Apple Buys Hulu ... Wed's Big Announcement? 5 Reasons It Could Happen

Apple's September 9 mega-press event is fast approaching -- and the rumor mill and pundit speculation are at a fever pitch.  I certainly have entered the fray in separate interviews in the New York Times and Los Angeles Times, etc.

One central theme in all of this pre-event hype is Apple's inevitable launch of its own Netflix-like subscription streaming video service -- will (or won't) it happen on Wednesday?  I just published my own Apple v. Netflix 5-factor analysis in a head-to-head showdown when it does -- and, my headline was, "Maybe Apple Should Just Buy Netflix."

But, here's the thing -- Apple won't buy Netflix.  But, Apple may buy Hulu (and it wouldn't be beyond the pale that Apple announces that on Wednesday).

Here are 5 reasons why an Apple/Hulu mega-deal would make sense -- and why Apple's not-too-distant acquisition of Beats on the music side is both consistent and highly instructive on this tantalizing possibility:

(1) Hulu gives Apple the immediate mass of content (and related rights) it needs.  It is no secret that Apple has been challenged in its content negotiations with studios and broadcasters for the streaming rights it need (just like it was on the music side).  That has delayed Apple's "Netflix Killer" over and over again.  Hulu (like Beats Music) would solve that problem immediately at mass scale.

(2) Hulu gives Apple the immediate marquee differentiating content it needs.  Hulu has been on bender lately buying up exclusive premium marquee video content and television rights at significant price-tags.  Cases in point include South Park ($192 million for 5 years), Seinfeld ($160 million for 5 years), and last week's coup of stealing away Epix cable movie rights from Netflix.  A new boldness at Hulu is in the air -- highly differentiated from its appetite in the past.  Was this all simply part of plan to better position itself to Apple (and potential other mega-buyers)?  Certainly, Hulu has actively flirted with the idea of being acquired for several years now (that has been big news in Hollywood for years).  This may be the time.  Previously, those who woo-d Hulu (including Yahoo! and several media behemoths) didn't step up to the plate to meet the bold demands of Hulu's media owners (Disney, Fox and NBCUniversal).  Apple, with its mega-$200 million cash hoard certainly is in a position to be significantly more aggressive.  It certainly was with Beats -- spending a cool $3 billion (which is significantly more than any purported Hulu offers previously).

(3) Hulu gives Apple the immediate core creative and production expertise it needs for its inevitable "Originals" strategy.  The buzz about Hollywood this past week centered around Apple's reported newly-rejuvinated plans to develop its own premium original movies and series a la HBO, Netflix, Amazon ... and Hulu.  I was interviewed this past week over and over again about this captivating rumor, underscoring how critical and fundamental an effective originals programming strategy is to differentiate any one service from the growing field of mega streaming competitors.  Hulu -- which already features a deep slate of original programming -- has those chops (and the relationships that go with them).  Let's not forget -- Apple still is first and foremost a technology company -- it critically needs that Hollywood expertise and those authentic relationships with the creative community.  Hulu immediately solves that problem (just like Beats did on the music side with Jimmy Iovine and Dr. Dre -- critical creative and relationship elements to that deal).  Apple should (and likely will) augment that expertise further by buying an innovative, connected premium marquee production house (and the talent that goes with it) in an effort to "out-marquee" all others.

(4) Hulu gives Apple an immediate widely-recognized video brand and immediate mass distribution.  Yes, everyone knows (and uses) Netflix.  But, everyone also knows Hulu.  It is a widely-known -- and increasingly widely-respected -- brand (especially now as more and more exclusive compelling premium content is available on its platform).  Hulu also -- importantly -- already is featured on most significant non-Apple distribution platforms.  Yes, I know, Apple dropped the Beats brand when it recast that music streaming service as Apple Music.  But, remember, Beats Music had launched only months before Apple's acquisition (and didn't yet build its own significant user base yet and the "goodwill" associated with it).  And, let's also not forget that Apple DID retain the Beats brand for headphones -- its established business that had built up a significant customer base and goodwill.  So, it certainly is no longer unprecedented for Apple to feature a different brand name.  Hulu's brand is fundamentally different from the Beats Music service brand.  It is an established premium video brand, as well as a respected video service with mass scale, goodwill and a generally applauded customer experience (an Apple hallmark).  Hulu's "Swiss" non-Apple brand is beneficial to further expand the service beyond the Apple platform.  And then, of course -- in the big inevitable shot across the bow to Netflix -- Hulu (in the hands of Apple) would also be the headline primary featured service on Apple TV and in the overall closed Apple eco-system.  Others may still exist on that platform (as they do now), but they would be buried into relative obscurity.  You can be sure of that.  Membership has its privileges -- and Apple controls what we see on its platform (and in its retail stores).  That, of course, significantly impacts what service we use (and the switching costs from Netflix to Apple are minimal in this subscription streaming game).  Compelling.

