If I were a Netflix (NFLX) shareholder, the fact that rumors of Apple’s (AAPL) impending launch of a TV were out there would have me reevaluating my investment thesis. In fact, maybe this is Apple’s move to take over the house and control American families’ entertainment across all platforms. Yes it sounds ludicrous at first blush, but if you look at Apple’s transformation over the years and their methodical march across various product categories utilizing one platform and it seems harder to believe that it is not the case.
Let’s review. In the heyday of Microsoft, founder Bill Gates began toting around a tablet computer proclaiming it the key to the house. We were told how MSFT planned on utilizing this “amazing and fabulous” product to allow a homeowner to control the entertainment options in their home as well as appliances and temperature. That sounded space age at the time, and unbelievable because who wanted to carry around one of those tablets anyways (they were not attractive and quite bulky then, and certainly not fast or powerful).
Keeping that in mind, let us fast forward to today where the Apple iPhone 4S has Siri, a voice recognition and artificial intelligence system which holds great promise. The New York Times ran an article with the biographer of Steve Jobs saying that this might have been what he was referring to when he stated he had cracked it, in regards to an Apple TV. Siri could potentially find itself included on all Apple products in the future and be a librarian of sorts for your music, video and TV show collections. We even read a great article today by Tech Crunch stating that Siri has the possibility of being a Google killer by being utilized as a search tool. The possibilities are endless when you can use a tool such as this to enable consumers to interact and manage their files and life proactively.
Imagine synching (insert mandatory "The Titanic is Synching" joke here for those of you who named your iPod that!) your iPhone, iPad and iTV, assuming that is what it is called, via iTunes to control your TV viewing. One would imagine that the iTunes platform would play an integral role in any Apple TV and would have the buy option and maybe a new streaming service. That is where the Netflix killer is, and on a larger scale maybe even the cable companies would be put on notice. Apple forced music labels to come under their roof because they had a platform, with a captured audience and a way to cut down on piracy and monetize content. The monetize content is where content providers in the video and television market have stumbled. For all of their efforts they are still scratching their heads. Apple, with their armada of iPods, iPhones, iPads, and potentially iTVs would once again have a huge captured audience to deliver to content providers should those providers make their content available. Netflix, with their smaller scale is probably left in Apple’s dust should this scenario play out. Who wants to be an exclusive supplier to Netflix with the Apple option available? Further, who wants to have a Netflix account when they already have an account with Apple? It is reasonable to assume that when consumers are given a choice between Apple and Netflix, Apple will be the choice.
What should one expect? We have seen this scenario before, and not just once. First it was Apple moving into the MP3 market, a small market which needed revolutionizing and all previous players lost out big time. The iPhone has been labeled the "Blackberry Killer" and with the inroads they are making into the workplace, it might be check mate sooner rather than later. iPads, once again the tablet market was there but just not understood and Apple came, saw and conquered.
TVs should play out like the iPod in my opinion. There are tons of manufacturers with products that are not differentiated substantially. Add in the fact that many Americans have wanted for decades an a la carte option for cable and there is an opportunity for Apple to revolutionize another segment of the media industry. We could see Apple partnering up with the big media companies such as NBC Universal (owned by Comcast), Disney (DIS), CBS (CBS), Viacom (VIA), Time Warner (TWC) and others to offer channels on a subscription basis via iTunes.
Netflix cannot negotiate the same type of deal preemptively, and after the fact it might be too late. Apple gets to sell the hardware at a huge markup while offering the content at flat rates, keeping in line with their business model on previous devices. Where everyone else who has tried to revolutionize the TV viewing experience for consumers has failed, Apple may very well succeed. If Apple TV does roll out with a la carte pricing, a centralized platform for a consumer’s entire media library and an ability to synchronize with other Apple devices coupled with Siri then we may be looking at the biggest quantum leap in the television viewing experience since the advent of the color TV.
This would be another huge market for Apple and provide further top and bottom line growth for Apple shareholders. As with every Apple product offering expansion there are winners and losers, and in this instance one would have to imagine that Netflix is the biggest loser, followed closely behind by the cable providers such as Comcast (CMCSA) (who would benefit from Apple TV on the content side, but not the cable side), Time Warner Cable, Cablevision (CVC) and the satellite providers Dish Network (DISH) and DirecTV (DTV).
We eagerly await any Apple TV offering as it has the potential to be a monumental event for the family living room. There are tons of questions to be answered, however the product should continue the trend in technology of giving the user/consumer far more power to choose what they want to view. And if history is any template, we could see independent producers help power the television revolution just as app developers helped make the iPhone such a popular smart phone.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.