Ben Thompson, from a fascinating Stratechery post:
The problem Apple has in premium video — and given that the company has been trying and failing to secure video content on its terms for years now, it definitely has a problem — is that its executives seem to have forgotten just how important the piracy leverage was to the iTunes Music Store’s success.
Ben quotes the next paragraph from this Wall Street Journal story from last summer:
[Senior Vice President of Internet Software and Services Eddy] Cue is also known for a hard-nosed negotiating style. One cable-industry executive sums up Mr. Cue’s strategy as saying: “We’re Apple”…TV-channel owners “kept looking at the Apple guys like: ‘Do you have any idea how this industry works?’” one former Time Warner Cable executive says…Mr. Cue has said the TV industry overly complicated talks. “Time is on my side,” he has told some media executives.
Ben continues:
Time may be on Apple’s side, but the bigger issue for Cue and Apple is that leverage is not; that belongs to the company that is actually threatening premium content makers: Netflix. Netflix is the “piracy” of video content, but unfortunately for Apple they are a real company capable of using the leverage they have acquired.
This is fascinating on many levels. First, there’s the notable absence of Netflix from the Apple TV section of last week’s Apple event. Buying Netflix would not only solve the problem of Netflix’ absence from Apple’s new TV App, it would also build an interesting bridge over to Amazon. Netflix is a first tier, searchable citizen on Amazon’s Fire TV, and Apple buying Netflix would certainly help the Apple TV pull back even with Amazon in the area of search.
But buying Netflix would give Apple more than that. On one hand, it would give Apple leverage in their relationship with Amazon, a lever they could use to nudge Amazon Video onto Apple TV. On the other hand, if Amazon doesn’t play ball, Apple could use Netflix as a marketing edge to distinguish Apple TV from Fire TV.
Either way, I’m a fan of Apple buying Netflix, think it’d be an efficient use of capital, way more so than an umbrella purchase like Time-Warner, which I think would be much more of a derailing distraction than its content is worth.
You left out a couple of important things … if Apple buys Netflix, a reasonable person would expect an immediate 50% raise in the price of the service. Also Apple is notoriously and historically incapable of providing anything that regular working class people can afford or appreciate.
Netflix is the low end TV for everyone. Apple buying it and turning it into some high-end, HD, fashion-related luxury product like the rest of their stuff would be basically the death of Netflix. The miss-match in cultures would be so strong it would be like Donald Trump investing in a radical feminist group.
My concern: why should ANYONE, including Apple, think that the content owners, Big Hollywood—who up to this point rebuffed Apple’s/Cue’s tactics—wouldn’t simply refuse to renew content deals with AppleFlix?? They’d starve Netflix under Apple even more so than they’ve starved Netflix to this point! Ben doesn’t even address that potential (and I’d argue it isn’t “if”, but “when” that would happen).
And the idea that it is Netflix’s original content that would drive the value is highly arguable; Netflix is losing money on original content, it is a loss leader for them at this point to drive subscriber numbers. Almost every Netflix user I know enjoys the Netflix original stuff, but has been lamenting the decreasing content issue for over a year. (Isn’t that why we’re all looking for a “unified” solution to BEGIN WITH?) A takeover by Apple would only serve to accelerate the loss of Big Hollywood content, no doubt, and crush Netflix’s value to consumers (something Big Hollywood, now predominantly owned by cable companies, would likely short-sightedly relish).
A Time Warner acquisition gets original content from HBO and Cinemax plus something Netflix has zilch of: sports programming. I wrote about it 4 years ago (not into hawking my wares via link-dropping, but it’s easy enough to find). Plus TWC is “under the kimono” as a cable operator; Netflix is still an adversary to cable – albeit a disruptive one.
What a ridiculous statement. Does Apple charge 50% for Apple Music than Spotify? If they did, would anyone subscribe? If Apple immediately increased the Netflix subscription price by 50%, 50% of their customers would cancel. That would make their purchase worthless.
This seems like very poor writing by Ben to me. I don’t think Apple has ever bought a company to get into a market. They’ve bought lots of companies to acquire and/or acqui-hire technologies and or staff they want to implement or use for their products. Trying to acquire a business that is Netflix model of being platform acgnostic and clearly has no intention or desire to sell would have to be an hostile take over and likely cost $120B to $150B to do a hostile take over, and then have to figure out how to make it proprietary system that is either a value add to Apple Music or Mac or iPhone etc.
Ben should read Ben’s article a few months ago about a paint manufacturer that tried to go from either consumer to business or the other way and failed miserably.
Apple doesnt charge 50% more for apps and content. Quit trolling.
If you sign up for spotify on your iPhone, it’s 30% more than if you sign up for Apple Music on your iPhone. You have to go to the web and sign up for Spotify and then just login on your phone if you want to avoid the Apple 30% bump on costs of Spotify.
Apple does cut themselves 30% on all app purchases & in app purchases
troll garbage. working class people own ipods, iphones and ipads all over the place. it’s affordable luxury. mac mini as well.
which has jack to do with what he said — the price of apple offerings. it’s spotify’s decision to charge more for their offerings in app.
which has jack to do with anything.
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Apple bought Beats to get into streaming music. It is also platform agnostic. This could be the new Apple way.
Apple is charging Spotify a fee for their services. Spotify has the choice of absorbing the fee or passing it on to their customers. Spotify chooses to charge higher fees if you try to pay through the iTunes store. Either way, Apple Music doesn’t cost more than Spotify.
Netflix has a market cap of $52 Billion. Apple could buy them outright for about $62 Billion assuming a generous 20% premium on the stock. I have no idea where your numbers are coming from.
MIGH higher premiums on hostile takeovers, and Netflix has shown now interest whatsoever in M&A talks with anyone. The debt they have is reasonable enough to keep the stock & company growing, and they are way past the stage of the company that founders looking to cash in would’ve sold. As an NFLX owner, I would vote against a buyout at only 20% premium.
You might reject it a 20% premium, but I guarantee the majority of stockholders would jump at the opportunity to take the money and run. With these types of deals, it’s about business and economic benefits far more than individual ideals. For that matter, most company’s shares are tied up in fund investors and you can be sure they’d take the 20% gain.
“Also Apple is notoriously and historically incapable of providing anything that regular working class people can afford or appreciate.”
except for all the idevices, you mean?