(5) Hulu gives Apple a significantly more cost-effective way to enter the streaming video market at mass scale.  Yes, Apple could afford to buy Netflix (as I pointed out in my recent blog post).  But, Hulu would be massively more cost-effective (by a significant multiple).  Again, Apple's Beats deal is highly instructive in this regard.  Apple could have easily bought the market mega-leader in the streaming music space -- i.e., Spotify.  But, that move would likely have carried a $10-$15 billion price-tag (since Spotify's last round valued the company at $8+ billion).  Instead, Apple paid $3 billion for Beats (and got the lucrative headphone business to go with it).  Apple likely could buy Hulu for something more in the $4-$6 billion range (previous reported Hulu M&A discussions indicated that a $2 billion-ish price likely would have closed the deal).  Netflix, which trades at around a $42 billion market cap (as of this past Friday), likely would cost $60-$80 billion.  And, although Apple holds $200 billion in cash, that massive differential (between Hulu and Netflix) matters -- especially if Apple gets many of the ingredients it needs via Hulu.  Apple also could sweeten the pot to further entice Hulu's owners (i.e., the studios) to consent to the transfer of Hulu's content licenses to Apple by giving them some equity in the newly-acquired company to give them a piece of the action -- and to make Hollywood a bit more amenable to licensing its content to Hulu as a result in the future.  Again, membership has its privileges.

So, will Tim Cook announce a Hulu deal on Wednesday?  I absolutely believe he will make some kind of major strategic video content announcement as part of his Apple TV "main event."  But, I peg odds of this intriguing Hulu possibility as being small ... for now.

However, that doesn't mean it's not a logical move.  Nor does that mean that it won't eventually happen.  Apple understands it needs to enter the streaming video service game now in a big, big way.  There is no time to wait any longer.  Netflix has simply gotten too big, too fast.  It ultimately saw the same writing on the wall on the music side.  Spotify had simply gotten too big, too fast.  So, Apple finally made is long overdue move with Beats.

Apple will make a massive move on the video side too.  That is inevitable.  Hulu could be that move.  And, when it does, its vastly different (and significantly more compelling) underlying business model from Netflix's will be a significant advantage (see point 5 in my recent blog post which discusses that oft-overlooked point).

Ladies and gentlemen, buckle your seat belts.  It's going to be a bumpy ride.

But, an incredibly dramatic and exciting one as well ....

Apple Watch! WWDC Preview & Predictions, That Is ...

Apple Watch!  No, not the Watch itself -- but rather "watch" as in your local station's "Storm Watch" (anytime a drop of rain is expected) -- as in my preview of (and predictions for) Apple's upcoming World-Wide Developers Conference (WWDC) next week.  All eyes in the business world will obsessively fixate on San Francisco once again, as Tim Cook kicks off on June 8th what everyone hopes to be "the next big thing" in our increasingly tech-hungry lives.

So, will it be the kind of "big thing" that will excite the Apple flock?  And, if so, what will "IT" be?  (I discuss that question with USA TODAY's Jefferson Graham later today on his video show -- and then, once again, Thursday night LIVE at 5 pm Pacific/8 pm Eastern on his "Talking Tech" radio show via TuneIn Radio).

Four big buckets of announcements are expected -- (1) Apple Watch, (2) iTunes Music, (3) Apple TV, and (4) iOS9.

(1) APPLE WATCH -- No big surprises here.  Tim Cook will update us all on the expected massive initial numbers for Apple's latest product expansion (and also impress us all with the increasing number of native apps that require no iPhone link).  (I just got mine shipped this past week and am wearing it now for the first time as I write this -- that is mine in the picture above -- NOTE to Cupertino: I tried to change the time to 6:08 to make it more relevant to Tim Cook's June 8th keynote, but the settings weren't very intuitive).

(2) ITUNES MUSIC -- Apple bought Beats last year for $3 billion for a reason -- and, this reason finally comes to light next week when Apple announces its new "Spotify Killer" $10/month subscription service.  No ad-free alternative here -- it's all-or-nothing with this new service (although a limited free trial period is expected).  So, what is Apple's "special sauce" to make a dent in the Spotify machine?  Actually, the Apple core has a good story to tell here.

