Why Apple Should Buy A Content Company

In a world where a box is just a box and distribution needs original and exclusive content to drive growth, media is big business.  And given the insatiable appetite for content affecting every consumer, content drives usage and multiple revenue streams.  Content can be purchased, it can be rented, it can be advertised; it can be downloaded and streamed and provide rich, measurable date about the user and usage.  And Apple should invest more in the business.

It is true that Apple has been dabbling in content with a trove of downloadable content on its iTunes platform.  And it has been build out a music streaming business.  But there is much more room to grown and acquisition may be the means to building a bigger better business model.  I have suggested a bid for Time Warner for its cable programming and theatrical distribution business and I have suggested other cable networks as a stepping stone into the media production and distribution universe.  Business Insider thinks that Apple should make a play for Netflix.  In the article, Stratechery analyst Ben Thompson says ""If Apple wants its usual ownership of end users it needs to buy its way in, and that means buying Netflix." With original and acquired content, Netflix's streaming model could enhance the Apple Music value, enabling packaging scenarios to drive further adoption of both models.  And it could also add value to the Apple TV business. 

Is Apple even looking at Time Warner, Netflix or other content creators and distributors?  The worry is that Apple is not innovating enough, not driving further adoption, not expanding, and facing increased competition from those eager to push Apple off the top of the mountain.  Maintenance and remodels of current products are not enough to remain a leader; rather, it says that you are treating your business more to maintain value than drive growth.  Beyond any possible plans to create a new technological product, Apple should look at content makers like Netflix to grow its business. 

Will AT&T Time Warner Deal Get Approved

The excitement caused by the latest media merger news of AT&T buying Time Warner has been tempered by concern of "too big".  And that the timing of such news is just two weeks before an important national election.  Politically speaking, both Democrats and Republicans are encouraged to speak out against the merger, as it on the surface looks to limit competition. Economically, it may be harder to press such a claim.

First, both AT&T and Time Warner will point to the Comcast NBC union as precedent to approve their deal.  Second, they will speak to the point that neither business directly competes with the other.  In fact, they each offer to the other a stronger vertical position with AT&T providing distribution through DirecTv, U-Verse, and AT&T Wireless, and Time Warner contributing strictly the content side with production, broadcast, and cable television networks, as well as some web sites.  Neither side currently plays in the other sides' world.  Third, this deal should also pass because Time Warner previously spun off their Time Warner Cable business, a direct competitor to AT&T, as a means to make their content business look more attractive.  Since then, Charter Communication picked up Time Warner Cable and that deal also passed regulatory approval.

So what will the FCC and Justice Department have to say about this merger.  Most likely, a lot with some need to set certain requirements to assure other distribution sites get equal availability to Time Warner content.  But it may be very difficult to outright deny such a deal given the above points.  Could this deal get derailed, possibly: especially if another player seeks to offer a higher priced bid.  Could that still be Apple or Google or maybe even Facebook?  Its been rumored that some of these folks have already kicked the tires a bit.  So stay tuned.

UPDATE: AT&T Buys Time Warner

Time Warner has agreed to terms, according to multiple sources, to be purchased by AT&T.  According to USA Today, AT&T is acquiring "a diverse media portfolio that includes HBO, CNN, TNT, TBS, Warner Bros., theme parks, Bleacher Report and a 10% stake in streaming service Hulu, at about $105-110 per share."  Prior to the rumor, TWX was priced around $70 a share.  It rose to $90 on Friday and will see a nice bump on Monday.  Rupert Murdoch and his Fox Network had tried previously to acquire Time Warner with an offer near $85 a share about a year ago.

Once the paper is signed, expected to happen later this weekend, the next step is likely regulatory approval by the FCC.  I would expect that some requirements will be imposed but that, since the Comcast acquisition of NBC was allowed, AT&T should have no major problems getting this deal approved as well.  A great catch for AT&T; I still wonder if Apple even kicked the tires and if so, what prevented them from putting out a competitive offer.  We may never know.

