Thursday, October 6, 2016

Buzz about Netflix as an acquisition target

Watching the subscription-based models for video delivery is a place to watch for PicoP -- especially anything that is enhanced for mobile. 

There are a lot of advertising dollars out there that can be enhanced by larger format video.

A lot of subscriptions can be sold to people who have mobile large-format video.

Microvision will provide a significantly disruptive force for television.

Tim Cook has repeatedly stated that television is an “area of intense interest” for AAPL, and is ripe for disruption. Press reports have indicated that Apple has held discussions with cable companies and content providers, and that the company had planned an over the top television (OTTP) service, but was unable to successfully negotiate licensing agreements. We believe that APPL’s vision is to look to disrupt pay-TV subscriptions5, and while Netflix could be a nice complement/component to that vision, we think that Apple might prefer to spend the money to license content and rights to offer a more complete service (i.e., including content not well aligned with the on-demand delivery model of an SVoD offer, such as sports and news).


Disney already owns a 30 percent stake in Netflix rival Hulu as it partnered with Fox, Time Warner, Comcast, and NBC to establish the streaming company. Netflix would be a natural fit in Disney’s portfolio given that the company is now paying due attention to cord cutters.

Apple has long been rumored to be interested in setting a streaming service of its own. Granted its ambitions are said to revolve around live TV streaming, but Netflix already has a robust platform that it can use to further its TV ambitions. The company made $234 billion in revenue in the last fiscal year, it’s not like it can’t buy Netflix if it wanted to.

Apple Buying Netflix would be waste of 50 Billion

Sacconaghi and Kirjner make no reference to any specific rumors on the matter. Instead, they note that “Apple acquiring Netflix is a dream-scenario for many Netflix bulls, and a possibility often raised by investors.”
“There is no question that Apple can do it – its market cap is over 13 times Netflix’s $45 billion EV, and Apple has nearly $150 billion in net cash on its balance sheet,” the authors observe.
“The question is really whether or not Apple will acquire Netflix [...] Overall, we do not see a compelling rationale for Apple to acquire Netflix.”
They start off by musing that Netflix would have the benefit of bringing lots of revenue, and a subscription business, to Apple’s services offerings:
Apple has a business model problem. The key challenge is that Apple’s business principally involves selling hardware — most notably iPhones, iPads, and Macs [...] Perhaps the most intriguing consideration of Apple potentially owning Netflix is that it would add $8B to Apple’s services revenues (or 3-4% to total Apple revenues), and more importantly could be used creatively to help shift Apple’s transactional business model towards a subscription-based model. We believe AAPL could and should look to build a subscription offering of features and services that could be bundled with its hardware offerings, analogous to what Amazon does with Amazon Prime. Netflix (at a discounted price for only iPhone or iPad users who buy Apple hardware as a subscription) could be a key element of an attractive services bundle.

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