First -- the Apple juggernaut is just that ... a juggernaut.  It is a marketing machine -- with both online  and offline (retail) channels.  Spotify can't compete with that.  If Apple wants to make a dent, it can by its sheer heft.  It can simply throw gazillions of dollars at the problem/opportunity.  There is nothing else like it.  That's the beauty of being the most valuable company in the world.  Short-term losses are no problem if they lead to long-term success.  And, Apple's tantalizing prospect is to convert a significant portion of its 110 million iTunes users (who spend an average of $30/year) to a subscription model (yielding $120/year instead).  Which leads me to my next point ...

... Second, unlike Spotify, Apple's iTunes subscription service can be a success even if it loses money because, ultimately, it functions as marketing for Apple hardware (iPhones, Apple Watches, etc.) (Here's my separate relevant discussion/analysis in the context of Apple v. Netflix of why this is the case).  Spotify doesn't have that luxury.  Spotify must make money from the service itself -- and, that hasn't happened yet (no matter how massive it is -- with 86% of the U.S. on demand streaming market, 15 million paying subs worldwide, and $1 billion annual revenues).

Third -- and more important than most people think -- unlike Spotify, Apple takes great strides to portray itself as being creator and artist-friendly -- and that matters.  Spotify proudly trumpets its emotion-free tech-first heritage -- and has lost some allies along the way because of it (Taylor Swift, anyone?).  But, emotional appeal matters -- because humans (especially artists!) are emotional.  Apple's fearless leader Steve Jobs set the tone in this regard by smartly placing artists first in his initial iTunes/iPod marketing (which was natural, since he was very much an artist himself).  And Apple's Tim Cook stayed true to this DNA when he bought Beats in significant part to bring Jimmy Iovine and Dr. Dre into the fold (and, consequently, all of those other artists who respect them).  By doing that, Cook bought numerous allies that can help him shape a differentiated user/listener experience.  Listen closely next week.  That artist savvy will permeate discussion and functionality of the new service (with significant impacts to Pandora as well).

(3) APPLE TV -- everyone expects Apple TV to get a major face-lift next week (clues in this regard were obvious in the WWDC invitation itself), but how "major" will that face-lift be?  Will "IT" simply be "a better little square box" -- or will it be the long-anticipated full-fledged all-in-one beautiful flat-screen iTV?  As much as I would like to say the latter, I don't expect it ... yet (although that day will come).  But, the Apple TV "hobby" we know and love (at least some) will have more power ... including new features like Siri integration and initial hints to home automation ... and, most significantly, may even come with its own new OTT streaming service (aka "Netflix Killer").  Apple has long faced major hurdles with studios and broadcasters to license a critical mass of content -- and those challenges continue -- so it's not certain that Cook will yet announce the on-demand streaming video service.  But, I think he will.  Cupertino lawyers are feverishly trying to ink those final deals right now -- and they can be persuasive (after all, Apple's war chest doesn't hurt).

But, once Apple does launch its inevitable OTT video service, can it make a dent in the Netflix machine?

I absolutely think it can -- and for many of the same reasons that apply in the music/Spotify discussion above.  In fact, I previously wrote about Apple v. Netflix at length -- analyzing the threat Apple poses to the market leader.  Definitely worthy of a read (as self-promotional as that sounds).  And, don't forget, Apple's inevitable OTT video service will feature both VOD and live linear TV (including ESPN).  Netflix certainly doesn't have that.

(4) iOS 9 -- Virtually everyone expects new iOS 9 to be announced next week -- which makes sense since it is a developers conference after all.  Yes, this ain't the sexy stuff, but it is still "stuff" that matters to us all -- because the OS defines our individual user experiences.

Any major "gasp"-worthy new functionality in iOS 9?  Not really (although there is some chatter about some early Augmented Reality (AR) functionality) -- which follows Apple's recent purchase of AR company Metaio.  Performance will be optimized -- and some "nice to haves" that many others have already discussed.  But, it's always nice to get new features.

Apple Loves Its Music ... Strategically

Apple.  Even the name connotes music (remember that pesky little lawsuit by the Beatles about Apple Records?).

That love affair continued with the iPod years ago (remember that ground-breaking "Vertigo" ad with Bono and U2)?

And, it continues to this day.

