Own an iPhone? Like Game of Thrones? In a world where Apple bought Time Warner, the media company behind HBO, CNN and TBS, the next season of the hyped fantasy series could have premiered exclusively to iPhone users.
It’s a disconcerting scenario, but also one well worth considering now that AT&T agreed to buy Time Warner over the weekend for around $85 billion. The announcement of the deal renewed conversation that Apple had been and could still be interested in the media company. Â
You know Apple as the maker of your iPhone, MacBook, iPad and Watches, products that have helped make it among the most valuable companies in the world. But when there is only so much hardware to sell and so many people to sell to, the tech giant could be eying an expansion. The company has looked at a few different industries like cars, healthcare and, yes, entertainment.
Time Warner CEO Jeff Bewkes denied there being recent and continued interest from Apple, pointing out that they are in a separate business.Â
“They’re busy with phones and devices on a global basis and I’m not sure that they’re focused on media production,” Bewkes told CNBC Monday morning.Â
But the case for Time Warner between AT&T or Apple isn’t quite that different.Â
“Both have significant exposure to the mobile data, content and infrastructure, albeit one as a carrier and one as a device manufacturer,” James Gellert, CEO of financial research and analytics company Rapid Ratings, told Mashable. “Both are also in the content distribution business.”
For AT&T, Time Warner’s content can be funneled through its subscribers on cellular wireless and on broadband. Apple touches consumers through iTunes and Apple TV, which could stand to benefit from an influx of content from a friendly, content-making sister company like Time Warner.
Apple is no longer pretending like it’s not getting into the content game.
While iTunes was once simply a distributor of digital albums or individual songs with a fee, the tech giant now offers Apple Music â a streaming service competitor to Spotify and now Amazon Prime. For $9.99 per month, people can pay for access to a library of songs â and some juicy exclusive content.Â
With access to all of Time Warner’s content, Apple could release a product like Apple Music “but for TV shows or a true native-Apple version of Netflix,” Jeff Reeves, executive editor and analyst at InvestorPlace.com, told Mashable.Â
Such a merger allows the “ability to watch more content on demand or stream their favorite TV station right on an iPhone or iPad the way God intended.”
How it’s maintained a leg-up over other services: Offer exclusive access. In the last six months, Rihanna, Drake and Frank Ocean have all debuted or had exclusive tracks on Apple Music. Beyond music, Apple bought James Corden’s “Carpool Karaoke.” It has also planned a new show “Planet of the Apps.”Â
Apple already works with HBO through the company’s HBO Now app. But Apple senior vice president of internet software Eddy Cue was quick to dismiss future competition or more oversight between the two companies.Â
âWeâre doing certain shows today that weâve announced, so weâre certainly doing some things, but I donât think youâre going to see us do a huge number of them. I think youâll continue to see us do more partnerships,” Cue told an audience at Vanity Fair’s summit in San Francisco last week.Â
Investors have been watching Apple’s growth beyond devices closely. Apple’s July earnings revealed that 11 percent of overall revenue was coming from the company’s services business, which includes the the App Store, iTunes and Apple Pay. CEO Tim Cook said revenue in 2017 would make those businesses the equivalent of a Fortune 100 business.Â
Money isn’t the problem
One thing is certain: Apple has the money. Apple had $231.5 billion cash on hand last quarter. While that was down $1.4 billion from the previous quarter, the reserves still place the tech giant in a position of power to make strategic acquisitions.Â
AT&T and Time Warner agreed to an $85 billion deal in cash and stock. Sure, that’s a lot of money, and it would be a scale of magnitude beyond anything Apple has ever done before.
But it is a defensive move for AT&T, which has had to face tough competition in its primary business of wireless service.
“T-Mobile and Sprint are chewing them up with new customers. AT&T thinks that content will help them build up a bigger moat to keep out the dogs,” said Phil Davis, CEO of Philstockworld.com and PSW Investments.Â
Time Warner is still a massive company, but compared to Apple its business might not make much of a difference. The tech giant made nearly $234 billion in 2015 while Time Warner brought in $6.1 billion in revenue. Apple “could come up with a tie clip that makes $6 billion a year. Whereâs the bang for the buck?” Davis said.
Even though its price might not be out of Apple’s reach, the acquisition just doesn’t make sense on a strategic level. There’s management shakeups and execution costs that can be distracting for the company at hand.Â
At this point in time for Apple, it makes more sense to buy one-off series like “Carpool Karaoke” rather than deal with the logistics of owning a media company.
“As the ad-supported TV model is collapsing, a tech company could use HBO, and legacy TV/movie networks to try to lock up content, but itâs easier to start from zero and start spending,” said Johnny Won, CEO of tech consultancy Hyperstop. “This can be endlessly complicated.”
“My guess is Apple feels like they can deliver their own content better,” said Sander Read, CEO of Lyons Wealth Management.Â
One to watchÂ
Where Apple and AT&T greatly differ is the state of their respective businesses.
Apple’s device manufacturing isn’t expected to grow significantly in the near future, but it should remain among the world’s most profitable companies for quite a while.
AT&T, on the other hand, is facing a difficult way forward as it tries to adapt to a future in which distribution only grows more competitive.Â
About 30 years ago, that wasn’t the case. Back in the early 1990s, before Steve Jobs returned as CEO and the iPod changed the music industry, Apple and AT&T were “on the verge of merging,” Peter Friedman, Apple’s vice president and general manager of internet services at the time and now CEO of social software company LiveWorld, told Mashable. “AT&T was trying to get into digital technology, and Apple was trying to find a sugar daddy to bail it out of the business.”
Apple’s disappointing financial results those quarters ended up sinking the deal, Friedman said.
In 2016, Apple is far from needing a savior. Its market capitalization of more than $600 billion far outshines that of AT&T’s at $200 billion. It has the wealth and influence to acquire Time Warner, but just doesn’t need to â even if it would be just a chunk of its existing cash stockpile.
If the deal between Time Warner and AT&T does go through, Apple is positioned even more nicely for a future deal.Â
“Apple has become the biggest company in the world, and the most loved company on driving user experiences within operating systems,” Friedman said. “They have plenty to do within cars and TVs to put their focus in and expand their ecosystem without taking on actual content assets right now.”