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From: Sam8/16/2017 2:56:42 PM
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Apple Readies $1 Billion War Chest for Hollywood Programming
DOW JONES & COMPANY, INC. 5:00 AM ET 8/16/2017

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Apple Inc. (AAPL) has set a budget of roughly $1 billion to procure and produce original content over the next year, according to people familiar with the matter--a sign of how serious the iPhone maker is about making a splash in Hollywood.

Combined with the company's marketing clout and global reach, that immediately makes Apple(AAPL) a considerable competitor in a crowded market where new media players and traditional media companies are vying to acquire original shows. The figure is about half what Time Warner Inc.'s HBO spent on content last year and on par with estimates of what Amazon.com Inc. spent in 2013, the year after it announced its move into original programming.

Apple (AAPL) could acquire and produce as many as 10 television shows, according to the people familiar with the plan, helping fulfill Apple(AAPL) Senior Vice President Eddy Cue's vision of offering high-quality video--similar to shows such as HBO's "Game of Thrones"--on the company's streaming-music service or a new, video-focused service.

Apple (AAPL) declined to comment.

The budget will be in the hands of Hollywood veterans Jamie Erlicht and Zack Van Amburg, poached in June from Sony Corp. to oversee content acquisition and video strategy. They exited their Sony contracts a month early and started working this month from Apple's(AAPL)Los Angeles offices, where they are taking over programming responsibilities from the Apple Music team, according to the people familiar with the matter.

Elbowing into the crowded video business won't be easy. Amazon and Netflix Inc. have considerable head starts and far bigger programming budgets. Apple(AAPL) also has to avoid jeopardizing its 15% cut of subscriptions from its app stores for video services like Netflix and HBO Go--a growing contributor to its $24.35 billion in annual services revenue.

Programming costs can range from more than $2 million an episode for a comedy to more than $5 million for a drama. An episode of some high-end shows such as "Game of Thrones" can cost more than $10 million to produce.

The back-to-back success of the original shows "House of Cards" and "Orange Is the New Black" is credited with building Netflix's business. At the time they were released the company's annual budget for original and acquired programming was about $2 billion; this year it is expected to spend more than $6 billion.

For its video service to gain relevance, Apple(AAPL) needs at least one hit, according to the people familiar with the plan. The company's initial video efforts--"Planet of the Apps," launched in June on Apple Music, and "Carpool Karaoke," launched last week--were criticized by reviewers.

With $215.64 billion in revenue last fiscal year and more than $261 billion in cash on its balance sheet, though, Apple(AAPL) could quickly ramp up spending on content.

Mr. Van Amburg and Mr. Erlicht have begun meeting with Hollywood agents and holding discussions about shows Apple(AAPL) could acquire, the people familiar said. The men also hired former WGN America President Matt Cherniss to oversee development, the people said.

Mr. Cherniss will assist with finding programming. He previously worked with Mr. Erlicht and Mr. Van Amburg to bring the Sony shows "Underground" and "Outsiders" to WGN. Mr. Cherniss also has movie experience, having worked as a production executive at Warner Bros.

Apple (AAPL) is eager to shore up its existing video business--renting movies and TV shows through iTunes--which has been challenged by the rise of video-subscription services that offer programming for a monthly fee. Last year, iTunes generated an estimated $4.1 billion in revenue, but its share of the movie rental-and-sales market has declined to less than 35% from 50% in 2012.

Apple (AAPL) is hoping that original video bolsters the appeal of movie rentals and other iTunes offerings--a critical piece of its services business, which also includes App Store sales, Apple Pay and Apple Music. The company aims to double that business to about $50 billion by 2020.

Joe Flint contributed to this article.

By Tripp Mickle Apple Inc. (AAPL) has set a budget of roughly $1 billion to procure and produce original content over the next year, according to people familiar with the matter, as the iPhone maker shows how serious it is about making a splash in Hollywood.

Combined with the company's marketing clout and global reach, the step immediately makes Apple(AAPL) a considerable competitor in a crowded market where both new and traditional media players are vying to acquire original shows. Apple's(AAPL) budget is about half what Time Warner Inc.'s HBO spent on content last year and on par with estimates of what Amazon.com Inc. spent in 2013, the year after it announced its move into original programming.

