How does Chinese law affect foreign streaming services like Apple TV+ and what workaround is Apple considering to operate in China?

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How does Chinese law affect foreign streaming services like Apple TV+ and what workaround is Apple considering to operate in China?

Chinese law places strict regulations on foreign streaming services, prohibiting them from operating directly in the country. To work around this restriction, Apple is reportedly in talks with China Mobile, the world's largest wireless telephone company, to roll out Apple TV+ in China. Under the proposed deal, Apple would license its content to China Mobile, which would then offer Apple TV+ as part of its broadband service, featuring Apple's content on Mobile HD, a set-top box. This arrangement would enable Apple to enter the Chinese market while complying with the country's laws and regulations.

How significant is the Chinese market for Apple in terms of overall revenue and growth potential?
The Chinese market is highly significant for Apple in terms of overall revenue and growth potential. China is currently Apple's third largest market, contributing 18% of total revenue in the fiscal second quarter of 2024. Greater China, which includes mainland China, Taiwan, Hong Kong, and Singapore, brought in $16.37 billion in the March quarter, representing an 8% year-over-year (YoY) fall. However, this still topped estimates of $15.87 billion with a YoY decrease of 11%.

China has been a major driver of Apple's growth over the past decade, with sales in the region growing more than 20-fold within five years, peaking at $58.7 billion in 2015 before gradually falling back to $40.3 billion in 2020. The slump was short-lived, as sales surged back almost 70% in 2021 and have exceeded $70 billion in each of the past two years. This growth potential is particularly notable given that China is the world's largest smartphone market.

Apple's promotions and pricing strategies in China have helped the company to maintain its strong position in the market. In January 2024, Apple lowered the prices of the iPhone 15 series in China ahead of the Chinese New Year holiday in February. In May, Apple's official store at Alibaba Group's Tmall platform launched a limited-time discounting campaign, offering discounts up to RMB2,050 (US$318) for iPhone 15 shoppers.

In addition to its importance for Apple's revenue, China is also a key market for the company's future growth potential. The recent talks between Apple and China Mobile to roll out Apple TV+ in China demonstrate the company's efforts to expand its services in the Chinese market. If the deal were to go through, Apple TV+ would be the first U.S. streaming service to be available in China, one of the biggest markets globally.
What challenges does Apple face in measuring and sharing revenue from Apple TV+ if it licenses content to Migu, as mentioned in the report?
Apple faces challenges in measuring and sharing revenue from Apple TV+ if it licenses content to Migu due to difficulties in accurately tracking subscriber numbers. Since Migu is a separate streaming service, it might be difficult for Apple to get precise data on the number of subscribers watching Apple TV+ content through Migu. This could lead to complications in calculating and dividing the revenue generated from Apple TV+ subscriptions between Apple and China Mobile. Additionally, as the subscriber numbers grow, the complexity of revenue sharing may increase, making it harder for both parties to agree on the distribution of earnings.
What are the financial terms of the deal between Apple and China Mobile concerning revenue sharing from Apple TV+ subscriptions?
The financial terms of the deal between Apple and China Mobile concerning revenue sharing from Apple TV+ subscriptions have not been disclosed. However, it is reported that Apple and China Mobile are likely to split the revenue from Apple TV+ subscriptions. It is also expected that Apple may charge less for the streaming service in China than the costs of the service in the U.S., considering the weaker purchasing power of Chinese consumers.
What are the details of the proposed deal between Apple and China Mobile regarding the rollout of Apple TV+ in China?
Apple held talks with China Mobile last year to roll out Apple TV+ in China, according to a report by The Information. Under the proposed deal, Apple would license its content to China Mobile, since Chinese law doesn't allow foreign companies to operate their streaming services in China. China Mobile would offer Apple TV+ for a monthly fee and feature Apple's content on Mobile HD, a set-top box included with China Mobile's broadband service. The companies would split revenue from Apple TV+ subscriptions, and Apple is likely to charge less for the streaming service in China than in the U.S. due to the weaker purchasing power of Chinese consumers.
What specific strategies is Apple employing to expand its presence in the Chinese market according to the recent news?
According to recent news, Apple is employing several strategies to expand its presence in the Chinese market. These strategies include:

Ramping up expansion for its services in China: Apple is reportedly in talks with China Mobile, the world's largest wireless telephone company, to roll out Apple TV+ in China. If the deal is struck, Apple TV+ would be the first U.S. streaming service to be available in China.

