Goldman Says Apple Should Launch a Prime-Killing Subscription Plan
Is it time to 'subscribe' to Apple Inc.?
As the iPhone becomes a less dependable source of growth at the world's most valuable company, analysts at Goldman Sachs Group Inc. say a monthly subscription service could be the company's next killer product. According to a note by Simona Jankowski and her team, the proposal would both boost sales of the smartphone and help the company challenge new competitors.
"We think Apple should launch a subscription bundle as a way to reinforce iPhone loyalty and leverage it into content," she writes.
The team drew up a plan that would cost roughly $50 per month and — in addition to paying for the smartphone through monthly subscriptions — would offer other products like Apple TV, Apple Music and freemium access to the iTunes library, in the style of the enhanced rewards enjoyed by Amazon Prime customers. Subscriptions have been a key driver of profit at Amazon.com Inc., with analysts citing strong growth in the service as they upgrade the company's profit estimates.
A subscription plan could serve a dual purpose for the tech giant, the Goldman team writes. Not only would it set the firm's smartphone apart from products offered by competitors like Samsung Electronics Co., but it would allow it to take on companies like Amazon that are already well-established in the streaming space.
Goldman says Apple could start creating its own content, much like Netflix Inc. has created shows such as House of Cards and Orange Is the New Black. Still, original productions should be a lower priority than adding live sports and more "sought after programming," according to the bank's analysts.
Live sports is an area in which Apple would have some unorthodox competition, after Twitter Inc. recently signed a deal to stream a number of NFL games online. In the case of Apple, Jankowski says that it would benefit both the tech giant as well as the sports networks it partners with. "We believe Apple could partner with national sports networks, such as ESPN, Fox Sports etc., and offer the content bundled through Apple Prime," Jankowski writes, suggesting an additional cost of roughly $10 per month. "While it would be beneficial for Apple and its consumers, we also see merit in this move for the sports networks, since it would help them position for an increasingly OTT future [i.e., video streamed over the internet], while maintaining the economics of the traditional pay TV bundle."
She argues that a partnership between Apple and ESPN would let the sport network "add a new type of bundle that could preserve its pay TV economics while allowing it to participate in the OTT trend."
Bundling sports video is a point of contention among the analysts. Drew Borst, Goldman's media and advertising analyst, sounded a note of caution over the feasibility of such a deal. "We think this proposition is a tough sell to the likes of ESPN or Fox Sports in the near-term," Borst writes."However, over the long-term, if cord cutting accelerates and sports networks distribution continues shrinking, then this proposition could make sense."
Among analysts Apple currently has 44 buy recommendations, 7 holds and 3 sells, with an average 12-month price target of $129, according to Bloomberg data. That represents more than a $10 improvement on where it traded by 10 a.m. in New York. Its next earnings report is scheduled after the market closes on Oct. 25.