Goldman analysts believe that Apple's market position is strong enough to pull off a $50/month subscription service similar to that of Amazon Prime, potentially featuring renewable iPhone subscription, Apple Music, iTunes as well as Netflix-like video streaming.
Today, two Goldman's analysts Simona Jankowski and Drew Borst said in the note to investors that Apple (NASDAQ: Apple [AAPL]) was ready to turn the "razor/blade model upside down" and expand its business in the trending content streaming domain. As reported by the Street Insider, Goldman Sachs' (TOCOM: Futures On Gasoline Feb 2017 [GS]) latest consumer survey has revealed that consumers find platforms offering subscription-based services like Netflix (NASDAQ: Netflix [NFLX]) more attractive than those offering solely original content.
"One of the key trends in content consumption is the transition from purchases/rentals to subscriptions. It is difficult for a la carte businesses to compete with the value proposition of a streaming subscription," Jankowski wrote.
This explains the success of such upcoming streaming platforms as Netflix, mostly, and Amazon Prime, partially. Jankowski believes that Apple should "go big" on content and create a subscription service integrating the best parts of Netflix and Amazon Prime, yet adding Apple's signature products. The analyst envisions a $50/month "Apple Prime" that offers renewable iPhone device subscription, Apple TV and Apple Music services, streaming of the already existing content from iTunes library as well as adding some new features such as live sports streaming later.
"We think Apple should launch a subscription bundle as a way to reinforce iPhone loyalty and leverage it into content. This strategy would help Apple fend off smartphone commoditization and position it well vs. Amazon and Alphabet as content shifts to streaming," Jankowski said.
If Apple decides to bring Jankowski's suggestion to life, this could pose a serious threat to Amazon (NASDAQ: Amazon.com [AMZN]) and Netflix and their proven business models. Considering the fast growth of Apple Music services within just a little over a year since the launch as well as well-performing iPhone 7 sales, a jump into the content streaming domain could actually have a good chance to become Apple's next aggressive plan. However, Goldman's suggested $50/month price is considerably higher than Amazon's $10.99/month or Netflix' $8.99/month.
"With the extra revenues generated by selling iPhones every year as part of “Apple Prime”, Apple can afford to be very aggressive in its content strategy – such as paying a premium for must-have material or pricing services below competitors. As an example, we illustrate how Apple could leverage its subscription bundle economics to license live sports from a network such as ESPN," the analysts wrote.
In a note to the investors, the analysts kept the "Buy" rating of Apple and the previous price target of $124. According to Jankowski, Apple could generate about $19 billion by 2021 if the company integrates the "Apple Prime" service, reports Benzinga.