Citi analysts claim that there is a 40 percent chance that Apple will acquire Netflix in 2018.
Analysts Jim Suva and Asiya Merchant peg their prediction on the extra cash that Apple could have on its hands following President Trump’s recent tax cut — thereby allowing it to repatriate around $220 billion in cash.
According to Suva and Merchant, Apple would need just one third of that cash to buy Netflix.
“The firm has too much cash – nearly $250 billion – growing at $50 billion a year,” they write in a note to clients. “This is a good problem to have. Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for [mergers and acquisitions] or buybacks.”
Will they or won’t they?
This isn’t the first time they have proposed a similar deal. Last year, even prior to the Trump tax break, Suva suggested that Netflix could be a solid acquisition for Apple. He has also suggested that there was a chance of a Disney acquisition — although this was prior to Disney’s acquisition of Fox’s studio and TV assets.
Our take? Don’t count on it. On paper, the acquisition makes sense. Apple’s been pouring money into original content, and it’s gradually lost the digital distribution prestige it had with iTunes to streaming upstarts like Netflix.
But what exactly would Apple gain from Netflix? The business model of a popular monthly subscription service is something it built from the ground up for itself with Apple Music, and it’s already got a name with a whole lot of cool factor value (not to mention history in this area), which nullifies part of Netflix’s attraction.
Apple is also not struggling to recruit some high level talent to lead its original programming ambitions. As a result, it’s managing to put together some top-notch deals — including an Amazing Stories reboot from Steven Spielberg, a news-business comedy starring Jennifer Aniston and Reese Witherspoon, and a sci-fi drama series from the show runner of Outlander.
Ultimately, Apple would acquire a few more talented individuals, a whole lot of data about which shows users enjoy (a lot of which it can probably find from its iTunes sales history), a monthly subscriber base, and back catalogs of shows like The Crown and Stranger Things.
Those would all be nice to have, but possibly not at anywhere from $75-100 billion.
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
4 responses to “Analysts: There’s a 40 percent chance Apple will acquire Netflix”
completely agree. Other than rights to a couple original shows, Netflix has no technology or distribution Apple doesn’t already have in-house. It would actually be quite wasteful/stupid for Apple to spend $100b+ to acquire Netflix essentially just because it can. Netflix sure wouldn’t add much to Apple’s bottom line.
Not so sure technology is the only factor. Beats wasn’t a tech buy… it was the value of the brand and its affluent audience which is something Netflix has. I’m no expert but I do think Netflix is way too expensive for Apple now though.
I didn’t mean to imply tech was the only factor (I mentioned distribution and article mentioned subscription info, so I didn’t). Beats, at $3b, was the largest ever acquisition for Apple by by an order of magnitude (I think up to that point, the largest was around $300m). And while not as important as the industry connections it got Apple, Beats did have some tech & patents to its name.
But what does Netflix have? For its distribution, it’s riding Amazon AWS’s technology coat-tails. For content, it’s 99.99% dependent on deals with content creators who charge ever more (yes, it’s creating its own shows, but those are still tiny blips in their overall library). It’s only source of revenue are its – by no means “affluent” – subscribers.
Apple can get its own content deals. Apple already has its own digital streaming network (and since it doesn’t depend on AWS probably has lower overhead costs). It already has the most affluent user base imaginable. So what would a Netflix deal offer Apple? A bunch of extra eyeballs it can’t really profit much from. The only time this deal made any sense at all was when Netflix was valued at less than $10b – it currently has a market cap of $85b.
agreed, way out of price range. I still think there’s a big value in Netflix’ viewer data and positive brand. Not $85b worth though.