Will Apple Win The Content Battle Using M&A?
As one of the world’s largest companies and home to what is arguably the most successful consumer electrical product of all time, Apple which has forged a name as a technology giant, comfortably sits on a cash stockpile of $233bn. So, what does a company in this position do to continue on their path to technology and media world dominance? Recent rumours have surfaced that Apple is seeking to expand their empire through the acquisition of original content, breaking specifically into the television market.
Shares in both Time Warner and Netflix surged at the end of May following speculation that linked both companies to Apple. However, Time Warner’s market cap is around $58bn while Netflix has been valued at $43bn, and such expensive deals are not typical of Apple. Historically Apple has paid between $50m and $200m for its acquisitions, excluding its 2014 $3bn purchase of Dr. Dre’s Beats, therefore a deal with Time Warner and/or Netflix would be a significant step change for the company.
However, as Apple clearly can afford the acquisition of one, if not both, of these companies, the possibility of a deal is not implausible, and here is why:
- While Apple has defined the content rental and purchase market through iTunes, companies such as Netflix, Hulu and Amazon Prime have championed the subscription-based model which continues to gain increasing popularity across all age ranges. Just last year, HBO, owned by Time Warner, launched its own streaming service, and the subscription service model would be a new area for Apple in addition to the original content that Netflix produces.
- Among Time Warner’s assets are HBO, CNN, the CW Network, Cartoon Network and Warner Brothers. With each of these and more within its empire Apple would undoubtedly become a media juggernaut.
- Apple is constantly looking to diversify. It has already invested $1bn in Didi Chuxing, China’s answer to Uber, and is working on the development of autonomous cars. With a healthy cash stockpile, which continues to grow, Apple can afford to experiment through the acquisition of companies outside of its usual focuses.
- Apple’s business model hinges on its most successful product, the iPhone. However, as Q1 of 2016 saw iPhone sales drop significantly, and the fact that the smartphone generates 65 per cent of the company’s revenues, Apple may be feeling the pressure to do something big and bold.
As the rumours surrounding Apple’s potential deals continue to circulate, it is clear that the colossus of technology is aiming to diversify and extend its market reach amid a time of significant change within the industry. The move would be Apple’s biggest deal-making to date, but it is likely that we will have to wait longer before any of these rumours are confirmed or denied.
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