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Apple: The Original Content Thesis

|About: Apple Inc. (AAPL)


Apple and original content production -- adding both together will create value for the company and its shareholders.

That isn't to say that the risk is zero -- far from it. The Hollywood system knows how to play other people's money to its advantage.

A stock like Apple will need more catalysts as it matures -- filmed entertainment should be one of those catalysts.

Anyone who has read my articles will know that the recent news about Apple (NASDAQ: AAPL) and its interest in original content production is a subject tailor-made for me. I do believe that selling stories in the form of filmed entertainment is a logical progression for just about any tech company -- especially one with a lot of cash to invest.

The first thing one might wonder is whether or not Apple truly is about to enter into this arena. The Entertainment Oracle recently discussed this -- it is that author's belief that this time, it's real. I tend to agree.

The second thing one might wonder is what it means for shareholders, or those who haven't bought yet. Content is risky, right? Time to sell?

I think it's actually the opposite case -- it may be the time to buy.

Apple is an amazing company that develops and manufactures many products that are firmly entrenched in the tech landscape. The iPad, iPhone, the iX -- we all know about the iCulture. However, as is the case with any company like this, market-cap growth eventually becomes challenging. Before you know it, you turn into an income stock chased by value players and worry about becoming a range-bound equity for years. It happens. Ask Microsoft.

The company has a lot of cash. And it has something else, something that doesn't carry the i-designation: Apple TV. If you're a cord-cutting consumer of media, you know Apple TV.

Apple TV has a lot of cool content on it. Know what it doesn't have? Its own Stranger Things. Its own 11/22/63. Its own Transparent.

This is where original content comes in, and I have to honestly wonder if now is the time to own Apple stock.

Here's the problem with any investment in Hollywood: it comes with a high quantity of risk, and no matter how smart CEO Tim Cook is, his control over his company's cash can always be exploited by the system. Efficiently investing in episodic series and films is oxymoronic; if there is one thing that Hollywood excels at it is the extraction of large premiums on the manufacture of fictional tales. Someone who only understands how to negotiate vendor contracts for chips and plastic casings could be forgiven for not comprehending the complexity of a contract with a production company and its attached top-tier talent.

As I've said, that doesn't mean that an investor should shun Apple. The company's cash-flow printing press will serve it well as it learns through experimentation exactly how to put together a content slate, and it has the advantage of curiosity -- consumers will be curious as to any fictional content produced by the tech giant, and there are plenty of templates to study; both Amazon and Netflix come to mind. Unlike Netflix, Apple has an engine of cash-generation to make its investments in content seem almost like a distraction...Netflix, obviously, is betting big on building a printing press at a far-off point in the future (Amazon, too, has its web-services asset as a stabilizer against investments in e-retailing and digital distribution of premium video).

Don't take my characterization of content investment as a distraction throw you off. I'm merely putting the risk against Apple's scale, not suggesting in the least that such an endeavor isn't worth the time and effort. This is the kind of distraction that may add significant value, and it should be added to the company's mission statement. Apple builds popular tools that keep us connected, increase productivity, distribute utilitarian applications and deliver quality entertainment. It knows technology, and it knows platforms and ecosystems and any other buzzword you can come up with...but it can grow, over time, a nice business involved in actually making the stuff that goes on the platforms and captures the imagination of the popular culture.

Under Steve Jobs, Apple was a stock that shunned dividends in favor of growth. Under Cook, a dividend policy was embraced as a catalyst for the shares. Now, more catalytic action is needed if Apple is to continue growing its market cap. It's done a great job so far, but company leaders have to accept that future device iterations and share buybacks, while obviously valuable, will need to be augmented by investments in assets that deepen the relationship between Apple and its consumer base. Everyone wants to binge-watch something, it apparently was in our DNA all along. Apple has to start taking share of the binge-watch industry. The stock is arguably a buy for other reasons, but when Cook finally details plans for a firm strategy in the content arena, then the shares will definitely be one to strongly consider.

Disclosure: I am/we are long AMZN, AAPL, NFLX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.