Odds Apple Buys Netflix Advance

Since Apple Inc. (NASDAQ: AAPL) announced its Apple TV+ streaming service, experts have continued to be skeptical, thinking that it is too late to market. It also has a very limited inventory of programs. It is up against Showtime, CBS, HBO and many more established and larger streaming services. It will take Apple years of effort and billions of dollars to catch Netflix Inc. (NASDAQ: NFLX) and Inc. (NASDAQ: AMZN). It may never surpass smaller streaming operators like Hulu. And powerful companies like Walt Disney Co. (NYSE: DIS) are spending huge amounts to enter the market. In the meantime, Netflix shares are down 30% in three months, against the Nasdaq, which is relatively flat.

Netflix’s share price may drop even more when it announces earnings. If it outperforms lackluster forecasts, however, it could move up for several months. Its market cap is down to $120 billion.

Apple has over $90 billion of cash, cash equivalents and marketable securities as current assets. It has another $115 billion in longer-term marketable securities. It adds over $10 billion a quarter to its cash balance. And it can borrow almost unlimited sums at low-interest rates.

A buyout of Netflix would cost Apple much more than its current market cap. At a 25% premium, the buyout cost would rise to $150 billion. Apple’s management and board almost certainly have looked at what they would get.

Netflix’s subscriber base is over 150 million worldwide. The only competitor that comes close is Amazon. Video streaming is part of its Prime program. The last time Amazon gave a figure of total subscribers it was 100 million. Certainly, it continues to grow rapidly. Amazon has a flow of hundreds of millions of people to its e-commerce websites each month. All these are offered Prime, every time they visit. Amazon’s major advantage over Netflix, as they vie to be the largest streaming service is the world, is that Amazon has the capital to buy and create new programming at a pace Netflix does not.

This leaves Netflix squeezed between two of tech’s richest companies. One, Amazon, is deeply in the streaming business. The other, Apple, is not, but will risk billions to pick up market share.

Netflix is also about to be hit by several other streaming services from traditional companies that have access to their own libraries and therefore more manageable costs. The most dangerous of these is Disney+. Its service will be priced below those of Netflix and Amazon, at $6.99 a month. It will have the Disney libraries, and those of Pixar, Star Wars and Marvel. Disney has gone so far as to ban Netflix ads from its television properties. Amazon and Disney continue to be among the most admired companies in the country.

Netflix, investors argue, cannot take on more debt to create new programs and movies. Buying an old and successful television series can cost over $100 million. New movie budgets can be well above that.

If there is a marriage to happen among the streaming companies, it will be between Apple, which has money and a distributed base of hundreds of millions of devices, and Netflix, which has a huge library but very little money at all.