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Apple's video play, a make-or-break opportunity


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Apple's video play, a make-or-break opportunity

's shrinking needs a reason to believe,and that reason could be video.

At atime when every company with a web address is considering an original content strategy,many in the industry are still wondering what Apple will do.

It isno secret that the iPhone maker is lookingto crack the distributionproblems of today, particularly the problem of elevating content above the cablepackages, the disparate apps and the confusing array subscription video-on-demandservices that have fragmented the industry. There is a lot to win for the companythat can streamline discoverability and searchability in today's content jungle,and there are few companies as technologically equipped to do so as Apple.

But asmonths pass without an announcement from the legacy computing giant, doubts arebeginning to creep in. At a time when big communications companies like and start to develop theirown digital-physical service solutions, is Apple missing its opportunity window?Or as the industry remains fragmented and old biases and business arrangements stillresist aggregation and efficiency, is Apple just strategically biding time untilthe opportunity window presents itself?

A May4 Digital Hollywood panel on entertainment investment took on the Apple question,and it yielded mixed opinions.

"Iwouldn't count Apple out," said Cathy Hetzel, an executive vice president atcomScore Inc. She wasresponding to the notion that Apple, as a relic of the early Internet age and thePC computing era, is behind the curve on digital video delivery.

Hetzelsaid Apple has not quite figured out its video play, but that does not mean it willremain irrelevant as a competitive force in the digital video market.

One thingthe panelists did agree on: Apple will not likely be producing its own content anytimesoon, at least on its own. Creating content requires not only a different skillset than delivering content, it also requires a different set of relationships.Further, the pendulum for content creation has likely swung too far in the directionof plenty. As ROIs begin to compress, investors will pull back and the amount ofnew content under development will decline, said Laura Martin of Needham & Co.

But forthe time being, the consumer appetite for new original content seems insatiable.To illustrate, the panelists agreed that reruns are dead. The market for rerunsshrank to irrelevance as the amount of new original content swells to inconsumablelevels. And the fragmentation of content only increases the value of new hit showsas both reruns and unpopular programming fall by the wayside.

"Hitsmake money," Martin said, simplifying the market.

Goodhit programs can achieve a level of momentum that transcends distribution platforms.Wherever the show first airs or streams, it will be "reaggregated" inthe social sphere as it goes viral, Martin argued. And as the new adage goes, youcan't set out to make a viral video. It just happens.

So forApple, now is not likely the best time to enter the highly competitive, burgeoning-on-saturatedoriginal content business on its own, but that does not mean it won't enter thebusiness at all. As the panelists pointed out, the company holds enough cash onhand to affect a big acquisition. At the end of its fiscal second quarter, Appleheld about $21.5 billion in cash, just shy of the entire market cap of at about $26 billion. Theoretically,Apple could even lever up against its $515 billion market cap to buy a company aslarge as Walt Disney about $169 billion, Martin said.

HBO vicepresident Stephen Beres agreed, pointing to recent content acquisitions like Comcast'sbid for , Verizon'sequity stake in AwesomenessTVand a rumored push by 21st CenturyFox Inc. to buy Time WarnerInc.

"Everythingis for sale and I don't know that a company like Apple is going to say, 'Let's cultivaterelationships with content creators and start making content.' I think they're justgoing to buy someone," he said.

Applehas been losing a lot of its credibility among investors lately. It's hardware business,including the smartphone cornerstone of its business, has been showing clear signsof maturity, and investors seem ready to treat Apple as a mature company ratherthan a growth investment.

To illustrate,Martin's sentiment on Apple was less than bullish. She said the companies that willwin going forward, including in the video business, are mobile-only companies, notmobile-first companies.

"Whatwe're seeing now is the innovation pace in the digital space is superfast … anddigital-only companies are threatening to undermine digital-first companies,"Martin said.

To illustrate,she pointed to Facebook Inc.'suser base, where monthly active users represent almost 90% of total users and mobileadvertising was 82% of total advertising revenue in the first quarter.

"Ifyou can't monetize a mobile device you're going to have a problem with Wall Street.We're going to mark you down," Martin said, questioning whether Apple as acontent company is adaptable enough to compete with mobile-only companies dominatingthe space today.

However,if Apple could break into the video business with a force as revolutionary as itsbreak into the smartphone business, it could again deliver some incredible growthand turn investor sentiment.

But fromthe perspective of the panelists at Digital Hollywood, that's a big if.