I'm not used to Apple giving things away for free. The company ran iTunes at break-even or just above for years, banking that inexpensive content would help sell high-margin iPods and rumor has it Apple has eaten some of Hollywood's greed on movie pricing over the years to keep costs consistent, but giving away stuff for free?
Apple is preparing a new digital video service that will marry original content and subscription services from legacy media companies, according to people familiar with the matter. Owners of Apple devices, such as the iPhone, iPad and Apple TV will find the still-in-the-works service in the pre-installed "TV" application, said the people, who asked not to be named because the details of the project are private.
The product will include Apple-owned content, which will be free to Apple device owners, and subscription "channels," which will allow customers to sign up for online-only services, such as those from HBO and Starz.
Netflix and most other streaming services charge a subscription fee. Amazon bundles its video service into its overarching Prime service. That's what I expected Apple to do as well: fold Apple Video into Apple Music, add Apple Magazines (based on the Texture acquisition) and give customers a single point of entry into all of its content.
I discussed some of this with Chris Connolly on his terrific DailyTekk channel earlier this week:
But free with hardware purchase? That I didn't expect.
Part of Apple's recent game plan, as it gets effectively most of the customers it can, is to start getting more out of each customer. In other words, once everyone has an iPhone, if you want to keep growing, you have to start selling them stuff for their iPhones. Subscription services can be a great way to do that.
Free, while making the original device sale more valuable, doesn't add ongoing revenue on top of it, like subscriptions do. But, as the price of flagship devices continue to rise, maybe making those devices more valuable still ends up being an overall win?
Apple is preparing a bunch of new and exciting shows but still hasn't announced when or how they'll be made available. That could very well end up being the most interesting part of this story.