Will Apple TV Obliterate Cable Companies in 2013?
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When Eddy Cue, Apple’s (NASDAQ: AAPL) senior vice president of Internet software services, pitched the company’s revolutionary TV idea to cable companies, his unspoken message was simple – “either do as we say or we go to war!” Of course the language used by a representative of the largest tech company that holds over $100 billion in cash was not as direct, but the implied message was clear.
Mr. Cue’s approach to cable companies in hinting how viewers will consume their digital streaming content in the future was a bit arrogant in my opinion. The “We decide the price as well as the content” pitch was greeted with an outrage by media executives, but one needs to understand the veracity behind it.
Let me switch gears for a second to paint you a vivid picture of my logic. Back in the day when a diplomat of a wealthier country sat down with a country who barely had any gold and wanted to work together for a common goal, the diplomat of the disadvantaged country, despite unwilling to show weakness, would find a way to compromise in order to avoid any conflict. Is this any different? Not really. The only difference is that cable company executives quickly showed Eddie Cue the door, dismissing the hyped offer as one-sided. I believe they will soon find themselves cornered into a negotiation upon losing market share and most likely will get a deal worse than what was initially offered.
The above chart shows the key statistics of cable companies that may lose revenue if Apple comes up with a new product that will turn the current cable digital boxes into “apps” that you may click on your TV bypassing commercials, which is very similar to Netflix’s (NASDAQ: NFLX) business model. In fact, Apple had already begun talks with EPIX, a fairly new company created by Lions Gate Corp (NYSE: LGF), MGM, and Viacom (NASDAQ: VIAB), that collects $200 million a year from Netflix to allow content streaming. If the talks are already in progress, it could mean that something is brewing and a new product could be on the horizon by the end of the year.
Just focusing on the Cash and Debt to Assets columns for the most recent earnings quarter from the above chart, one can see the pure advantage of Apple in terms of financial soundness. When a company has no debt and has ten times the cash than some of its competitors, it can literally buy out competition if it fails in performance. But knowing Tim Cook and Eddy Cue’s aggressive approach from iTunes' success, they will unequivocally try to top the competition and not fail in performance.
What cable companies don’t take into consideration, is that an average American doesn’t get the full benefit of paying “X” amount to their Dish Network, Time Warner Cable or Comcast. Not that they don’t want to get the full benefit, but they just don’t have the time. An average viewer watches specific shows or sports spread on several prime time networks after work and before he goes to sleep. I believe Apple wants to capitalize on the idea that a person shouldn’t pay extra for those unwatched hours being at work while the TV is collecting dust at home. I’m anxious to see how the tech behemoth will tweak its idea to differentiate itself from Netflix and how the love triangle between EBIX, Netflix and Apple will pan out in the next year.
edgarambart30 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.