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I really like how Ben framed Apple's announcements through the lens of a services strategy, i.e., it's not about the hardware anymore. Instead he presents a sol

I really like how Ben framed Apple's announcements through the lens of a services strategy, i.e., it's not about the hardware anymore. Instead he presents a solid argument for how keeping lower-priced cost-optimized SKUs around increases the addressable market for Apple Services. Aggressive promotion of Apple TV+ as a way to drive new subscribers to other services (an aggregation theory play) is going to be a fun thing to watch over the next few years. The only quibble I have with this piece is where Ben got the information about the Apple Arcade games being a fixed cost: "the company is paying a fixed amount for those games overall".

scarface74 7y ago
I don’t see any reason they wouldn’t be paying a fixed cost. It would allow Apple to offer Arcade at a low cost and high marginal profit and it would mean that game developers don’t have the risk of it not succeeding. Netflix also license it’s non original and original content for a fixed priced
- simonh 7y ago
  Apple don't pay a fixed cost to the game studio, see other comments. Netflix don't buy at a fixed price either, the production company gets recurring fees based on views.
  - scarface74 7y ago
    No Netflix doesn’t. It’s a frequent complaint from producers of Netflix originals that Netflix doesn’t share viewership numbers with producers. If you look at all of their published deals like with STARZ, NBC for Friends, Disney etc. you can see they pay one fixed cost.
    - simonh 7y ago
      Aren’t those all reruns though, not originals? That’s quite a different situation. Existing shows are a known commodity. One of the things that enticed the producers of House of Cards was the revenue deal.
      - scarface74 7y ago
        https://www.looper.com/164533/the-real-reason-netflix-wont-share-viewer-numbers/ https://www.looper.com/164533/the-real-reason-netflix-wont-s... Typically, licensing fees are negotiated for a few seasons at a time. It's a flat rate per season, so whatever production costs are incurred, they're paid for by the studio — not Netflix. If something goes over budget, Netflix has already paid to use it. Likewise, if a show is immensely successful (like, say Orange Is the New Black), Netflix doesn't have to worry about paying more for that, either. So by keeping viewership numbers private, Netflix actually has an edge in licensing negotiations between studios. Because if a studio doesn't know how popular a series is, it's harder to push for more money.
1123581321 7y ago
Here’s an article saying something similar about how Apple is financing the games. It doesn’t list its sources, though. https://9to5mac.com/2019/04/14/arcade-500-million/ https://9to5mac.com/2019/04/14/arcade-500-million/
- localhost 7y ago
  Thanks, but there's this quote in the article that you linked: "it is believed that game developers will receive ongoing revenue based on how much time users spend playing their games" So it looks like they're paying advances (significant - $1-$3M) against some kind of royalty agreement based on time spent playing their game. So not a fixed cost (but perhaps not everyone gets the advances against royalties deal?) Edit: I just looked over at the Stratechery forums and it seems like others are questioning this as well "For it to truly be a fixed cost, the participating game developers must be commoditized. Otherwise, they will demand increased payments as Apple’s revenues go up. That may well be the case for games, but I think it’s worth noting because Ben has repeatedly made the same claim respecting Netflix, where talent is not commoditized, and has a history of negotiating a fairly consistent share of revenue over time. There, it’s not reasonable to characterize Netflix’s costs as fixed, in the big picture. So it’s importantly to look more closely, rather than to assume that outright purchases of content translate to a long-term fixed cost structure independent of subscriber count/revenues."
  - anoncareer0212 7y ago
    For better or for worse, and it hurts me on a personal level to say this, but from Apple's perspective, the talent creating these games _is_ a commodity. Those rates are insanely high, there's not a remotely similar substitute available in the market, and you get the halo of Apple for the rest of your career. Apple's "services" strategy amounts to "commoditize complements; charge using monthly subscriptions". There is a fair distance between this and how other companies use "services". Trade carefully.
  - simonh 7y ago
    This is a very familiar model for Apple. It's how they approach innovative new hardware development as well. For example with retina Displays they paid for the tech development and even bankrolled construction of the manufacturing facilities in exchange for exclusive rights to buy their output. They did the same with lots of things. This is the same approach. Bankroll the initial development costs of the game, in exchange for exclusive rights to 'buy' the product (user attention).
ksec 7y ago
Fix Cost in the sense that it likely doesn't go up with more players. Apple are like the Game Publisher here where they pay a specific price for games from Studio. And remember all these games are exclusive to Apple Arcade. You see comments questioning whether this is fair. And of course it is, Gaming Business are quite risky, Out of 10 games you could have one Game that makes all the money while the other 9 have millions throw out of window. Apple is letting these developers avoiding those risk for a likely fixed up front price and terms. And it is the same with Apple TV+, all the shows are Apple Exclusive, it doesn't matter if they have Zero viewership. Apple has already paid for it. This is compared to Apple Music, where Apple have to paid for every song streamed. And it is not a fixed cost. I sort of disagree about "Pure Profits" from Services like Apple TV+. Name me one of these business that is even profitable, especially when you are looking ahead with Disney+. The Roku platform examples completely ignore they sell data to advertiser. Apple is using this to dilute their profits margin from Services, or add value to their Active Users. Both the App Store and Google Search Engine Placement revenue has close to 100% margin. Something you don't want to show up in your quarterly report. By having Apple Music, Apple TV+, Apple News that operate at close to 0% margin, Apple manage to make that 100% margin down to ~50%. And it will be another moat in their ecosystem, who wants to enter a business, News, Music, or TV when there are no money to be made?

