Apple and the streaming mirage – Reuters

Apple’s “CODA” this week became the streaming service’s first movie to win the Best Picture Oscar. The move means the Hollywood establishment is finally accepting the movies and TV shows we watch online as legitimate entertainment.

But wait: why does Apple offer a video streaming service? And what are the consequences for us when tons of corporate money distorts the market for the products we love? (I asked similar questions about Amazon last year.)

The Oscars are great, but a big part of Apple’s success comes from increasing profits every year. Sorry, these are the rules of capitalism. It’s hard to tell if video streaming is helping achieve this goal or if it’s a costly distraction for Apple.

Spending tons of money, sometimes recklessly in search of potential future profits, is an age-old business strategy. Sometimes it works. In other cases, this leads to MoviePass, which spent billions of dollars selling almost unlimited movie tickets for $10 a month and then went bankrupt.

In any case, companies that spend money can be great for us, at least for a while. It likely brought us cheaper and better video streaming services than otherwise, cheap Uber rides and cheap gas. Yes, I will make a connection between cheap gas and video streaming. Stay with me.

The products that result from sometimes irrational spending in the short term can be both great for us and a dangerous mirage if and when the money runs out.

A little background: In 2019, Apple launched a video streaming service called Apple TV+. Some people who buy a new Apple device get the service free for three months; otherwise, Apple charges a monthly fee of $4.99 in the US. That’s about a third of the cost of a streaming subscription from Netflix and HBO Max, so there’s plenty to watch.

Apple rarely explains why it does things, and the company hasn’t been clear about its goals for TV+. But conventional wisdom is that video streaming is part of its strategy to keep Apple device owners and encourage them to spend a little more money.

Has it justified the cost and energy Apple is putting into video streaming? Raise your shoulders. It’s also unclear if Amazon’s video streaming service was an effective way to attract and retain Prime members.

Maybe running a Hollywood entertainment empire is just plain fun. Apple and Amazon are so successful that they can spend money on whether they will ever get richer through video streaming. But it’s worth remembering the potential disruption to the products and services we love when companies decide their lavish spending is no longer a reasonable bet.

Uber rides were mostly cheap until around 2020 because the company had money from investors to sue many riders even if the rides didn’t turn a profit. Similar financial recklessness now subsidizes citizens who order Doritos and milk delivered to their homes in 15 minutes. In the 2010s, cash flow from investors allowed US energy companies to use new hydraulic fracturing techniques to extract oil and gas from underground.

In all of these cases, money that didn’t need to be spent has completely changed our world. We had cheaper gas, Uber rides, and everyday services that couldn’t exist without investors pouring in money in the hope that it would pay off in the future. Irrational money has also made Netflix an entertainment titan, and now Amazon and Apple are also throwing their money away.

We are probably getting better and cheaper streaming services than if there were fewer companies selling entertainment subscriptions. Entertainment creators have more potential buyers for their work. Nice.

But what if money should suddenly be more directly tied to making a profit? Netflix has long needed investors to subsidize its services, and the company is now in a good financial position. But Uber remains unprofitable, and travel is no longer cheap. Frakers have burned so much of their investors’ money that they are now afraid to extract oil and gas even in the face of an energy crisis because their investors no longer trust them.

Perhaps Apple and Amazon have made headway with video streaming. But what if one of those companies decides it no longer wants to spend billions of dollars on entertainment that doesn’t make a profit? Will Netflix cost $40 a month due to less competition? Will screenwriters become like the Pennsylvania landowners who relied on royalties to drill dry shale?

We could just enjoy the money spent on entertainment while it lasts. But be aware that a lot of money can run out and that can be painful for the people who make the entertainment and for those of us who watch it.

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