What will be the next media merger?  Will CBS and Viacom recombine, will Scripps or AMC seek a larger partner to add leverage to their deals, and will other telcos seek to bring content into their family?  Verizon went the digital route with AOL and soon Yahoo, but it may be necessary for them to look at more traditional video media producers.  For now the merger of Time Warner and AT&T is just the next leap in media mergers. 

Time Warner For Sale?

If content is truly king, then its no wonder a distribution company like AT&T might want to buy Time Warner.  AT&T, who is now also the owner of DirecTv and U-Verse, recognizes the value content, especially exclusive content can bring to the distribution model.  DirecTv's deal with the NFL to exclusively offer all games, especially out of market games, to its subscribers, has been a hit.  Cable subscribers would love the chance to buy that package.  Now its parent, AT&T, may have set its eyes on a bigger content prize in Time Warner, Inc.

Time Warner, owner of the Turner cable networks including CNN, TBS, TNT and others, as well as HBO and the Warner Bros studio, may just be soliciting bids for purchase.  AT&T may be a prospective buyer and obviously believes they are also a good fit, but will they pull the trigger?  And who else may now be interested in obtaining such a prize?  I content that Apple should also look to purchase TW; a deal that would immediately give them more leverage in advancing their Apple TV platform.  Perhaps Trump might want to buy TW after the election and turn CNN into Trump TV.  And you never know what Google might do to drive both their fiber rollout as well as their Chromecast product.

Is Time Warner really for sale?  Some believe the company is actually open to a sale.  And so is the stock market. 

Cord Cutting Less Of A Worry

A CNBC story tells us that research from SNL Kagan indicates that "a flattening pace of cord-cutting and a projected broadband boost of 8 million subscribers over the next 10 years, media companies are quickly shifting the way their content gets delivered to consumers."  Truth is, the best way to stream is with broadband.  The cost of data from cellular, mainly because of plans that charge by the gigabyte, makes an impact on the household.  Households may not be buying higher packages of cable, but they are still getting the basic cable package and bundling broadband.  With a broadband package, consumers have wireless accessibility for tablets and smartphones.  And they get authenticated access to wireless outside the home.  In the Northeast Xfinity, Optimum, Time Warner Cable and others have been building out their wireless platforms to support their subscribers. 

Consumers have been moving toward streaming as a preferred way to view content.  Streaming both cable and OTT content to watch on all their devices.  NBC has just announced that they have already served over 1 billion streams of Olympic content.  Time Warner Inc. made a big investment in Hulu, a streaming subscription service.  And Disney/ESPN are finally looking at a streaming subscription package for their sports content. 

The success of broadband enables cable companies to drive bundling packages in a way to keep households connected to cable TV as they drive broadband subscription growth.  And per the report, the strategy has kept cord cutting from becoming a bigger issue.

Is Time Warner More Appealing To Apple

Time Warner released its quarterly earnings and the news seems to be well received.  With future earnings expected to rise, the content business is growing.  At the same time, Time Warner announced plans to buy a 10% stake in Hulu, a streaming competitor of Netflix and Amazon.  HBO continues to operate outside the Hulu platform with its subscription service HBO Go.  That service is also growing.  And lastly, there are rumors that Hulu plans to build a streaming platform to offer live feeds of cable nets.  Adding services like CNN, TBS, and TNT to Disney and Fox sounds like the start of a compelling OTT competitor to cable. 

Does this make Time Warner a more interesting asset for Apple?  To own HBO, cable nets and a piece of Hulu could be a real get for Apple.  And it would instantly propel Apple into the video streaming space with major content players.  Add to that the Warner Bros studio and Apple could apply its influence into more immersive theatrical film experiences. 

What Is The Apple Content Strategy?

What does Apple really want to do with their content business?  Do they want to simply distribute or do they have interest in owning original content?  Is Apple Music a competitive threat to Spotify and Pandora?  And can Apple TV be a better choice than other platforms for OTT subscription services?  So are the many questions that just scratch the surface of what is Apple's content strategy.

