When has Apple (NASDAQ:AAPL) ever done things just because they were “supposed” to?
Just like many of their big tech rivals, the company marches to its own beat, but still over the past few years we’ve heard one consistent rumor emerge time-after-time – and if it hasn’t happened by now, I’m not confident it ever will… and that’s OK.
So what’s the rumor?
First as always, some background.
Most of the gossip tied to Apple revolves around its signature product lines, specifically its hardware. Given Apple is largely a hardware company and built its bones on those SKUs, you can understand why. Yet over the years of the Tim Cook regime we’ve seen a concentrated expansion into add-ons (i.e. subscription services).
As I discussed last week in my overall 2022 Apple preview, Cook has always been well aware Apple would flounder if it limited itself in growth… so he smartly began adding to the company landscape. These are the Apple Music and News type products which along with the overall app store and cloud storage division make up a lot of Apple’s supplemental revenue streams and have become somewhat turn-key to operate. Beyond that you have the Games and Fitness verticals which take more upkeep but again have turn-key elements.
And then you have Apple TV+
For investors and analysts Apple TV+ is an enigma. Separate from the Apple TV device and a late entry into the world of streaming, many just don’t know how to predict what’s going to happen with it year after year.
The biggest trap though is comparing Apple TV+ to something like Netflix (NASDAQ:NFLX) because it’s not apples to apples. For one, Netflix is a company devoted entirely to streaming content – Apple is not. In fact, making that comparison is unfair to shareholders because it sets up other false equivalencies.
If you feel the need to make those type of comparisons, one I’ve made in the past is to Amazon (NASDAQ:AMZN) because both have a separate core service with streaming and the like being more supplemental services feeding into the same ecosystem. Still whether it’s Netflix, Amazon, Disney/Hulu (NYS:DIS), HBO Max (NYSE:T), Peacock (NASDAQ:CMCSA) or whichever other service you want to throw in there, the common thing each has in common is a strong library of content that is original AND acquired.
Apple does not have that and it consistently seems to be the thing that analysts like to ding them on and speculate on when it may change.
We saw it a lot in the past 12-18 months as rumors surfaced Apple was going after everything from James Bond to A24 and fueling the fire was Amazon’s acquisition of MGM… which some saw as a missed opportunity for Apple.
“Apple has made a major strategic mistake not buying a Hollywood studio while Amazon, Disney, Netflix and others run away with content. Content is king, and Apple built a mansion with hardly any furniture in it. MGM was a no-brainer acquisition for Apple, and they missed a huge opportunity.” – Wedbush analyst Dan Ives.
And speaking of Disney, the Mouse has long been a popular dance partner for Apple in gossip circles but those whispers have never gone anywhere. Many (myself included) believe that window has long since closed and the only real chance of it happening was when Steve Jobs was in charge. Still every year we see media bringing it up, either based on “credible” info (that isn’t) or as a matter of opinion that again stroke the flames.
In general, this notion though that Apple MUST buy a big player to keep pace won’t go away. Just the other week we saw an unnamed executive tell CNBC they predicted 2022 will be the year Apple does pull the trigger.
“A fresh team of people who can create hit shows won’t just make Apple a more serious player churning out original content. It will also give Apple a library of TV shows and movies it can offer to customers. That’s something Apple doesn’t own yet, but it’s probably essential to serious long-term streaming ambitions.”
Most of this you can chalk up to “end of the year chatter” that never really amounts to anything but for investors it’s important to really understand why that is – especially because it keeps happening.
This notion that Apple NEEDS a catalog to keep Apple TV+ viable no longer holds water, with Apple essentially addressing it directly in its latest big Apple TV+ ad campaign. The accompanying video ends with the slogan “Only Originals” before morphing into “Only Apple Originals.”
It’s the clearest sign yet that Apple has embraced the “creation” approach to content, and with its service priced at $5 a month believes subscribers will understand the decision. You also have to keep in mind its content is not low quality – Ted Lasso is the reigning Best Comedy winner at the Emmys, For All Mankind continues to rack up critical acclaim (including beating out Squid Game, Mare Of Easttown and Only Murders In The Building on USA Today’s “Best of 2021” list) and rookie Acapulco has held a perfect 100% on review aggregator Rotten Tomatoes since its launch in October.
Apple is leaning into the idea of “quality” over “quantity” and it has been doing so in plain view for a while, but the prospect of a potential takeover is too big in the eyes of Wall Street to ignore (even if the odds are very low).
A lot of that’s also on Apple’s because it did take them awhile to find their footing. Many remember there also was a period of time in the very beginning where it was clear Apple was definitely looking to acquire a studio and make a big splash. Although they likely reached a point where it didn’t make financial sense for them and changed to gears. It was an example of doing due diligence that was blown out of proportion (as often happens) in the press.
The part that’s on the media and analysts is less the perpetuation of this “they have to buy a studio” thinking and more the type of studio they have to buy. It seems like some are so blinded by the possibility they aren’t paying very close attention to the Apple model.
For instance, we know Apple has a long history of acquisitions, however they’re mostly of a certain type. In most cases the targets are not major global players but rather ones that possess something that is major in its field and can be folded into something on a global level.
Take VR for example – the next big rumored expansion for the company. Apple recently bought Next VR and Spaces, both powerful tools in the virtual landscape, but they aren’t on the same level as Oculus or Valve/Steam. Yet as part of the Apple-reality roadmap they both play a huge role that can help take the company’s vision to a much higher level more akin to an Oculus or Valve/Steam.
Now take that example back to content. If Apple was to buy something in that space, the most logical choice would be something that it could easily work into its existing world. That’s why something like an A24 deal seems more logical to me because it fits into that bucket as it is a successful studio but not one on a Disney-like scale.
Some have also suggested Lionsgate as a target because it is a seemingly direct counter to MGM, but to me Lionsgate’s Starz is a better fit. Again, a successful TV network but not one on an HBO type level… but one with a roster that can potentially help fuel a catalog and also give the company a linear (subscription) option. And with Lionsgate teasing a Starz spin-off, it’s something that could be in the realm of possibility.
I’ve also seen speculation that Apple could buy Roku (NASDAQ:ROKU) which would be a fascinating development. The question of course becomes why would Apple buy the company when it’s already in the space with Apple TV.
One reason has to do with the type of customer that each draws in – Apple TV is more high end (as it costs significantly more than a basic Roku device) and Roku is more budget/cost-conscience. While it would present an interesting new foothold for Apple, the discount route is not a space where it usually plays, which makes me doubt a move like that is being considered.
That said, we know Apple sees value in the hardware maker because this year it spent (a lot of) money to land one of the four signature logo buttons on its remote. We also know Roku has the Quibi catalog in its arsenal plus a variety of content presented via the FAST (free ad-supported television) model. Again though, like discount, is FAST really an area Apple wants to be in? And does Apple get more value in paying Roku for the real estate on its device than owning it outright?
For now, Apple seems game to continue on the road it’s on, especially given the deals it has in place on the film side that will begin to pay off in the upcoming months (i.e. awards season). To be clear, I’m not saying Apple will never buy a studio, what I’m saying is that IF Apple does buy a studio the odds are it’s not going to be something with multiple moving parts that dramatically shakes up the playing field. It will be a more calculated approach that fits a larger goal.
Apple has a certain pattern it follows and it doesn’t like to veer too far out of its lane – with good reason. As it stands Apple is going to have a busy 2022 with its likely jump into VR/AR as well continuing its legal battles with both Epic Games and the government, on top of its latest device refreshes… so while adding more to its plate is always possible, it’s not always prudent.