With overall market capitalisation sitting at just below $930 billion, a share price dip over the past couple of weeks has done little to dent the reality that Apple is winning the race to become the world’s first $1 trillion company. However, slightly disappointing iPhone sales over the past year do mean that the technology giant has to face the fact that the product that has fuelled its growth into the world’s biggest company may be edging towards its peak. However, with a hefty valuation to sustain, continued growth is required if investors are to be imbued with the confidence required to push Apple over the $1 trillion finishing line.
The iWatch and other wearables haven’t quite seen the levels of adoption hoped for a couple of years ago so a new approach is needed. With the weekend announcement that American television icon Oprah Winfrey has been signed up on a ‘multi-year deal’ to develop ‘a series of programmes’, it would appear that a strong push into original content has been arrived at as the answer.
Apple is said to be committing an initial $1 billion to original content, with its first shows expected to appear later this year. The Oprah deal marks the beginning of a sustained challenge to FAANG rivals Amazon and Netflix in the entertainment space. Both companies have put some distance between themselves and potential rivals in the content streaming space. Netflix, whose core business is content streaming, is expected to spend $8 billion between original and licensed content this year and Amazon $5 billion. However, with both rivals said to have been pursuing Oprah, Apple winning the race for her signature can be considered a major coup as it plays catch-up.
With Steven Spielberg also signed up to make 10 new episodes of his 1980s Amazing Stories anthology series, the biggest question remaining is exactly what Apple’s content distribution strategy will be. Three approaches are the current favourites. The first is the option for Apple to make its content available for free as part of its TV app, selling it to other TV companies to include in their subscription services. The second is that Apple will wrap it up into one directly sold subscription service with Apple Music and AppleCare. This would be comparable to the Amazon Prime model. The third option would be a Netflix-esque streaming service at a lower price point.
Whichever approach is chosen, it will inevitably take at least a few year and significant investment before reaching profitability, if the new direction proves a success. Nonetheless, the huge values of the big tech companies are built on sentiment around future growth prospects. A good start to Apple’s move into original content, or investor belief one looks likely, could quite conceivably prove to be the catalyst that takes Apple’s share price higher again and propels market cap beyond $1 trillion. Oprah Winfrey and Steven Spielberg sound like a good start. On the other hand, doubts creeping in could swing the pendulum back towards the chasing pack, which content rival Amazon leads.