scarface74 7y ago

I don’t see any reason they wouldn’t be paying a fixed cost. It would allow Apple to offer Arcade at a low cost and high marginal profit and it would mean that game developers don’t have the risk of it not succeeding. Netflix also license it’s non original and original content for a fixed priced

simonh 7y ago
Apple don't pay a fixed cost to the game studio, see other comments. Netflix don't buy at a fixed price either, the production company gets recurring fees based on views.
- scarface74 7y ago
  No Netflix doesn’t. It’s a frequent complaint from producers of Netflix originals that Netflix doesn’t share viewership numbers with producers. If you look at all of their published deals like with STARZ, NBC for Friends, Disney etc. you can see they pay one fixed cost.
  - simonh 7y ago
    Aren’t those all reruns though, not originals? That’s quite a different situation. Existing shows are a known commodity. One of the things that enticed the producers of House of Cards was the revenue deal.
    - scarface74 7y ago
      https://www.looper.com/164533/the-real-reason-netflix-wont-share-viewer-numbers/ https://www.looper.com/164533/the-real-reason-netflix-wont-s... Typically, licensing fees are negotiated for a few seasons at a time. It's a flat rate per season, so whatever production costs are incurred, they're paid for by the studio — not Netflix. If something goes over budget, Netflix has already paid to use it. Likewise, if a show is immensely successful (like, say Orange Is the New Black), Netflix doesn't have to worry about paying more for that, either. So by keeping viewership numbers private, Netflix actually has an edge in licensing negotiations between studios. Because if a studio doesn't know how popular a series is, it's harder to push for more money.

1123581321 7y ago

Here’s an article saying something similar about how Apple is financing the games. It doesn’t list its sources, though. https://9to5mac.com/2019/04/14/arcade-500-million/ https://9to5mac.com/2019/04/14/arcade-500-million/

localhost 7y ago
Thanks, but there's this quote in the article that you linked: "it is believed that game developers will receive ongoing revenue based on how much time users spend playing their games" So it looks like they're paying advances (significant - $1-$3M) against some kind of royalty agreement based on time spent playing their game. So not a fixed cost (but perhaps not everyone gets the advances against royalties deal?) Edit: I just looked over at the Stratechery forums and it seems like others are questioning this as well "For it to truly be a fixed cost, the participating game developers must be commoditized. Otherwise, they will demand increased payments as Apple’s revenues go up. That may well be the case for games, but I think it’s worth noting because Ben has repeatedly made the same claim respecting Netflix, where talent is not commoditized, and has a history of negotiating a fairly consistent share of revenue over time. There, it’s not reasonable to characterize Netflix’s costs as fixed, in the big picture. So it’s importantly to look more closely, rather than to assume that outright purchases of content translate to a long-term fixed cost structure independent of subscriber count/revenues."
- anoncareer0212 7y ago
  For better or for worse, and it hurts me on a personal level to say this, but from Apple's perspective, the talent creating these games _is_ a commodity. Those rates are insanely high, there's not a remotely similar substitute available in the market, and you get the halo of Apple for the rest of your career. Apple's "services" strategy amounts to "commoditize complements; charge using monthly subscriptions". There is a fair distance between this and how other companies use "services". Trade carefully.
- simonh 7y ago
  This is a very familiar model for Apple. It's how they approach innovative new hardware development as well. For example with retina Displays they paid for the tech development and even bankrolled construction of the manufacturing facilities in exchange for exclusive rights to buy their output. They did the same with lots of things. This is the same approach. Bankroll the initial development costs of the game, in exchange for exclusive rights to 'buy' the product (user attention).

ksec 7y ago

Fix Cost in the sense that it likely doesn't go up with more players. Apple are like the Game Publisher here where they pay a specific price for games from Studio. And remember all these games are exclusive to Apple Arcade. You see comments questioning whether this is fair. And of course it is, Gaming Business are quite risky, Out of 10 games you could have one Game that makes all the money while the other 9 have millions throw out of window. Apple is letting these developers avoiding those risk for a likely fixed up front price and terms. And it is the same with Apple TV+, all the shows are Apple Exclusive, it doesn't matter if they have Zero viewership. Apple has already paid for it. This is compared to Apple Music, where Apple have to paid for every song streamed. And it is not a fixed cost. I sort of disagree about "Pure Profits" from Services like Apple TV+. Name me one of these business that is even profitable, especially when you are looking ahead with Disney+. The Roku platform examples completely ignore they sell data to advertiser. Apple is using this to dilute their profits margin from Services, or add value to their Active Users. Both the App Store and Google Search Engine Placement revenue has close to 100% margin. Something you don't want to show up in your quarterly report. By having Apple Music, Apple TV+, Apple News that operate at close to 0% margin, Apple manage to make that 100% margin down to ~50%. And it will be another moat in their ecosystem, who wants to enter a business, News, Music, or TV when there are no money to be made?