The $1 billion effort might seem small compared to the scale of Apple’s market cap of over $830 billion, but the effort could have a big effect on competitors like Netflix, Amazon and HBO.
The market for internet delivered original video content is still young, and a big new entrant like Apple could upend its balance. Tripp Mickle explains the effort by Apple, writing:
The budget will be in the hands of Hollywood veterans Jamie Erlicht and Zack Van Amburg,poached in June from Sony Corp. to oversee content acquisition and video strategy. They exited their Sony contracts a month early and started working this month from Apple’s Los Angeles offices, where they are taking over programming responsibilities from the Apple Music team, according to the people familiar with the matter.
Elbowing into the crowded video business won’t be easy. Amazon and Netflix Inc. have considerable head starts and far bigger programming budgets. Apple also has to avoid jeopardizing its 15% cut of subscriptions from its app stores for video services like Netflix and HBO Go—a growing contributor to its $24.35 billion in annual services revenue.
Programming costs can range from more than $2 million an episode for a comedy to more than $5 million for a drama. An episode of some high-end shows such as “Game of Thrones” can cost more than $10 million to produce.
The back-to-back success of the original shows “House of Cards” and “Orange Is the New Black” is credited with building Netflix’s business. At the time they were released the company’s annual budget for original and acquired programming was about $2 billion; this year it is expected to spend more than $6 billion.
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