Just witness yesterday's long-anticipated Apple-fest led by CEO Tim Cook (about which I wrote yesterday -- including my thoughts about its impact).  Cook's opening act yesterday was a discussion about the ongoing iTunes Festival.  20 Million fans tried to score tix to that one.  Think about that for one second!

Cook's encore at the very end of his big show featured music front and center once again, demonstrating that music is at the very core (get it? -- that's about all I got!) of Apple's DNA.  Cook, in fact, essentially said as such when he introduced Elvis Costello to sing a few songs (an interesting choice by the way -- certainly not who I would have expected to "wow" the crowd).

And, sandwiched in between was new iTunes Radio -- Apple's hoped-for Pandora and Spotify killer -- which comes in the form of a new free app.

From one music fan to the other, I "get" it.  Nothing evokes emotion like music.  And, Apple has always used music brilliantly ... and strategically.

Apple's Big Show Today -- No Surprises, No "One More Thing," and No iWatch or iTV ...

I just finished "watching" Apple's and Tim Cook's big show today -- live, via TechCrunch.  Here's my verdict:

-- NO surprises (most of the "headlines" had already been leaked and anticipated) (well, check that, I am surprised that the long-rumored iWatch was not unveiled today in time for the upcoming holiday season);
-- NO "one more thing ..." (i.e., Jobs' famous line in which he would give the "big reveal" ... none here);
-- Many of the "big" features/headliners are difficult to demo.  So, while important, they don't make for a "sexy" demo.

BOTTOM LINE -- many analysts and Apple followers will be disappointed -- especially because Cook announced no new product category.

Here were the headlines (again, virtually all anticipated) --
(1) new iOS7 available September 18;
(2) new free productivity apps like iWork;
(3) two new iPhones -- (i) the iPhone 5C that comes in multiple bright colors and is priced at $99 (16GB) and $199 (32GB) with a 2 year contract, and (ii) the iPhone 5S that comes in gold, silver and "space grey" and is priced at $199 (16GB), $299 (32GB) and $399 (64GB) with a 2 year contract;
(4) longer battery life, new high performance chipsets (including a new motion processor that enables "a new generation of health and fitness apps");
(5) better cameras in both -- higher quality pictures (and cool new slow-mo feature); and
(6) Touch ID -- the Wall Street Journal leaked fingerprint security feature that renders 4-digit passcodes obsolete.

Cook ended the overall Apple circus with an homage to the power of music and its central foundational role in whatever Apple does.  And, he underscored that by featuring Elvis Costello live on stage.

Apple -- Buying Tesla?

Apple is under pressure to unleash its "next big thing."  Apple's stock has dropped from highs that topped $700 and now trades at $440.  Expectations are high for next week's annual Worldwide Developers Conference (June 10-14).  Bottom line -- Tim Cook needs to excite both pundits and the Apple faithful again.

It is virtually a certainty that Apple next week will launch its long-anticipated "Pandora killer."  But, that certainly won't be enough.  The long-anticipated iWatch -- Apple's first new product category in a long time?  Perhaps.  But still not enough.

Apple's next really big thing most likely will be the iTV -- a beautiful flat-screen that seeks to disrupt the overall TV experience.  I have written about this several times -- and was amongst the first to expect this from Apple (when few believed that Apple would ever go there -- now most do).  Yes, that could be disruptive.  But, that won't happen next week.  It could happen later this year.

But, what about something entirely different and unexpected?  How about Apple moving into an entirely different product category that is completely out of left field and off the radar?  How about going someplace that essentially NO one would expect it to go?

What if Apple moves into the automobile market?

Sounds crazy?  Think about it.  Not really.  I had this "perhaps-not-so-crazy after all" thought on my way to the gym this morning.  As I listened to my Vampire Weekend, I thought it actually would make a lot of sense.  And, the natural entry point would be Tesla.  Buying Tesla -- a company about which I have written extensively and absolutely believe in.

Here's why?

Both Apple and Tesla are disruptive companies, redefining their respective industries.

Both Apple and Tesla are fundamentally "hardware" companies -- but both beautifully marry software and services with that hardware to create revolutionary product "experiences" that delight and evoke passion (and deep customer loyalty).  THAT is each company's special sauce.

Both Apple and Tesla's roots are in Silicon Valley -- and remain there, far removed from others in their markets.  In the heart of innovation -- in a location that attracts some of the greatest and most innovative and creative minds.

Both Apple and Tesla were founded and driven by visionary charismatic leaders.

