Our bullish investment thesis for Apple (AAPL) centers on our view that customer switching costs will allow the firm to retain most of its existing iPhone user base, enabling the firm to make repeat sales of premium-priced iPhones over time. We believe an over-the-top, or OTT, Live TV service presents a particularly promising source of customer stickiness and we suspect many investors are hoping for an announcement along these lines at Apple’s upcoming iPhone 7 launch. We’re not particularly optimistic that a Live TV service will be announced this Fall, as we would have typically seen far more rumors and leaks by now. But we still foresee an Apple OTT TV service arriving someday (late next year would be our bet) and we’re interested in its potential to enhance iOS ecosystem lock-in. We doubt a Live TV service will provide a big boost to Apple’s bottom line in isolation, but again, the far more important financial consideration is that a Live TV service could help to protect Apple’s massive crown jewel iPhone business. We continue to think about almost all of Apple’s new hardware, software and services in this context. We continue to maintain our $133 fair value estimate and narrow moat rating for Apple.

Media content negotiations have likely held up an Apple Live TV service in recent years as we suspect content owners have preferred to move slowly to date, favoring owned firms (like Hulu) and traditional TV distributors (Dish, DirecTV). Hulu (now owned by four major media providers) could be particularly well positioned to emerge as a leading cross-platform service. However, we think that content providers want as broad a distribution as possible, which will eventually allow an Apple TV service to come to market. Compared with competing offerings, we don’t expect Apple to garner differentiation via unique content rights, but we do expect the firm to have a few advantages in Live TV.

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