Apple's $1 billion video plan should worry Spotify, not Netflix (AAPL)

Planet of the Apps

Apple recently announced a plan to spend $1 billion on video content over the coming year, but it's not going after Netflix.

According to Amit Daryanani, an analyst at RBC Capital Markets, Spotify has the most to lose from the increased spending.

"While a billion dollars appear small relative to Netflix’s $6B, Amazon's ~$4B and HBO’s $2B annual content spend, we think that Apple is not competing with these services, at least not yet," Daryanani wrote in a note to clients. "Instead, the investment makes more sense in our view from the perspective of Apple Music taking share from Spotify."

His argument assumes that the video content produced by Apple will be available in its Apple Music platform, like "Carpool Karaoke" and "Planet of the Apps" currently are.

Currently, Spotify has about double the number of paid subscribers as Apple music, with 50 million vs Apple's 27 million. Daryanani said Apple would only need to attract 7-8 million new subscribers to offset the $1 billion investment over the next three years.

Apple Music has been growing quickly, according to Daryanani. The service boasts a larger catalog than Spotify with more exclusive releases. More video content could help the service grow even faster than its current rate, though the videos would have to fare better than the two programs Apple released recently. "Planet of the Apps" and "Carpool Karaoke" have not received great reviews.

Apple has hired a couple Sony executives to help produce content. The duo helped create hits like "Breaking Bad" and "The Crown."

RBC rates Apple a buy with a price target of $176, which is 12% higher than the company's current price.