Streaming video and music could become a $22 billion business by 2025, says Katy Huberty, roughly the size of Netflix plus Spotify.
From a note to clients that landed in my inbox Wednesday:
Our analysis assumes Apple focuses on fewer, more targeted content than other video platforms that target a more complete replacement of cable subscriptions. On a stand-alone basis, we forecast that an Apple Video streaming service with high quality but limited breadth could be priced at the low end vs. competitors, or $7.99/month, and reach over 50M paid subscribers by 2025, compared to 124M at Netflix (current paid streaming subs) and Apple’s >650M unit iPhone installed base. This would imply that stand-alone Apple Video can grow from a ~$500M business in CY19 to a $4.4B business in just six years. Combined with Apple’s stand-alone streaming music business, which we project grows into an $18B revenue generator over the same time period (from roughly $4B at the end of CY18), streaming video and music would become a $22B business by 2025, roughly equal to the size of Netflix and Spotify combined today but just 8% of Apple’s CY18 projected revenue…
From a financial perspective, we believe there is clear reasoning as to why Apple would pursue [an] Apple Media bundle. However, we believe the most likely option will be a combination of both – i.e. offer Apple Video as a $7.99/month stand-alone option but also offer the Apple Media bundle for $12.99/month. While we’d still expect the majority of users to sign-up for the bundled product (given the strong value proposition), it would be unrealistic to think there wouldn’t be a cohort of consumers attracted only to a specific Apple Video offering, which would make the stand-alone video service the more ideal option for some. Regardless, this implies the combined Apple Music & Apple Video product could reach anywhere between $22-37B in revenue by 2025, up from an estimated $4B this year.
Maintains Buy rating and raises price target to $245 from $232.
My take: Many a rationale will be offered for the price hikes that arrive in between now and Sept. 13. This one is as good as any.
Below: Two cool Morgan Stanley graphics.