Tech news changed this week faster than the weather. At the beginning of the week Charter Communications was trying to buy Time-Warner Cable, then on Tuesday Apple was rumored to be close to a deal for Apple TV to replace or augment Time-Warner’s cable boxes, then on Thursday both stories crashed and burned when Comcast bought TWC out from under Charter, killing the Apple deal in the process. But does it really have to end that way? Not if Apple is smart.
I don’t care about cable consolidation, frankly, though a lot of other people do, seeing too much power being concentrated in Comcast. I would just like to see things shaken up in the TV industry bumping services quickly forward to where I’ll only have to pay for the stuff I actually want to watch. I suspect that’s where the Apple-TWC deal was heading. Apple would pay TWC for the privilege of taking over a substantial part of the cable company’s workload, cutting costs and raising TWC profits in the process. It was a desperate attempt on TWC’s part to avoid the clutches of John Malone’s Charter Communications.
Let’s be clear, TWC going with Apple would have undercut cable hegemony, something the company would only do as a last resort.
Then Comcast appeared, playing the white knight, cutting a deal for just south of TWC’s asking price of $160 per share (Charter had offered $132). Both Charter and the threat posed by Apple were thwarted since John Malone made it clear he wasn’t willing to increase his offer for TWC beyond $132 per share.
But what about Apple?
There will eventually come a time when the cable cabal is broken. Intel couldn’t do it last year but Intel frankly isn’t as smart as Apple. Maybe Apple can’t do it, either, but let’s consider what they appear to be giving up by walking away from this deal: Apple would be giving up a chance to revolutionize TV just as it has already done with the music industry.
American TV, depending on how you measure it, is about a $100 billion market. World TV is about $400 billion. That’s a whole lot of fresh new dollars to be gathered by Apple, which really wants and needs continued growth. Why wouldn’t they go for it?
Why wouldn’t it be worth it to Apple to put up the extra $30 per share John Malone would require to take Time-Warner Cable back from Comcast? For that matter, why doesn’t Apple just buy TWC outright? They have the money.
Apple buying TWC would have far fewer anti-trust and restraint-of-trade problems than would the proposed Comcast deal.
If Apple really cares about television and video entertainment, if they see this as a unique chance to introduce new business models and further expand into a big new market, why wouldn’t they do it?
They might. I hope they do. It’s just a question of balls.
This story might not be over at all.
Provocative
Interesting times..!
Why didn’t Apple buy (phone carrier X) or become an MVNO when it came out with the iPhone? Same reasons.
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Also: People talking/writing about Apple pay way more attention to technology/etc. markets in the U.S. than Apple does. Most of Apple’s products have a global reach. Content from the iTunes Store is available in several times the number of countries that digital content from Amazon, Google, and Netflix is. Only Microsoft comes close in some categories of content. Apple recognizes China as a huge market opportunity, and Amazon, Google, and Netflix are all essentially locked out there.
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Time-Warner Cable and Comcast are big fish in the U.S., but they have no presence outside of the U.S. If Apple has plans around television, they’re not going to be putting all of their eggs in a single, U.S.-only basket.
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Besides that, when Apple couldn’t make a deal with Verizon for the iPhone, they made a deal with Cingular/AT&T. Eventually Verizon came on board, too.
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Charter Communications has 4.3m subscribers. Cox Communications has close to 6m subscribers. TWC has more than both combined, and Comcast has nearly double that. Charter and Cox are underdogs, which may make them even more amenable to making deals with Apple, and they’ve had plenty of experience dealing with underdogs before, like their first iPhone carrier partners in Japan, China, the UK, and elsewhere.
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Regardless, Apple still may be able to keep a deal with TWC/Comcast alive with some renegotiations. And no doubt with their more global focus & reach than Amazon/Netflix/etc. they’re working on deals with other, non-U.S. companies.
