I posted somewhere on this site months ago that I thought this might be Apple's move, at least initially, with original video: give it away for free inside the TV app on the Apple TV, iPhone and iPad. Free high-quality shows (which I'd bet will be in 4K Dolby Vision) will be a great way to generate buzz for the Apple brand while serving as a differentiator between Apple hardware and cheaper alternatives. $1 billion a year on content sounds like a lot but the last year that Apple reported their advertising budget (not the entire marketing budget, just ads), it was over $1 billion. This will serve as a form of advertising for Apple (especially if they get good critical reviews and some awards nominations) while also providing a reason for people to enter and stay inside the Apple ecosystem, rather like the free suite of iLife software did for the Mac last decade.
Generating a big enough catalog of content to launch a new standalone subscription service takes time, which is why I had trouble seeing Apple launching their own competitor to Netflix, HBO Now, Hulu, etc. in 2019. But if this takes off, maybe in a couple years we'll see Apple roll it out as a standalone pay service available on non-Apple devices too (and possibly no longer free on Apple hardware, or only free for the first X months after you buy a new Apple device). Or perhaps, like Google's original video line-up which is now bundled into YouTube Premium, it eventually becomes available as an add-on upgrade to Apple Music.
At any rate, I foresaw that free Apple Originals might be a perk of getting the Apple TV 4K back at the start of this year when I bought one. Glad to be right and looking forward to it. Some of Apple's shows in the works sound really good, with serious talent involved.