Sometimes we go astray by confusing entertainment for value. In sports, it’s a draft or (in the case of this past Tuesday in Major League Baseball) a trade deadline that provides some entertainment–who will go where?!–but in the end, very little nourishment. The sound and fury you just witnessed don’t quite signify nothing, but what they signify won’t be known for months or years.
This happens in business, too. I’m thinking about it because of an exchange in last week’s Apple conference call with analysts. Piper Sandler analyst Harsh Kumar asked Tim Cook if, since stock prices have crashed for a lot of companies, Apple was specifically looking to acquire companies to grow its services business.
“We always look and we ask ourselves how strategic it is,” Cook replied. “And we never buy just to buy or buy just for revenue purposes. But we would buy something that is strategic for us. To date, we have concentrated on smaller IP and people acquisitions. But I wouldn’t rule anything out for the future. And obviously, we are constantly surveilling the market.”
Now, Apple has a lot of money. It could buy just about anything if it wanted to. But its track record largely involves buying unknown companies and quietly swallowing them whole, leaving no trace of their existence. In other words, not entertaining. I’m sure Kumar didn’t mean it this way, but so much speculation about Apple potentially buying companies is about how exciting or spectacular it would be, not whether it makes any business sense.
And yet… Apple did buy Beats in its highest-profile acquisition since Next back in the ’90s. And Kumar’s right to point out that right now, potential acquisition targets can be had for bargain prices. In the interest of balancing entertainment with reality, let’s consider what might be on Apple’s shopping list–and what isn’t.
Toward a bigger Apple TV+?
Netflix stock, at nearly $700 last November, is currently trading in the range of $220. It sure would be a bargain for Apple to buy Netflix. And it’s entertaining because these are two giant companies with familiar brands and products! But I can’t see why Apple would want to buy Netflix. Apple is, instead, building its own version of Netflix with Apple TV+–and building it on a much smaller budget.
Netflix is struggling to reconcile the billions of dollars it spends annually to commission new content with its only real revenue source, monthly subscriptions. Apple wants to generate services revenue, to be sure, but it’s playing a bigger game involving the Apple brand and services package as a whole. Does increasing the scale of Apple TV+ by turning it into Netflix appreciably help Apple’s bottom line or brand? I don’t see it.
In fact, Apple’s name has been bandied about regarding acquisitions of lots of streaming services. Paramount and Warner Bros. Discovery have repeatedly been brought up. But they are even worse fits than Netflix, since they come with studio and broadcast-network baggage.
The only thing that gives me pause about Apple making an entertainment acquisition is a potential desire for some fancy franchises. Netflix has been trying to build a Marvel, or DC, or Star Wars, or Star Trek for years now and still hasn’t managed it. I’m an advocate for the Ted Lasso Connected Universe, but Apple could go out and buy Paramount and get Trek and Spongebob and MTV and whatever else it wanted. It would just need to unload the skeleton of CBS after all that. Seems like a long way to go just to own a few franchises.
I think it’s far more likely that Apple will continue doing what it’s doing to grow its services business–namely, investing in sports rights. Unlike a streaming show that you can binge and then cancel after a free trial or a single month’s worth of payment, sports seasons are long, and you can’t wait until all the games are played and then binge them at once. Apple has invested in Major League Baseball and Major League Soccer, and rumors are strong that it’s in the running for both NFL and college football. Buying rights makes sense for Apple in a way that integrating an existing streaming service just doesn’t.
Is Peloton fit enough?
Another idea I’ve heard is Apple swooping in to buy out Peloton in order to buttress its Fitness+ service. This feels a little more likely to me than Netflix does, but again I have to say: Apple’s already building a competitor to Peloton. What does it gain in exchange for the purchase price? A customer list, for sure. Expertise in streaming live fitness programming, which Apple doesn’t yet have. Since Peloton is apparently not going to be making its own bikes anymore, Apple wouldn’t be burdened with making bikes itself.
It’s not a ridiculous idea, but I can’t help but feel that this is more about people seeing two companies with similar fitness initiatives and just assuming the big one might buy the little one out. Anything’s possible, and Apple Fitness+ is not as far along as Apple TV+ in terms of growth, but it feels like Apple could replicate most of Peloton’s business itself. Would taking the shortcut of acquisition be worth the cost, plus the pain of integrating the two companies, when Apple could just spend that money on building out a broader set of offerings for Fitness+? It’s hard to see it.
Why Apple is so selective
Apple’s not picky about what it buys because it’s a cheapskate. In part, it’s picky because of what I just described–the fact that it’s got money to buy companies also means it has money to build stuff itself. Sometimes, buying a company is a really good shortcut–the purchase of Beats, for example, allowed Apple to get a subscription music service up and running much faster than they’d probably have managed on their own. And sometimes the shortcut isn’t worth it.
But there’s another big reason Apple is wary about acquisitions, and it has to do with the company’s very specific culture. If you didn’t notice, Apple’s a weird beast. It’s not like most other companies out there. It’s one thing to absorb a small team of people who bring expertise in an area Apple lacks–and even then, it’s probably quite a culture shock, and talent probably walks out the door rather than adapting to Apple’s culture! But it’s another to try to integrate a large company with its own brands and culture and get it to follow Apple’s rules. And make no mistake, if you’re owned by Apple you will follow Apple’s rules.
I do wonder about Apple’s acquisition of Intel’s cellular business a few years ago, especially when I hear that Apple’s own 5G modems are going to arrive later than expected. Integrating a huge team of Intel engineers into Apple sounds easy–slide ’em right in and get ’em to work!–but it’s certainly not.
If I had to make a wild prediction about a larger-scale acquisition, something that would make Tim Cook “not rule anything out” on an analyst call, here’s the one I’d make: An electric car company.
Apple’s been trying to do a car for ages. It’s unclear if they’re anywhere near succeeding. There are several electric car companies out there, many of whom have been battered by the stock market. Is it Tesla, or Rivian, or Lucid, or Polestar, or someone else? I’m not an automotive-industry expert, and I don’t know the details of all of those companies and their quirks. But I do wonder if Apple’s final path to building and shipping its own car involves acquiring a company that’s already done it.
But it probably won’t happen. It’s fun to think about stuff like this, but the truth is, the best acquisitions are not the blockbusters. They’re the ones you can only appreciate with years of hindsight.