the fiscal third quarter had more than $13 billion in sales, about 22% of the company’s overall revenue. Last year, Apple launched its video streaming service Apple TV+, pouring significant amounts of money into exclusive shows and movies.

Cybart estimates that Apple TV+ has 25 million to 30 million subscribers. The platform’s shows have garnered 18 Emmy nominations, including several for critically acclaimed drama “The Morning Show.”

“Apple is the true new kid on the block when it comes to paid video streaming,” Cybart said. “It’s a legitimately good start. ... Because they’re coming from literally zero subs, everything that they’re doing, it could end up having a bigger impact.”

Unlike other companies with streaming platforms, Apple makes the largest portion of its revenue through the sale of iPhones. Last year, the company offered buyers of new Apple devices a free one-year subscription to Apple TV+.

But other analysts note that Apple TV+’s subscribers still fall short compared with larger competitors such as Netflix and Disney+.

“They’re not skyrocketing at the end of the day,” said Brahm Eiley, president at the Convergence Research Group.

When Apple TV+ launched last year, it started with just nine shows.

“The biggest issue for them is they only have so much content. You can burn through their content pretty quickly,” Eiley said. “Other players have come out with vast amounts of content.”

Some analysts have questioned Apple’s long-term commitment to original productions, considering that it requires massive capital investment to compete against larger players like Netflix.

“There’s no really major return on investment for Apple at the moment on this,” Eiley said. “So it’s not clear to us what the real Apple strategy is, besides sell more boxes.”

Apple on Tuesday announced more tie-ins from streaming video to its hardware devices with Apple Fitness+, a new $9.99 monthly subscription service that showcases video workouts.

Apple Fitness+ works with the Apple Watch, showcasing onscreen in real time fitness analytics the watch collects.

For example, a customer can load up the fitness video on their iPad; their Apple Watch tracks the calories they are burning and that is projected on the screen. People who buy a new Apple Watch will get three months of Apple Fitness+ for free.

The Cupertino, Calif.-based tech giant also announced the Apple Watch Series 6, which will allow users to track their blood oxygen levels through the smart watch. The watch starts at $399 and will be available on Sept. 18.

In the past, the Apple Watch required ownership of an iPhone. A new feature will allow people in the same family to rely on just one family member’s iPhone to support Apple Watches used by older family members or children.

The company also showcased other products, including a new iPad Air with a 10.9-inch display, due out in October, and an eighth-generation iPad with a better processor, which will be available Sept. 18.

Apple’s largest competitor in music streaming, Spotify, criticized its rival on Tuesday, saying, “Apple is using its dominant position and unfair practices to disadvantage competitors and deprive consumers by favoring its own services.”

Apple owns the hardware and software that operate iPhones as well as manages the mobile app store that provides apps for the iPhone. When users make payments on apps made by outside companies directly through Apple’s App Store, Apple in many cases takes a 30% cut of the revenue, which some companies believe is unfair. Apple has said that it uses this revenue to maintain the App Store.

“We call on competition authorities to act urgently to restrict Apple’s anticompetitive behavior,” Spotify said in a statement.

This disagreement is one of several issues in a legal dispute between Epic Games and Apple over purchases in the popular game “Fortnite.”