It has left many to wonder if Apple will buy Tidal to its Apple Music business.  Is acquiring content like Carpool Karaoke really a property to differentiate Apple Music?  And is there a connection to Apple TV?  There seems to be lacking a material strategy to show what Apple wants to do in the content space.  It just might take a definitive acquisition to show the public its cards. 

I say make a play for Viacom, and let MTV, Comedy Central, and Showtime be your anchors.  Make a play for Time Warner and its stable of Turner Networks and Warner Bros.  With these networks and libraries of content, Apple would quickly build a library of content and be a player in the content space. 

Apple Should Not Buy Tidal

Subscription content services are a nice business to own.  They provide a nice monthly stream of revenue that can be accounted for with limited risks in subscriber loss.  Heck even cable has seen a very small percentage still from cord cutting.  In music, the big player is Spotify and Apple Music would surely like to beat them.  But recent news that they might purchase Tidal is not the answer.  Sure it has Jay Z but that does not a business make.  And it certainly won't make Apple Music any better or bigger.  Whether it secures any exclusivity is questionable, especially when you consider what Apple may have learned from the book side of the business and dealing with both book publishers and eventially the Judicial Department.

Still, the strategy of building better content businesses is a good one for Apple.  Could that mean buying someone as big as Netflix or perhaps even a Time Warner Inc, home of Turner, HBO, and Warner Bros?  I would love that move.  But maybe something smaller is a better first step.  Given the Viacom issues and Sumner Redstone lunacy, Showtime and sister networks might be a better idea.  Lionsgate is picking up Starz; once owned, they could be in play too.  And let's not forget Scripps or AMC.  Overall, I believe that video subscription should be Apple's next big content move.

And as for SIRI and the Amazon Alexa competition.  That is a blog for another time. 

Spectrum vs Xfinity vs Optimum

It's official!  Time Warner Cable and Bright House Networks are part of Charter Communications.  And with the merger will come new marketing intended to forget the old brand and think only good thoughts of the new cable company.  And the name Charter has chosen to market cable, phone and data is Spectrum.  If you think you have seen that name before, you have.  The Flyers and Sixers once played in the Spectrum.  There once was a cable network called Prism (sounds like Spectrum a bit) and there is a company already called Spectrum Brands.

Of course the notion of renaming its services under a different brand name comes right from the cable playbook.  Comcast introduced us to their Xfinity brand while Cablevision started it with its Optimum brand.  Whether Altice decides to keep that name once it acquires Cablevision in the next month or so remains to be seen.  Still, the strategy has proved a successful one.  Many people have no idea that the brand and the company are the same.

Can Charter take the Time Warner Cable properties and upgrade them and thus help improve their service and reputation?   Current TWC customers, especially in California, hope so.  If cord cutting doesn't kill them first, an opportunity to regain consumer trust and build a world class operation could certainly be possible.  We will have to wait and see how Charter Communications takes on this acquisition and invests in its infrastructure. 

Cord Cutting, What Cord Cutting?

Have the winds shifted?  Is cable television rebounding?  Are households watching cable TV and television advertising?  A look at the top 3 cable operators might indicate that the cord cutting trend has reversed.  According to each of their fourth quarter reports, cable subscribers, as well as data and phone are all increasing.  Charter announced that they increased subs by 33k in the last quarter and 11k for all of 2015.  Last month, Time Warner Cable announced that it gained 54K in Q4 which will make its soon to be owner Charter Cable very happy.  And Comcast Cable added 89K in Q4 although down for the total year by 36 K in 2015. 

Is this reversal simply a Christmas present to the top cable providers or an indication that 2016 could be a growth year for them?  Not raising rates to households might be an encouraging sign.  But should greed get in the way of a better marketing a customer service approach, these sub gains may be short lived.

Has Time Warner Lost Its Way?

The challenge for a company as it grows is how to successfully manage its parts in a way that makes the combined entity that much stronger.  But sometimes, too much growth or too many business units operating independently can cause bits of implosion.  They can distract from the core mission or lead to missed opportunities.  And when a company is public with active investors, the value of the parts being greater than the whole creates new pressures on the management team.

