It can build its own content studio but will be better off with the established brand
Apple released its latest fiscal-quarter earnings last week. And everything is rosy for the Cupertino tech giant, with 41 million iPhones sold and healthy growth in both Mac and iPad sales generating US$45.2 billion (S$61.6 billion) in revenue.
But the mouth-watering part is that its cash reserves have reached a staggering US$261.5 billion. That's around 87 per cent of Singapore's economic output last year.
With that amount in cash, Apple could buy Uber, Tesla, Airbnb, Twitter and Netflix, and still have US$29 billion to spare, said financial news outlet CNBC.
Among all these companies, I think Netflix is the acquisition that makes the most sense.
Founded in 1997, Netflix is one of the world's largest media-streaming companies. It has more than 100 million subscribers in over 190 countries, with a market valuation of around US$68 billion.
In 2013, Netflix became a content producer with the critically acclaimed House Of Cards TV series. It has released more than 120 original series and films up to September last year.
It has been reported that Apple has been negotiating with entertainment studios and cable networks to bring a TV and movie streaming service to AppleTV.
However, according to a Fortune report, Apple's arrogance in negotiating terms and its inconsistent vision of what it wants to do with its TV services have stalled its progress so far.
Recently, Apple hired Jame Erlict and Zack Van Amburg, who had served as Sony Pictures Television presidents since 2005 and were responsible for hits like Breaking Bad and Better Call Saul, to lead its video programming.
This signalled that Apple wants to take on the studios with its own original content. It has already started to do so with its Shark Tank-like app-pitching show Planet Of The Apps (to poor reception), and the just-released Carpool Karaoke, a show about celebrities buckling up and belting out their favourite songs during short road trips.
Seriously, why does Apple bother to dabble in something that is not its speciality?
Apple could gain a massive amount of content as well as vast reach in media-streaming services if it acquires Netflix. It will be akin to Apple buying Beats in 2014 before Apple Music was rolled out, for Beats' music-streaming service and headphone business.
Instead of wasting time haggling with different studios and movie companies, buying Netflix would put Apple immediately in a prime position to deliver a holistic music, TV and movie streaming service to millions of iPhone, Mac and AppleTV users.
The entertainment connections, talent networks and the original productions of Netflix are exactly what Apple needs to kickstart its own media-streaming service.
Of course, there are plenty of challenges for Apple to buy Netflix. It is not as straightforward as it seems.
Most of Apple's cash reserves are parked outside the United States. And it will be charged a hefty corporate tax if the cash is brought back to buy Netflix.
However, the Trump administration is hoping to pass tax reform that will include a tax holiday to encourage tech companies like Apple, Google and Microsoft to bring their cash back to the US. If that happens, Apple will be more inclined to haul back the cash.
But it has been estimated by various analysts that Apple will probably need to fork out as much as half of its cash reserves in order for Netflix to be willing to sell. It would be a really massive financial deal.
Certainly, Apple has the financial muscle to create its own content studio. But it will have to learn from scratch and quite possibly further delay its entry into the growing media-streaming business, which already has the likes of Amazon Prime Video and Hulu.
Furthermore, Apple's new original content might not succeed, even with big-name producers on board.
But, with Netflix, Apple will have a tried-and-tested brand and service that delivers not only an immersive entertainment experience for Apple device users, but is also a huge potential growth and revenue outlet beneficial to its shareholders.
A version of this article appeared in the print edition of The Straits Times on August 09, 2017, with the headline 'Why Apple acquiring Netflix would make sense'. Print Edition | Subscribe
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