Apple, Netflix are breaking down 'media status quo,' but opinions differ on their impact

An industry analyst warned that the television industry is in for "a big, big shock" this year as Apple (NASDAQ: AAPL) and Netflix (NASDAQ: NFLX) transition into game-changing "superpowers" and break down international entertainment barriers and other traditional ways of providing media and entertainment.

Joel Espelien, analyst with The Diffusion Group, said in a blog post that while Netflix has clearly set the disruptive vehicle in motion by launching simultaneously in 130 countries earlier this month, Apple could also become a historic, huge content player well ahead of other OTT competitors -- if it decides to buy Time Warner.

Rumors emerged last week that Apple was in talks with Time Warner to buy its assets as investors pressured Time Warner CEO Jeff Bewkes to either sell the media giant or spin off some of its key assets like HBO.

"Adding HBO (to say nothing of all the other Time Warner Brands) would give Apple full stack media creation and distribution capabilities that have never been seen in a single company. Ever," Espelien said.

What's more, Apple, along with the four other media companies that make up what Espelien calls "The Big 5" -- Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) -- has to act soon in order to respond effectively to the challenge that Netflix's global presence has set.

Buying Time Warner would make sense for the manufacturer, and force the other companies to acquire their own unique content assets, he said -- kicking off content competition at another level.

Apple has been trying, so far without success, to launch its own skinny bundle of linear TV channels streamed over the top. Acquiring Time Warner or even just HBO makes sense, a Fortune article said, if Apple wants to provide an offering that would be as compelling to potential cord-cutters as the iPhone and iPod were when they launched. "If Apple owned HBO, it could throw everything from Veep to Game of Thrones into the skinny bundle for free," the article said.

The possibility of Apple making a significant acquisition is made more real by the fact that the company has $200 billion available with which to play.

But a Quartz article argued that owning HBO wouldn't make things easier for Apple -- it would make things harder. It "would introduce an entire set of problems that Apple shouldn't want to worry about, such as maintaining relationships with the cable and satellite providers that still generate the vast majority of HBO's revenue." Ditto with other Time Warner assets, the article said.

"Does Apple media head Eddy Cue really want to preside over winding down a cable group or shifting CNN to a digital business model? Those don't sound like exciting projects -- certainly not worth taking on for access to a few more TV shows."

Netflix's global initiatives, in the meantime, are not necessarily going to set the rest of the TV world on its ear. In its earnings call on Jan. 19, CEO Reed Hastings noted that the company doesn't expect to see a profit from its international efforts until at least 2017. And while its global content licensing initiative could provide a long-term solution to cross-region licensing headaches, that strategy "has not been an easy road," content guru Ted Sarandos said in December. The SVOD provider is also still mired in negotiating more traditional streaming deals. It's also putting a huge amount of money into its original content efforts, adding to risk factors that could affect its performance over time.

For more:
- see this TDG blog post
- see this Forbes article
- see this Quartz article

Related articles:
Apple linear TV service is a no-go, CBS' Moonves says
Kraus: Streaming media market competes for consumers' attention, dollars
Netflix revenue misses forecast, but adds surprise 5.59M new customers
Netflix shares slip on Sarandos' comments over content rights issues

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