Time Warner Inc has been one of those companies under such pressure.  As an acquisition target of AOL, it led to complete disarray.  Once divorced from that mistake, it tried to right itself only to feel pressure to continue to split off pieces.  Time Warner Cable was spun off as was the Time Inc. company.  And what is left are the Turner cable networks like TBS and TNT, the HBO premium cable subscription network, and the Warner Bros movie studio.  But investors want more and believe that Time Warner needs to be either split again or sold to another with deeper pockets.

Recently, some rumors have emerged that Apple could be interested in buying them to support their Apple TV brand.  But if you look at the Apple business, they are a technology company and aggregators of content, from music to video to apps, that they can bundle and sell to customers through their technology.  They don't have the management experience to run a content company.  And owning an HBO or TBS might limit their ability to aggregate other video content.

A more likely scenario might be for Murdoch and the Fox team or Malone and the Liberty Media team to kick the tires on Time Warner.  And ABC might be interested too.  As for CBS, an ailing owner might make it harder for them to manage such a large acquisition.  Time Warner Inc has shown a willingness to part with companies and a spin off of HBO could be a more realistic move in the short run to allay investor concerns.  Although given the recent direction of the stock market these days, the timing to sell may not be right at the moment.

Time Warner Wants A Piece Of Hulu

Time Warner wants another streaming business and that might include a piece of Hulu.  Per Deadline Hollywood, they are in early discussions to take a piece of the pie and join the Disney, Fox, NBC partnership.  But does it make sense?

I ask that question for a number of reasons.  First, they already own HBO Now and HBO Go and have a successful platform and subscription business that they control 100%.  Second, the idea of being a partial owner in Hulu will only add to the dysfunction of running the Hulu brand.  The old adage that "too many cooks spoil the broth" means that one more owner will further handcuff the strategic growth and tactical abilities of the Hulu brand to grow.  And third, that Time Warner's other cable content brands lack enough quality content to be anything more than long tail entertainment. 

Can an investment by Time Warner in the Hulu business draw a positive ROI?  I am sure the financial analysts are asking all the same questions in determining how to best improve revenue.  There is no guarantee of success.  Time Warner only needs to look internally at some of their failed networks like CNN SI, the Sports Illustrated Network.  I am sure there are other misses as well.  That is not to say an investment in digital doesn't make sense; but, wouldn't you rather have total control in your next business opportunity then a 25% position.

Stock Market Worried About Cable Networks

When Time Warner Inc. announced lower earnings expectations in the future, the stock market responded by selling off a list of cable network stocks.  From Time Warner to Discovery, from Disney and Viacom to AMC, a consistent sell off was evident.  But what drastically changed?  Just a week or so ago, ESPN cut 300 jobs to lower costs and hopefully improve earnings.  Cord cutting has been much discussed over the last number of years; in fact, many cable operators have been posting much smaller sub losses in their latest quarter.  And content companies have been pursuing new streaming deals and other revenue lines to boost earnings.  So what really changed?

Sure, the announcement that Time Warner Inc. now expected lower earnings in the near future. But just yesterday, its premium network HBO announced it was the new home for future Jon Stewart content.  And that news was positively received.  As to the daily price fluctuations of media stocks like Time Warner, Inc., the likely means to restore earnings will be to cut costs.  Expect some layoffs from a number of these companies to boost earnings for its stockholders. 

NAB Wants To Leverage Merger To Reform Broadcast Rules

The National Association of Broadcasters (NAB) hopes to gain rules reform for broadcast ownership by tying its attempt to the Charter -Time Warner Cable merger efforts.  And the NAB hopes it has some leverage to suspend merger talks till it gets its own reforms.  While the link may not be apparent, the need for new rules is.  Still, it is unlikely that the FCC will pay attention to such a move.

Consolidation in the cable industry makes sense, especially given the connectivity issues to create efficiency for wire and wireless speed and usage.  Separately, broadcast ownership rules should also be reviewed given the changing relationship between broadcaster and viewer.  The rise of broadband applications have created new opportunities that compete head on with broadcasters. 

