Apple CEO Tim Cook greets as he opens the door of the newly renovated Apple Store on Fifth Avenue on September 20, 2019 in New York City. (Photo by Kena Betancur / AFP) (Photo credit should read KENA BETANCUR / AFP via Getty Images)
KENA BETANCUR | AFP | fake images
As AT&T and Discovery discussed the possibility of pooling their content assets, they specifically structured an agreement to give the combined company flexibility to merge or sell in the future, perhaps to Apple.
Apple is one of the few companies that has the balance to buy WarnerMedia-Discovery, a company that will likely have a market capitalization of more than $ 100 billion when it goes public next year, assuming regulatory approval.
But it’s unclear if Apple has any interest in a major media acquisition. The company’s history suggests that CEO Tim Cook would avoid a big deal. Apple’s biggest deal was just $ 3 billion, for hearing aid maker Beats Electronics in 2014. To put that in perspective, Apple has a market valuation of more than $ 2.1 billion.
Apple’s growing market power is also under increasing scrutiny by regulators and has been the subject of a recently concluded court lawsuit by Fortnite maker Epic. Shelling out $ 100 billion or more for an outside company may sound the alarm bells from politicians Cook would rather not call.
But, to quote a frequently used investment phrase, past performance is no guarantee of future results. Apple has made a relatively small investment in original content, with shows like “Ted Lasso” and “The Morning Show,” and Apple TV + remains a minnow among streaming giants Netflix, Amazon Prime Video, Disney, and the newly combined WarnerMedia. -Discovery. If Apple wants to compete, the easiest way forward is to buy a media giant, and there are already some historical ties between WarnerMedia and Apple.
The Apple-Time Warner Talks
In 2015, Cook, Eddy Cue, Apple’s senior vice president of Internet software and services, Jeff Bewkes, CEO of then-called Time Warner, and former Time Warner executive vice president Olaf Olafsson met to discuss partnership opportunities around Apple offering exclusively Time Warner’s. content, according to people familiar with the topic. The meetings were reported by the Financial Times in 2016, but CNBC learned of additional details.
The four executives discussed offering content from Turner and HBO outside of the cable package for about $ 19 a month, said a person familiar with the content of the conversation, who asked not to be identified because the discussions were private. While Time Warner already offered HBO Go separately from the traditional pay-TV ecosystem for $ 15 a month, taking CNN, TBS, TNT and other Turner networks out of the broader cable package would have been an innovative step.
Even today, almost six years later, consumers cannot purchase a monthly subscription to a company’s linear networks separately from the largest cable package. The broader idea of selling direct to the consumer has taken hold of the media ecosystem, with every major media company offering a streaming product of their own.
Executives discussed the possibility of Apple being the exclusive provider of the offer, giving users of Apple devices the ability to purchase the Time Warner package through the iTunes store.
For a series of weeks, both Apple and Time Warner grew bitter at the idea. Taking Turner’s networks out of the cable package would likely have led to a chorus of angry pay-TV distributors who thought they were paying for exclusive content. And Apple already offered multimedia content (movies and TV shows) from a large number of media companies through the iTunes store. Time Warner wanted Apple to market the package globally, but Apple was hesitant to upset its other media partners.
During the talks, Bewkes and Cook broached the topic of Apple acquiring Time Warner to deal with one of the biggest hurdles of the $ 19-per-month concept: What if Apple or Time Warner finally wanted to pull out? Once the companies went live with the offering, they would have to stay aligned. Walking away from the deal could be disastrous for both companies’ external relations.
Cue expressed interest in a full takeover, but Cook was ultimately not ready to pull the trigger on what would likely have been a nearly $ 100 billion deal, two of the people said. Neither Bewkes nor Cook had initially expected the talks to lead to an acquisition thought, the people said. Time Warner had successfully fought a hostile takeover offer from Fox a year earlier.
A year later, in late 2016, Bewkes agreed to sell Time Warner to AT&T for more than $ 105 billion, including debt.
An Apple spokesman declined to comment.
Another connection: Richard Plepler
Apple has another important link to WarnerMedia: former HBO chief Richard Plepler.
Plepler left HBO after disagreeing with current AT&T CEO John Stankey on the direction of the premium network, as detailed by CNBC last year.
Months later, he signed a five-year contract with Apple TV + to produce television series, documentaries, and feature films exclusively for the streaming service. The coronavirus pandemic delayed the production of most of Plepler’s efforts, but some of his work at Eden Productions is beginning to leak, such as the limited series “In With The Devil,” starring Greg Kinnear, Sepideh Moafi, Taron Egerton. and Ray Liotta. .
If Cook wants to know insider details about HBO, he has someone on his payroll to ask.
Apple TV + accounts for just 3.7% of the company’s total service revenue, according to Barclays analyst Tim Long. Free trial periods end in July, which will likely lead to increased turnover. Apple TV + probably had around 40 million total subscribers, many on free trials, at the end of 2020, Barclays estimated.
“Overall, Apple TV + has underperformed original expectations after its launch in late 2019,” Long said in a note to customers. “We believe that Apple’s budget to produce original content is well below the amount Netflix has spent in the last decade. It could take years and still not move the needle.
If Apple wants to stay in the world of streaming video, Cook may need to change the company’s history from avoiding high-value mergers and acquisitions. The WarnerMedia-Discovery deal is not expected to close until mid-2022. That gives Cook a year to think seriously about the future of his company.
WATCH: Full CNBC Interview with Discovery CEO David Zaslav and AT&T CEO John Stankey