Future of Apple TV+ amid Emmy wins, ‘Ted Lasso’ success

Santosh Rao, Head of Research at Manhattan Venture Partners, joins Yahoo Finance’s Alexandra Canal to discuss the potential IATSE union strike and the latest developments in the streaming world.

Video transcript

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ALEXIS CHRISTOFORUS: It has been a big week for Hollywood, from the 73rd Annual Primetime Emmy Awards to the announcement of a potential union strike, which could mean more production delays for your favorite shows. Yahoo Finance's Alexandra Canal here now with a special guest to break down the latest in today's Fame and Fortune. Ali?

ALEXANDRA CANAL: Thanks, Alexis. Yes, I'm very happy to be joined now by Santosh Rao. He's head of research at Manhattan Venture Partners.

And, Santosh, as Alexis mentioned, we've had a very busy week in Hollywood. I want to first start with that potential IATSE union strike. IATSE stands for the International Association of Theatrical Stage Employees. And they called for a strike authorization vote. This will reportedly happen on October 1st.

Now if this strike comes to be, it will be a nationwide shutdown. They're protesting poor working conditions, long hours, not enough pay. What could this mean for the greater streaming wars and that content production pipeline, moving forward?

SANTOSH RAO: Absolutely, thanks for having me. I think it's going to be a big deal if it goes through. These issues were bubbling up. This is their first major-- first strike, actually, by the union. So I don't know if it'll go through because both parties need things to get back on track. We cannot afford another shutdown.

And with the compensation down over this whole pandemic, government assistance gone, and all that-- so I think the unions need all the-- the union needs the job. The producers need this thing to go on. So I think both are in a strong bargaining position. And this is posturing like you see in any contract negotiations, which is what's going on right now.

We'll see where it settles. But if I had to take a bet right now, I would say they will settle amicably, a little bit in the middle. But both have a strong hand at this point. So let's see who wins on top. But they cannot-- the industry cannot afford to shut down at this point.

ALEXANDRA CANAL: Yeah, I agree. We'll be closely watching that in the days and weeks to come. But I want to move on next to the Emmys. We have had a couple of days to digest the results. Apple tv+-- a really big winner, winning some of the top awards, 10 in total. Ted Lasso has clearly been such a success for that service. Is Ted Lasso the key here? These Emmy wins-- could they attract more subscribers? And perhaps more importantly, can they retain those subscribers? Because Apple tv+ has struggled to convert those free trial users.

SANTOSH RAO: Yes and it's going to take a while. This was a step net positive, right step in the right direction. They need to get the traction. They haven't got that yet. And this is a good win but it's a long way to go. It's only the second year of their existence. So it's a long way to go.

You saw the Netflix, Disney, and they're just two stronger players. They're spending a lot on original content. So Apple's strategy is more quality over quantity. So they need to produce these hits more and more across genres. So they have a lot of work to do, but this definitely helps, pulls people in. And I don't think they're competing on a mass scale with all the others. All they want is another hook to get people into their ecosystem, and this thing definitely helps. They need more hits like this to keep people engaged.

ALEXANDRA CANAL: Right, and if that's the case, if they're trying to carve out their own niche, not compete with Netflix, Disney-- we've seen this really turn into a content war. We had Netflix the other day announcing that they'd be purchasing the catalog of Roald Dahl. That includes Charlie and the Chocolate Factory, Matilda. If you don't have those big titles, if you don't have those franchises, and you don't have the quantity, how can you be successful, especially in this crowded landscape?

SANTOSH RAO: It is difficult. It's absolutely difficult. You need that scale. You need that mass to really compete and stay sustainable in this business, to be a competitive force in this business. So I think Apple will have to figure out-- they have to either acquire content, acquire shows, which they don't like to do. They like to produce their own, their strategies. Hey, let's go narrow, go deep, with high class stars like Tom Hanks and Paul Rudd and all the other ones.

So that's what they're banking on-- just go deep in a narrow band of shows. So we'll see if that succeeds. It's going to take a long time. There's no way they're catching up with the others, because others are spending multibillion more than Apple is. And it's going to take a long time to really get the recognition that they want. But I don't think they're really-- it's not their core business. It's just another hook, like I said, in their whole bundle.

They're coming to it this whole market on a different track, with a different strategy. But I think the fact that they won something-- that's great, good recognition. And if they come up with more shows like this, they're going to keep people engaged in their ecosystem.

ALEXANDRA CANAL: Yeah I'm a big Ted Lasso fan, so if they keep pumping out shows like that, I think I'll be on board. But Netflix is one of those players that spending a ton of money. In that Roald Dahl announcement, they said that this has opened their eyes to more immersive experiences, live theater, for example. We have seen them get into gaming. We've seen them get into consumer products with the Netflix shop.

Do you think this is the next step for the company, in terms of growth? Or will this cloud their overall focus? Because one of the things that always made Netflix so great is that their main focus was always streaming. So will these ancillary businesses sort of cloud that?

SANTOSH RAO: Yes. Yes, I think to your earlier point, to the extent they want to compete and stay viable in this space, they will need to, I said, grow across genres, add new features, new services. So they will do that, I think, down the road. At this point, their focus is off the gate, essentially. It's like narrow content, good content, and more quality than content, like I said. So we'll see how it plays out.

But in the over long run, Apple has the resources to do whatever it wants. It can create the space any time. So they will be very strategic about it-- follow that and go out and add more, layer on more services on top of all this. They're just laying a strong foundation at this point. And that's where they are at this point. But they will-- down the road, you never know. You cannot bet against Apple.

ALEXANDRA CANAL: And finally, I do want to talk about Disney, because that stock took a hit earlier this week after CEO Bob Chapek said that he expects Disney+ subscriber growth numbers to slow in Q4 amid the Delta variant surge. I mean, not just Disney, but all of these streaming services-- they've set pretty high bars for themselves amid the pandemic. So do you think this warning is just a COVID blip, or is it a greater sign that it's going to be harder and harder to keep up that subscriber growth momentum?

SANTOSH RAO: Yeah, a little bit of both. Yes, that seasonality, COVID blip-- you don't know where this is going. But the fact that you have this vaccine authorizations for children and things like that. And to the extent the vaccination rates go up and things open up more, the travel restrictions ease-- I think things will open up for Disney.

But on the streaming side, they need to continue building their sources, building their business. So we'll see where it goes. It's still a long way to go, but this is a temporary blip at this point, as far as their forecast goes. I think it'll pick up again in the following quarters. So it's hitting everyone across the board, at this point. So we'll see how it plays out. But right now, I would say it's temporary.

ALEXANDRA CANAL: Yeah, certainly a ton to watch. Santosh Rao, head of research at Manhattan Venture Partners.