Offering rare promotions of key product lines: Apple has been lowering prices of its iPhone 15 series in China ahead of major holidays, such as the Chinese New Year. Additionally, Apple's official store at Alibaba Group's Tmall platform launched a limited-time discounting campaign, offering discounts up to RMB2,050 (US$318) on iPhone 15 Pro Max, iPhone 15 Pro, iPhone 15, and iPhone 15 Plus (1)(5).

Increasing its number of China-based suppliers and manufacturing sites: In 2023, Apple increased its number of China-based suppliers and manufacturing sites, reducing its reliance on suppliers from Taiwan, the U.S., Japan, and South Korea.

Deepening its involvement with China while expanding production in Southeast Asia and India: Apple is balancing political pressures and business needs by deepening its involvement with China while expanding production in other regions(5).

Opening new stores and revamping existing ones: Apple is discussing opening 15 new stores across the Asia-Pacific region through 2027 and aiming for six revamped or relocated stores in the region(1). This shows Apple's commitment to building its brand in growth markets like China.
What were the financial results for Apple in Greater China for the fiscal second quarter, and how do these compare with previous estimates?
Apple's financial results for the fiscal second quarter in Greater China, which includes mainland China, Taiwan, Hong Kong, and Singapore, showed that the region brought in $16.37 billion in revenue. This represented an 8% year-over-year (YoY) decline. However, this figure still surpassed estimates of $15.87 billion, which predicted a YoY decrease of 11%. Greater China accounted for 18% of Apple's total revenue for that quarter.
How have iPhone sales performed in China according to the latest data, and what impact have recent promotions had on these numbers?
According to the latest data from the China Academy of Information and Communications Technology, iPhone shipments in China surged by 52% year-over-year in April (1). This growth followed a 12% year-over-year increase in March, after a 37% plunge in the first two months of the year. These figures indicate a recovery in iPhone sales in China, which can be attributed to Apple's recent promotions in the world's largest smartphone market.

Apple has been offering various promotions in China, such as lowering the prices of the iPhone 15 series in January ahead of the Chinese New Year holiday in February. In May, Apple's official store at Alibaba Group's Tmall platform launched a limited-time discounting campaign, offering discounts up to RMB2,050 (US$318) for iPhone 15 shoppers who placed their orders from May 20 to 28.

These promotions seem to have had a positive impact on iPhone sales in China, as evidenced by the significant increase in shipments and the recovery in sales during the months of March and April.
Why is Apple considering China Mobile as a partner for distributing Apple TV+ in China, as opposed to other potential partners?
Apple is considering China Mobile as a partner for distributing Apple TV+ in China for several reasons:

Government-backed company: China Mobile is a government-backed company, which gives it an advantage when dealing with regulators in China. This could help smooth the process of launching Apple TV+ in the country.

Largest mobile phone carrier: China Mobile is the largest mobile phone carrier in China, with nearly 1 billion customers. This presents a huge potential market for Apple TV+, as many of these customers already pay for traditional TV services through a digital set-top box.

Existing partnership: Apple has previously partnered with China Mobile to sell iPhones in 2013, which helped Apple grow its sales in China. This existing relationship could lead to synergies and make it easier to launch Apple TV+ with China Mobile.

Compliance with Chinese law: Chinese law generally prohibits foreign companies from offering their streaming services directly in the country (4). By partnering with China Mobile, Apple could potentially distribute its content through the China Mobile set-top boxes that are part of the broadband services, in compliance with Chinese regulations.

In summary, Apple's choice of partnering with China Mobile is based on the company's government backing, its large customer base, an existing partnership with Apple, and the ability to comply with Chinese law on streaming services.
Can you detail the discounts Apple offered on the iPhone 15 series during the limited-time discounting campaign on Alibaba Group’s Tmall platform?
During the limited-time discounting campaign on Alibaba Group's Tmall platform, Apple offered the following discounts on the iPhone 15 series:
1. iPhone 15 Pro Max: The starting price was reduced by RMB2,050 (US$318), bringing the new starting price down to RMB7,949.
2. iPhone 15 Pro: The starting price was reduced by RMB1,900, bringing the new starting price down to RMB4,500.
3. iPhone 15: The starting price was reduced by RMB1,400, bringing the new starting price down to RMB5,599.
4. iPhone 15 Plus: The starting price was reduced by RMB1,400, bringing the new starting price down to RMB6,099.
These discounts were available for customers who placed their orders between May 20 and May 28.

ORIGINAL NEWS

Apple in Talks with China Mobile to Roll Out Apple TV+ in China

Jun. 6, 2024

Thread

How does Chinese law affect foreign streaming services like Apple TV+ and what workaround is Apple considering to operate in China?

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