So recently discussions about Apple buying Netflix started but were largely
unnoticed over the past couple weeks because of all the drama over their
facetime privacy bug and Apple pulling the plug on both Facebook and Google's
internal apps which was the right decision because they broke all the rules.
This talk about Apple by Netflix is something that is really interesting
to me and I wanted to talk to you about it by talking about what has happened
in the past that is even making this discussion occur, what the discussion is,
and most importantly, why I think buying Netflix would be one of the worst
things Apple could ever do. Let's talk about it because This is Tech Today. Hey,
friend. This is Brandon here your host of This is Tech Today,
your source for honest tech reviews, news, and my views. You're watching
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Did you do it? What's it going to be? Which one are you going to do? Come
on now choose one! What are you waiting for?
If you didn't know what that was, that was a Black Mirror Bandersnatch reference.
That's an interactive show on Netflix. Speaking of Netflix let's get to it.
in order for us to better understand why Apple by Netflix is even a thing,
w e have to look to the past and will mostly look at last year. Apple has
traditionally been known mostly for their hardware. It started back in
1977 by Steve Jobs, Steve Wozniak, and Ronald Wayne when the focus on hardware
was the nature of the industry back then but also the emphasis for Steve Jobs.
He had the signatures of those who created the original Macintosh molded
to the inside of the case. This attention to detail led to some of the
most iconic and arguably some of the most beautiful computers and devices
out there like the iMac, the MacBook Air, the iPod the iPhone and the iPad.
Steve Jobs attention to detail and a stake was largely because of the influence
of his father. Steve recounted his dad, Paul Jobs as a mechanic influence
and his care for details. In an interview
"When you're a carpenter making a beautiful chest of drawers you're not
going to use a piece of plywood on the back even though it faces the wall
and nobody will ever see it. You'll know it's there so you're going to
use a beautiful piece of wood on the back. back. For you to sleep well at night,
t he aesthetic, the quality has to be carried all the way through.
" This worked well for Apple for quite some time and helped it reach an unprecedented
level of power, influence, market value, and cash on hand, but something
happened over the past few years that came to a head last year.
Hardware wasn't the lucrative market anymore-Software is. You may have noticed as
more and more over the past few years: Monthly subscriptions,
recurring revenue for companies, SaaS or software as a service for both the consumer
and business side which looks like things like Spotify Dropbox,
Amazon Web Services or AWS, Slack, Salesforce, and Netflix.
This shift to software allowed Microsoft to unassuming return to its highly
lucrative and thriving business under Satya Nadella as it leaned into services
like Microsoft 365 and Microsoft Azure which recently reported that it
had revenue growth of 76 percent in Q1 of the fiscal year 2019. 76 percent
growth is astounding by the way! That's a unicorn for growth.
While all this is happening Apple still remained mostly a hardware company. Sure,
it has software and services like Apple Music, iCloud, Apple Pay, App Store,
and AppleCare, but the majority of the revenue came from the iPhone.
In Q4 of 2018 it actually accounted for 59 percent of their revenue, and that
doesn't even include the other types of hardware that they sell.
Software and services came in just shy of 16 percent of their revenue.
Now we don't know for sure what the breakdown is for Q1 of 2019 because
Apple isn't disclosing that information anymore. What we do know is that
most of their eggs are in one basket. This proves to be a high reward
method that most financial advisors will tell you not to do if you're investing
in things like stock. Instead of investing all your money into one company,
invest in multiple companies so they can balance things out. That's why
mutual funds are so popular now.
This high risk high reward model was one that Tim Cook pushed into for
so long they created multiple tiers of iPhones, iPads, and even the Apple Watches.
There was just more and more hardware and it worked for them really well
until it did it anymore. Last year Apple both made world record history
for becoming the first company to have a one trillion dollar market value
and then shortly after losing four hundred and fifty-two billion dollars
in market capitalization from October to January. That loss is more than
the value of 496 other companies individually in the S&P 500, including Facebook.
They lost more than what Facebook is worth.
Why? They're over leverage on hardware and way behind in software.
And in regards to hardware, the market is now oversaturated with iPhones,
n ew markets don't want them, people are holding onto their iPhones longer,
and prices are just too high. And that's why Microsoft for a time became
more valuable than Apple in terms of market cap. This was a shocking surprise
to many but was something I had been pointing out since September of last year.
Hardware was the old game, software as a new game, specifically software
that generates revenue. Apple needed and needs to catch up which is why
they're scrambling to grow their software and services.
And that leads us to the discussions about Apple buying Netflix.
Apple desperately needs to be less of a hardware company and more of a software company.
They have a really great ecosystem and a lineup of devices, they just need
to strengthen the software and services offering with their existing user base.
And to be fair they have been pushing into this area and are seeing revenue
growth for software and services by about 19 percent this past quarter.
Now one particular area that Apple is investing significantly in is a media
streaming service. Now rumor has it from multiple media outlets that their
TV app will allow for an option to subscribe to services like HBO through
it and in turn take a commission as well as provide a source for original content.
