Apple is using Oscar nominations to build its Apple TV+ subscriber base

The news: At Sunday’s Academy Awards, Apple will be recognized for 13 Oscar nominations for two historical epics, "Killers of the Flower Moon" and "Napoleon," with costs soaring to $215 million for "Killers" alone.

• Overall, Apple spent around $700 million on three films, achieving notable box office success and boosting Apple TV+ subscriptions through high viewership of these titles.
• Apple and Amazon are set to significantly boost their content spending over the next few years, with Apple's content expenses projected to rise at a 23% CAGR and Amazon at 14%, compared with Netflix's 7.6% increase and legacy media's 4%, per Morgan Stanley.

Why it matters: The nominations come amid Apple's $1 billion yearly investment in theatrical movies to enhance its Hollywood profile and Apple TV+ subscriptions, emphasizing high-quality releases to add value to its streaming service.

• Apple, a tech company, views high production costs as advertising investments, not expecting direct profit from films as traditional content-centric companies like Disney do. This approach means film flops have less effect on Apple, which is focused more on its streaming service's prestige than short-term revenues.
• In contrast, a smaller, legacy entertainment business like Disney feels the sting of box- office and streaming failures more acutely, relying more on other ventures like theme parks to offset losses.
• Despite some films not meeting industry expectations and debates on financial sustainability, Apple's approach has reaped rewards in critical acclaim and viewer engagement.

The back catalog: Apple TV+ just added over 50 licensed films from Universal, Sony, and Warner Bros., including "Titanic" and "Spider-Man," to its "Great Movies" collection.

• These additions, only streamable in the US for a limited time, give subscribers more content for the same price—a strategy Netflix and Prime Video rely on.
• Despite owning acclaimed originals like "CODA," Apple's smaller, transient library struggles against competitors' extensive permanent collections, highlighting the need for a broader, more stable content strategy.

Our take: In a sense, Apple is using its theatrical releases more as marketing for Apple TV+ than for box-office profit, unlike traditional studios, whose success depends on box-office earnings.

• While the strategy of focusing on a few high-budget films carries risks, especially in a business where content volume is also critical, Apple's success in securing favorable reviews and enhancing its streaming platform's appeal shows the potential rewards.