Apple should buy Netflix or make rival Time Warner bid, analyst says

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Apple left Netflix out of its recently announced TV app but that may not be an issue if the tech giant follows one analyst’s advice and buys the SVOD service.

According to independent analyst Ben Thompson, Apple would gain “one of the strongest entrants when it comes to business models of the future, a far more compelling growth narrative than its current hardware business” and a way to leverage its assets “in a way that leaves the product company free to focus on what it does best.”

As for Netflix, Thompson points out that the company’s high valuation and volatile stock could be sent on a roller coaster ride should “any surprises in churn or new user numbers” pop up.

“Having Apple’s financial backing will alleviate those concerns,” wrote Thompson. “Apple’s bank account will also allow Netflix to accelerate its strategy of complete ownership of original content…With Apple behind it Netflix could pursue the same strategy it used for this summer’s Stranger Things: produce content without any middle men, and reap the proceeds -- and leverage the freedom -- forever.”

But Thompson warns that it would likely take a hugely substantial offer on the part of Apple to make a deal for Netflix work, suggesting Apple could be forced to offer a 20 percent premium, putting the acquisition price at $65 billion or higher. Even then, Thompson isn’t so sure Netflix would go for it.

“And yet, the biggest reason why I’m skeptical it will happen is that I’m not sure Netflix says yes: the company has made it this far with a ladder up strategy predicated on delivering a superior customer experience, and provided the company can keep the cash flowing the leverage in video is all theirs,” he wrote. “Granted, Amazon Prime Video is a big threat, particularly because their orthogonal business model and big company backing give them the ability to match Netflix dollar-for-dollar when it comes to acquiring content, but having made it thus far, does Hastings want to take the easy way now?”

Apple has reason to avoid a major acquisition as well, Thompson argues, but could find a more sustainable platform for hardware innovation with a growth driver like Netflix in place.

“Wouldn’t it be a relief to sell a future based on more than squeezing the last drops of blood out of the iPhone rock? Indeed, the iPhone as cash cow and Netflix -- run as an independent subsidiary -- as growth driver would arguably create the greatest possible freedom to recreate the future once again,” wrote Thompson.

Owning Netflix would give Apple access to a well-oiled original content machine, and producing/owning original content is something that Apple CEO Tim Cook sees big potential in. During Apple’s earnings call last week, Cook said he sees “great opportunity” in making original content, something his company has dabbled in so far but hasn’t yet put much of its financial weight behind.

Of course, Apple offering to buy Netflix would likely be viewed as a response to AT&T’s recently announced $85 billion bid to own Time Warner Inc.  And, as the New York Post reports, Cook and Apple could be under pressure to submit a rival bid for Time Warner.

The Post cites an unnamed source with direct knowledge of the situation who says that Goldman Sachs is pushing Apple to submit an offer for Time Warner and points toward comments Cook made last week about Apple’s willingness to pursue acquisitions of any size and that TV “has intense interest with me.”

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