And, finally, the automobile is -- just think about it -- a natural extension for Apple to take its experiential prowess, so long as it has the ability to execute.  It already has the dominated the mobile hardware market initially with the iPod, then the iPhone, then the iPad.  It absolutely will look to dominate the in-home experience with the upcoming iTV.  It makes sense strategically to overlay that experience into our out-of-home domains -- i.e., the car -- and immerse us seamlessly in cloud-based services.  Buying Tesla -- rather than creating its own "Tesla killer" -- is the only way to go.

It would be bold.  It would be brash.  And, it would be a great use of Apple's cash.  Cash which pours out of its coffers.

Apple's overall market cap is now $441 billion.  Tesla's is now $11 billion -- and its been on a tear.  And, I absolutely believe it will continue to rocket over time, because I believe Tesla is here to stay.  So, now -- or soon -- would be the time for Tim Cook to make that audacious move, assuming he has the stomach for it.

That, I believe he does.

But, would Elon Musk sell?  He certainly doesn't need to sell.  And, as I said, he is the new Steve Jobs.  He likely is in it for the long haul.  Why wouldn't he be?  He is revolutionizing the world with Tesla, SpaceX, Solar City.  He is taking a place in the history books.

Unless, just maybe, he considers it.  Unless Apple offers him and his shareholders a number that he and they can't refuse.

It would need to be an audaciously and ridiculously high number.

But, if anyone could do it, Apple could.

And, it makes a lot of sense ... a lot ....

I know it sounds crazy.

But, is it?

Q4 2013 -- Apple's iTV Finally Launches?

Apple announced its latest quarterly earnings just yesterday.  And, it was eye-opening.  Not unexpectedly, Apple's Red Bull-fueled earnings & profits have fallen back to Earth.  Apple appears to be "human" after all.

And, that clearly doesn't sit well with CEO Tim Cook, who certainly is feeling the heat to reverse the company's significant stock slide.  After all, the company now only has $145 billion in cash!  In today's earnings call, Cook confessed that "decline in stock price has been very frustrating to all of us."

So, what's a Cook to do in the kitchen to reverse the slide?

Here's a tantalizing ingredient to which Cook referred in his earnings call.  In his words, "The key to Apple's strength is creating innovative products, and that is always in Apple's control."  One more hint. Cook focused on Q4 in terms of timing, saying "I don't want to be more specific, but we've got some really great stuff coming in the fall and across all of 2014."  Elsewhere in his call, he also seemed to be moving past this summer and focused on the "fall."

Hmm, what could this be?

Well, it can't simply be new versions of existing products.  Yes, there will be a major upgrade to the iPhone at some point.  But, that won't be enough to energize the Apple faithful.  What the masses (including me) crave is product "disruption" -- an entirely new product.  Of course this could be the current mass media darling "smart watch."  Timing for such an announcement (yes, I'll be playing here all week) feels about right.

But, it could be something even more revolutionary in my view -- and that is the long-anticipated "iTV" -- Apple's foray into its next major and inevitable frontier -- i.e., the big (very big) screen that rests on your wall in your living room.  I have anticipated this move for years -- well before (yes, I'll take credit) virtually all other pundits jumped on the belief train.

Make no mistake.  The ghost of Steve Jobs absolutely positively wants to sit next to you on your living room couch.  And, believe me, you will pay for the honor to have an immaculate new multi-media "experience" within the four walls of your home.  It's not just TV.  It will be full immersion -- and seamless integration of hardware with content and services.

What continues to hold up this inevitable disruptive product launch?  Content, that's what.  Major media has, thus far, refused to play ball with Apple when it comes to licensing the television programming Apple needs to make the iTV the most impactful experience it can be.  Particularly critical is live sports like ESPN.  This ain't the days of the iPod and iTunes when Steve Jobs took advantage of major media's "deer in headlights" state-of-mind as music moguls faced the daily onslaught of piracy (Kazaa anyone?) that hastened the demise of the traditional music business.   (As an aside, I continue to find it fascinating that Kazaa's founders have now been long considered to be "traditional" media players and are adored by that same major media that swore vengeance "Game of Thrones"-style back in the day!).

So, Cook is either alluding to Apple's new "iWatch" or -- hopefully -- Apple's long-overdue disruptive "iTV."

If not Fall 2013, iTV absolutely will launch in 2014.  Apple cannot wait any longer than that to quell the masses who long for product innovation blood.  As an Apple shareholder (don't worry, a tiny one), but more importantly as an avid consumer of disruptive products, I certainly hope it is later this year ....