The “Apple Should Buy” Report
January 14th, 2016If you believe what some financial and tech industry pundits are saying, Apple should have bought Tesla by now, maybe a wireless carrier, and, of late, Time Warner. Or maybe not the whole company, but the HBO premium cable service, assuming the company wants to unbundle.
Indeed, the people who have no access to Apple’s checkbook sometimes seem obsessed as to how the company should spend its money. There’s a never-ending list of companies that should be acquired, as if there’s a reason for any of it to happen. Except for Beats Electronics, which brought the core of what became Apple Music to it, most Apple acquisitions have been small technology companies that enhance its ability to design stuff. Consider PC Semi and other processor developers that allowed Apple to create A-series silicon, which is trouncing other companies that base their chips on ARM.
So what would come with Time Warner?
Well, in one of the more foolhardy acquisitions of 2000, AOL, then the largest online service in the country, acquired Time Warner; it didn’t take long for this deal to unravel. Time Warner brought content to the table in the form of such cable TV networks as HBO, Cinemax, CNN, TNT, and TBS, and Warner Bros., the motion picture company that has a huge repertoire of great movies and TV shows over the years, and also owns DC Comics and thus such properties as Batman, Superman and Supergirl.
Now in terms of entertainment value, that move would seem to make lots of sense. Some tech pundits suggest it would form the core of Apple’s subscription TV service, and thus give Apple a leg up on setting it up.
But why Time Warner? Why not Disney, which owns not just the ABC network, but LucasFilm, which owns the Star Wars franchise, and Marvel, which brings with it more blockbuster movie and comic book characters? Indeed, I venture to say that, when it comes to box office receipts and long-term potential, Disney has a leg up on Time Warner. More to the point, Apple has a direct connection since Steve Jobs was Disney’s largest shareholder.
Do you see where I’m going?
While it may seem superficially logical for Apple to buy an established entertainment company, how does that stand with the competition? Why would Disney get in bed with Apple if it owns Time Warner. What about Universal, or Viacom, which owns Paramount Pictures and thus Star Trek? Why would they be more tempted to make an agreement with Apple under these circumstances?
Does that make any sense?
I mean it’s one thing if Apple went the Netflix route and produced its own movies and TV shows. Clearly Netflix is still able to sign contracts with other entertainment companies for movie and TV show rights, and after all, its roster of original programming, however compelling, is relatively small. Besides, streaming TV doesn’t pit one program against another, since you can watch whatever you want, however often you want, whenever you want. Netflix still offers an audience of tens of millions of TV viewers — cord cutters and otherwise — that the entertainment companies want to reach.
Apple would too, but owning a key competitor would give pause to the plans of other companies. I can’t see where it would compel them to make deals to get a crack at the very same audience. Maybe it would, but Apple would do better just to try to come up with a package that’s compelling enough to get those agreements. As of the time I wrote this, Time Warner’s market cap was over $56 billion, which means Apple might have to invest half of its $200 billion cash reserve to take control. And that assumes a deal could be struck.
It really doesn’t make sense.
This is just another example of people who should know better attempting to make decisions for Apple, as if they are incompetent and can’t act on their own behalf. Wasting tens of billions to acquire a company that isn’t nearly as profitable as Apple, hoping to jumpstart a so-far moribund project, would be reason to question the judgement of Tim Cook and his team.
Now there’s nothing wrong with saying that “Apple should…” when it comes to a policy, a product, or a strategic move. To think Apple is perfect is foolish, and to think Apple will always make the right decision, is also foolish. There are plenty of examples where Apple released a product or service that didn’t do quite what it hoped. Just start with its checkered history of managing online services that started with eWorld and includes iCloud. Look at the ragged interface of the latest iTunes, now 15 years old, and consider the shaky launch of Apple Music with loads of glitches and a terribly busy interface.
Could Apple have released a subscription music service without Beats in its arsenal? Maybe the acquisition sped up development of the service, and those fancy headphones are no doubt reasonably profitable. Maybe the music industry bigwigs now working for Apple are going to do better in crafting new pacts with the entertainment industry. We’ll see.
I just don’t see where buying Time Warner will benefit Apple in any meaningful way, considering the possible cost of that acquisition. In the end, Apple would end up no better than AOL with a wasteful transaction. And, yes, I always stand ready to be proven wrong, but I just don’t get it.
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Apple is a product-driven company, and as such, investors’ anticipation for its upcoming products influences its stock price performance to some extent. And with the iPhone sitting at the epicenter of Apple’s product universe, the excitement generated among investors each time the company updates the device’s form factor has typically led to a marked outperformance in the stock.