This is interesting in light of their partnership with Samsung, LG, Sony,
and Vizio with AirPlay 2. And to solidify it more, their interactive media group,
the group in charge of the media streaming had their highest number of
job openings ever, earlier this year with over 40 openings, all of which
are for streaming engineers of various types. And then that leads us to Netflix Currently,
Apple has two hundred and fifty billion dollars in cash,
so that means that they're not dead and they're still profitable so calm down
Apple haters. But analysts at JP Morgan and Morgan Stanley have stated
that Apple should start using that money to buy companies like Blizzard, Sonos,
and most importantly Netflix. An acquisition of Netflix would be a more
strategic option for Apple compared to launching their own dedicated service
in a crowded space. With Netflix being the major player right now followed
by other services like Hulu HBO, and the upcoming Disney streaming service,
It seems like it would be really difficult for Apple to break through
the competition and ask consumers to subscribe to another streaming service.
Samik Chatterjee, the analyst that has the same view that I have,
stated this:
"Video streaming including original video content is a highly competitive
market with established traditional media houses as well as new entrants
fighting aggressively for incremental subscribers which is likely to make
it difficult to scale any new platform to compete effectively an acquisition
of Netflix could help Apple drive consumers faster to their gateway app
which is serving as an aggregator of content and multiple subscriptions
and could enhance the opportunity around potential advertising revenue
in the future."
And here's the interesting part, I actually agree with this but I still
don't know if it's a good idea which I'll explain in a bit, but before
I move on let me know in the comments if you think that it's a good idea
for Apple to buy Netflix before you watch the rest of the video and then
comment again after you finish. Also, join us in the This is Tech Today
community discord server. We're a wholesome group of friends creating
the tech community we've been wanting. There's a link in the description.
Now to continue, the analysts believe that Apple acquired Netflix would
help it reach its 1 trillion market cap again by offering a media bundle
option which would alleviate the multiple subscription problems that I
mentioned earlier. In order for Apple to do this, it is estimated that
would cost Apple about one hundred eighty-nine billion dollars of its current
250 billion dollars of cash. But is it good to spend all that cash they
have saved up to acquire one company or will it take the power of Apple's
wings?
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So here's my take on Apple buying Netflix: It could be one of the worst
things Apple does. Sure there are many benefits for Apple on the surface.
You have an already popular platform with millions of subscribers already
on it, an existing catalog of original content, and the ability to bundle
services and grow revenue through those bundles. Also I want to point out
that bundling is one of the reasons why so many of us wanted to cut the
cord of cable. So just think about that. Anyways, those are all the things
that could be great. But here's the problem: Netflix.
You see Netflix, despite its huge growth and massive user base, is not
very profitable and has massive amounts of debt that is quickly blooming.
T his past quarter, Netflix only made a profit of one hundred and thirty
four million dollars off of a revenue of four point two billion dollars.
That's a very narrow profit margin, just barely above 3 percent. They did
increase their subscription prices to help with that. But they're also
spending more and more money to make original content in order to provide
a reason to go with their service over others, especially with the loss
of Disney properties going over to the Disney specific stream platform.
They're losing Marvel and Star Wars.
Last year they spent 12 billion dollars on content and will spend 15 billion
this year. At the end of 2017 they had six point five billion in debt and
at the end of 2018 they had ten point four billion dollars in debt and
told investors they'll continue to burn cash and end up with a negative
three billion dollars in free cash flow this year and will use debt to
fund the increased spending this year.
So what does it all mean? Essentially, Netflix is setting money on fire
and then borrowing money from people they'll say that they'll pay back
and setting that money on fire, too. But look at all the friends they have
now! To have Apple spend the majority of their cash on one company that
is the equivalent of that one friend that spends a ton on his credit card
and doesn't actually own a thing because it's on borrowed money, and honestly
time as well, seems like a disaster for Apple to get into. They would no
longer have that massive safety net of cash and they would be responsible
for a company that is creating liabilities or debt rather than profit.
That seems like a really poor use of money on something that has really
low profit margins when Apple is used to having really high profit margins
all that money can be used for other things like software projects for
Titan the self-driving car initiative.
But that's not doing so well.
So maybe the rumored augmented reality glasses. Oh, that the person in
charge of that left, too.
Woo, it seems like Tim Cook has quite the problem on his hands. Makes you
think of those days where work is hard and you just want to go lay on the
couch and just binge watch something on. Netflix
Maybe a digital streaming service is all that's left that they could do
well with that's not hardware, or maybe not. Let me know your thoughts
in the comments below and let me know if you think Apple buying Netflix
is a good or bad idea in light of some of the things I talked about.
I'm leaning towards no, but I'm still willing to be wrong on this one.
There's still a lot to think about and sift through. Maybe there's something I missed
That's it. Make sure to check out my last video where I talked about a
severe vulnerability that hackers can utilize to hack your phone gain access
to your location, messages, images, and more just by you viewing an image
like a meme. Yes, getting hacked by looking at memes. It's a really informative
video that is also super fun and accessible. So please share it because
it's really important.
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Thank you for watching. This is Tech Today. You just watched This is Tech T
his Week. Until next time. Oh, hey, have a good day.
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