So if the NAB feels the need to argue for more reforms given the changing landscape, they should.  But their argument should in no way be linked to what the FCC is reviewing to allow Charter and Time Warner Cable to merge. 

Are There Just Too Many Cable Networks

How many slices of a pie can you make before the serving size gets too small?  Cable operators have impressed us with the number of channels they offer, creating value in aggregating so much content for one low price.  But with the advent of on demand programming and the rise in streaming, channels have become a bit dated.  Asked to define a network by the shows they offer and you can become glassy-eyed trying to figure it out.  As viewers, we simply want to watch and aggregators like Netflix allow us to watch our Mad Men and other shows without caring what "channel" it is on.

Companies with multiple channels under their ownership air shows across those channels to gain audience interest.  Most recently, the Jim Gaffigan Show appeared not only on TV Land, but Comedy Central as well.  These networks are owned by Viacom.  Other media companies have followed similar strategies.  Orphan Black was seen across AMC Networks and BBC America Channels. 

 With so many channels asking for license fees, cable operators realize they now must cut back to save on costs.  Viewers watch shows, not 'channels' these days, and aggregators like Netflix, Hulu, and Amazon are capturing consumers with a single source for watching episodes or movies.  No channel names involved.  And so it may be time to consolidate and drop channel brands.  Channels have become too fragmented so that no one network has a sufficiently unique brand. Channel individuality has been lost as each tries to reach the same demographic to drive advertising sales. 

Cable operators realize too that a skinnier bundle with less channel offerings, combined with on demand and streaming capability through their menu, will keep price points more attractive and subscription from dropping. 

It may now be time for the media industry to drop nets and better segment their brands.  Can MTV and VH1 be combined, Can A&E, History, and H2 become one brand; Can IFC, Sundance, and BBC  be combined.  Could TBS, TNT, TruTV become one brand?  And will independent networks like GSN, Ovation, WFN, and others find that they will also fall off the cable line-up.  It might just be time to watch network fragmentation evolve back into fewer more sustainable brands.  r they might go away altogether ac consumers cut the cord to cable TV and seek only their programs on other aggregator platforms. 

Approval Expected For AT&T - DirecTv Merger

According to reports, the FCC will be approving the merger of AT&T and DirecTv sometime next week. While it has been more than a year since its announcement, the need for the FCC to first address the Comcast bid for Time Warner Cable likely was a factor in moving forward with this acquisition.  Still, little seems to be in the way for a new AT&T/DirecTv to begin.

Certainly next on the FCC plate is Charter's bid for Time Warner Cable.  Unlike the issues surrounding Comcast, the FCC is also likely to approve this deal, too.  Many don't expect final approval for Charter and TWC till year end if not early 2016.  Once completed, the big three of Comcast, Charter, and AT&T will dominate the cable distribution industry.  And then we can watch to see what happens to Dish Network, Cablevision, Cox, FIOS, and the other players.

AOL Now Officially A Verizon Company

Once AOL was the lead platform to access the internet.  The movie, You Got Mail, was a love letter to the company's email service and the familiar voice was known by all.  And AOL, once so powerful, that it went on to purchase Time Warner.  But all good things must come to an end and as the industry quickly changed and dial up was no longer the means to connect, the value of AOL dropped precipitously.  At the end of the day, Time Warner spun AOL off into a separate company and divorced themselves completely.

Today, AOL is now officially a Verizon company.  Per Multichannel, "Verizon Communications said it has closed its proposed $4.4 billion acquisition of AOL, a move that aims to beef up Verizon’s mobile, over-the-top video and advanced advertising strategies." No longer an e-mail favorite, AOL's main attraction seems to be content with the Huffington Post a favorite.  Along with its powerful ad technology, Verizon hopes to capitalize on the yang of content to their yin with cellular distribution.  Is there synergies that can be better monetized?  Certainly, the strategy is aiming to do just that. 