Apple (AAPL) could acquire and produce as many as 10 television shows, according to the people familiar with the plan, helping fulfill Apple(AAPL) Senior Vice President Eddy Cue's vision of offering high-quality video, similar to shows such as HBO's "Game of Thrones," on the company's streaming-music service or possibly a new, video-focused service.

Apple (AAPL) declined to comment.

The budget will be in the hands of Hollywood veterans Jamie Erlicht and Zack Van Amburg, poached in June from Sony Corp. to oversee content acquisition and video strategy. They exited their Sony contracts a month early and started working this month from Apple's(AAPL)Los Angeles offices, where they are taking over programming responsibilities from the Apple Music team, according to the people familiar with the matter.

Elbowing into the video business won't be easy. Amazon and Netflix Inc. have considerable head starts and far bigger programming budgets. Apple(AAPL) also has to avoid jeopardizing its 15% cut of subscription revenues from its app stores for video services like Netflix and HBO Go, money that is a growing contributor to its $24.35 billion in annual services revenue.

Hollywood has become a major battleground as consumers increasingly sever cable subscriptions and transition to streaming services like Netflix or Hulu. The disruption has fueled competition between tech and traditional media companies eager to sell subscriptions or generate advertising revenue with new entertainment programming. It has also fueled a major increase in scripted programming, which rose to more than 500 shows during the recently concluded 2016-17 television season, nearly double the total in 2011.

In addition to Amazon and Apple(AAPL), Facebook Inc. has begun acquiring original programming like a reality show on NBA player Lonzo Ball's family, and Alphabet Inc.'s Google has announced a $35-a-month streaming TV service.

Netflix has aimed to outflank tech rivals by recruiting star TV producers like Shonda Rhimes, who developed ABC hits like "Grey's Anatomy" and "Scandal." Meanwhile, Walt Disney Co. announced this month it will pull its movies from Netflix and launch its own streaming service.

David Hill, a former senior executive at 21st Century Fox Inc., said Apple's(AAPL) recent entertainment hires give the company a chance to catch up with established players like Netflix and Amazon. But he said that the flood of new scripted shows is making it increasingly harder to succeed in attracting viewers.

"There's just not enough time," Mr. Hill said.

Programming costs can range from more than $2 million an episode for a comedy to more than $5 million for a drama. An episode of some high-end shows such as "Game of Thrones" can cost more than $10 million to produce.

The back-to-back success of the original shows "House of Cards" and "Orange Is the New Black" is credited with building Netflix's business. At the time they were released the company's annual budget for original and acquired programming was about $2 billion; this year Netflix is expected to spend more than $6 billion.

For its initiative to gain relevance, Apple(AAPL) needs at least one hit, according to the people familiar with the plan. The firm's initial video efforts via Apple Music -- "Planet of the Apps," launched in June and, "Carpool Karaoke," out last week -- were criticized by reviewers.

With $215.64 billion in revenue last fiscal year and more than $261 billion in cash on its balance sheet, Apple(AAPL) could quickly ramp up spending on content.

Messrs. Van Amburg and Erlicht have begun meeting with Hollywood agents and holding discussions about shows Apple(AAPL) could acquire, the people familiar said. The men also hired former WGN America President Matt Cherniss to oversee development, the people said.

Mr. Cherniss will assist with finding programming. He previously worked with Messrs. Erlicht and Van Amburg to bring the Sony shows "Underground" and "Outsiders" to WGN. Mr. Cherniss also has movie experience, having worked as a production executive at Warner Bros.

Apple (AAPL) is eager to shore up its existing video business -- renting movies and TV shows through iTunes -- which has been challenged by the rise of video-subscription services that offer programming for a monthly fee. Last year, iTunes generated an estimated $4.1 billion in revenue, but its share of the movie rental-and-sales market has declined to less than 35% from about half in 2012.

Apple (AAPL) is hoping original video bolsters the appeal of movie rentals and other iTunes offerings -- a critical piece of its services business, which also includes App Store sales, Apple Pay and Apple Music. It aims to double that business to about $50 billion by 2020.

--Joe Flint contributed to this article.

Write to Tripp Mickle at Tripp.Mickle@wsj.com
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