24/7 Wall St.

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 and has a very limited inventory of programs.

At the same time, 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 Amazon.com Inc. (NASDAQ: AMZN). However, Apple may never even 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 over 20% in three months, against the Nasdaq, which is relatively flat. Netflix’s share price may drop even more when it announces earnings this week. However, if it outperforms lackluster forecasts, it could rise for several months. Its market cap is down to $125 billion. Netflix is expected to add, by its own forecasts, 7 million subscribers in the quarter it is about to announce. The number of skeptics about whether it can reach this number is large. And, no matter what the individual figures for the quarter show, many investors believe Netflix has long-term problems.

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 the streaming company’s current market cap. At a 25% premium, the buyout cost would rise to $160 billion. Apple’s management and board almost certainly have looked at what they would get from the transaction.

Netflix’s subscriber base is over 150 million worldwide. The only competitor that comes close is Amazon. Video streaming is part of Amazon’s 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 in the world, is that Amazon has the capital to buy and create new programming at a pace Netflix (or Apple) 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 much more debt to create new programs and movies and buy old ones. Its current long-term debt level is $12.5 billion. Its borrowing costs are high too. When it raised $2 billion in debt this April, credit rating agency Moody’s gave it a rating of Ba3. That is three levels below investment grade. Netflix recently set a deal with Sony that, among other things, gave it five-year access to the Seinfeld library. The cost of the deal was estimated at over $500 million. New movie budgets can be huge. Netflix paid about $200 million for the production of “The Irishman,” which will be released next month. The rave reviews of the Martin Scorsese film that stars Robert De Niro, Al Pacino and Joe Pesci could make it one of the 100 best movies of all time. Scorsese’s “Raging Bull,” “Taxi Driver” and “Goodfellas” are already among them.

If there is a marriage that will happen among the streaming companies in the near term, 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 access to very little money at all.

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