While AT&T pushes ahead with a DirecTv acquisition and Comcast expands its content and distribution platforms in various ways, Verizon is left trying to grow the digital content space.  And the AOL acquisition may not be enough.  I suggest looking at other content companies.  Could Netflix be a future acquisition target?  Could Hulu be back on the merger table?  It seems that the direction for Verizon is to continue to expand on this front in order to remain competitive in this rapidly changing space.  As for the AOL brand.  Don't be surprised if it gets phased out in a year or two.  The once powerful Prodigy and Compuserve brands are already just a footnote in the history of the internet.  AOL is likely the next brand to vanish.

Comcast Founder Passes Away

Ralph Roberts, founder of Comcast Corporation, has passed away at the age of 95.  And while his son Brian has been running the organization for quite some time, it was Ralph Roberts with his partner Julian Brodsky, that started the organization in the early 1960s.  Purchasing a small cable operator and setting up shop in Philadelphia.  From there, it was a series of acquisitions ( and some that didn't, like the most recent Time Warner Cable merger attempt), that has grown the MPVD or multi-platform vidio distributor (traditionally known as an MSO or multi-system operator) into the largest operator in the USA. 

Ralph and his team turned the company from a cable company into a multi-business platform powerhouse of cable, telephone, and broadband.  And with the purchase of NBCUniversal, a leader in content creation and distribution, Comcast only continues to grow.  While their have been a number of outsized personalities in the cable industry, including John Rigas of Adelphia fame, Roberts was known to be a gentleman.  His entrepreneurial efforts and ongoing philanthropy, notably in the Philadelphia area, will surely cement his legacy.  I am certain he will be missed.

Communication Consolidation Continues

Its really difficult to look at the wire, wireless, and cellular platforms and limit their platforms to a single business.  No longer are they just a cable franchise or telephone company or cell phone business.  Through triple plays and mergers, the industry has been shrinking steadily.  AT&T wants DirecTv, Charter wants Time Warner Cable, Verizon wants AOL, and today, Dish Network wants T-Mobile.

It is a changing media environment that requires companies to envision the future and lead their companies toward it.  It is no longer an analog world; a new digital cloud that encompasses all types of communication, voice, video, audio, and data.  And the revenue that is derived from it is no longer digital pennies but actual dollars.  Subscription revenue, advertising revenue, storage revenue, e-commerce revenue, and more are the bounty that awaits the companies that successfully transform to match the growing demand. 

Is the Dish - T-Mobile merger a good move?  If it can create more cost efficiencies, drive more users, and deliver a greater share of the market, then it will be a smart decision.  If it fails to capitalize, it will get lost in the shuffle.  But consolidation is not over.  In fact, it is only beginning.

A Cable Oligopoly Is Forming

Time Warner Cable (TWC) wasn't an orphan for long.  Despite a too long engagement that was broken up between Comcast and TWC, a new suitor named Charter Communication, ultimately won their hearts.  And along with the acquisition of Bright House Networks, Charter will become the second largest cable operator in the nation.  Add a combined AT&T-DirecTv as the third major cable operator in the nation and you have your clear oligopoly.  Once swallowed up and absorbed, the only question will be how long before the rest of the cable operators get bought up. 

Can Cablevision really continue to operate as a stand alone operator?  Will they be plucked up next by Comcast or Charter in the next year or so?  Can Cox Communication remain private and will smaller cable operators seek out buy outs?  It seems that once Time Warner Cable was spun off from Time Warner, Inc., it's heart was no longer in the business of running a cable operation.  It is just not as sexy as owning content companies like Turner and HBO.  But did they ever consider what they could do if they were the one acquiring cable systems like Charter or even Cablevision?  I'm not sure.

It seems that the FCC will be okay with a Charter acquisition of Time Warner Cable as well as AT&T buying DirecTv.  It creates two mega entities large enough to compete with Comcast.  And while AT&T lacks the broadband size, their cellular business more than makes up for it.  Approvals seem a near certainty.

So what is next?  Beside Cablevision or Cox or another cable operator getting bought, I expect it is time for some mergers of content companies too.  Could it be Scripps or AMC or Disney or Discovery in the mix?  With less cable operators, networks need more leverage as well to get their higher prices.  Stay tuned.