Something to consider is that Apple could use TWC as a springboard for negotiating with content providers globally. While it wouldn’t shock me if an Apple-ized TWC would take Disney/ESPN out to the woodshed in negotiations, they could also dangle the carrot of potential global reach via Apple TV + TWC if Disney/ESPN behaves.
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The risk Apple runs in buying TWC is that Apple’s name becomes associated with crappy service and tech support.
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From where I sit right now, if Apple does nothing and TWC goes to Comcast, the big winner here is DirecTV, the only television alternative in a lot of communities in the U.S. As for internet, well, it would suck big time.
all this logic, and the financial gravitas of the TV industry, goes out the window if Apple buys Disney outright.
I don’t think they’ll buy Disney outright; Disney is a big corporation to swallow, and Apple doesn’t seem to be interested in content creation itself. It is more than happy to provide content created by third parties (iTunes and AppleTV), but it hasn’t exactly wanted to be in the content creation business itself.
It’s important to separate Apple from Steve Jobs here, because Steve didn’t mind playing with Pixar, but he was careful to keep Apple and Pixar separate.
Re: “if Apple does nothing and TWC goes to Comcast, the big winner here is DirecTV”. Whether TWC goes to Comcast or Apple, consumers still have the same choice: cable or satellite TV. The big question is whether Apple cable would be better or cheaper than “Cable Co” Cable. Just like most people choose not to pay the “Apple Tax”, they may prefer the existing poor cable or satellite choices over an improved, but more expensive, Apple TV service.
I reckon they’ve got more immediate concerns, over the last month or so the performance of Netflix on Apple TV’s has seriously degraded. At first the suspect was the net neutrality loss but on the same connection but with many different devices, PC, Roku, xbox and even Ipad the performance has been fine. (thread here: https://discussions.apple.com/thread/5565870?start=0&tstart=0)
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Or perhaps Apple was degrading the netflix performance in anticipation of this deal and offering there own streaming service. Be interested to see if things improve?!?
Or, maybe usage is up after the Christmas holiday and more tablets out there streaming video?
Bob, you once again hit the nail on the head but missed the point. Yes, Apple wants to get into the TV business in a big way, and Comcast/TWC/Charter have been somewhat effective at maintaing their hold, at least on 1st run content. Trust me, the cable industry is very aware of Apple’s work done on the music industry and that’s the last thing they want to happen. (They blame iTunes for breaking the backs of the big music labels, even though it really was Nappster and Simon Cowell… Apple really saved the industry). Right now they have a nice happy model based on market timing: Watch it first by paying $100/mo on cable, watch it later on demand for a little less, and much later on other devices for a whole lot less. Except that more people are willing to wait. Personally I spend more nights watching Youtube and Amazon Prime video than I do watching my cable box (although I do use the Xfinity TV app too), and I only expect that to increase over time. The cable companies are planning for this transition by upping the bandwidth used for cable modems (I expect at least one cable ISP to announce gigabit to the home this year, over DOCSIS 3.1 modems, although it will be priced at some astronomical level), and pushing down the bandwidth of broadcast (traditional cable) channels.
“Apple really saved the industry”
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The music industry in the UK likes to punish anybody who dares buy their music in any other way than going down the high street and buying from the most expensive store there is. They seem to believe they’ve a right to children’s pocket money.
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They even took action to have retailers blocked from shipping CDs in from outside the European Union that were cheaper to buy than locally sold ones. They stopped you from legally buying their product because they didn’t like the price!
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Yet when people started downloading they never attempted to offer a service like iTunes where you could legally purchase music. You’re right; Apple saved them from themselves.
What point did I miss? Maybe I’m just a bad reader but it wasn’t clear in your comment where I’d gone wrong.
Apple wants to augment to a service, not own or replace it.
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Why would they want to own a cable service and end up competing with all the others? Those others are potential customers to Apple in future years. Better to offer to serve their content via Apple TV, and serving many companies, than just having what you yourself own.
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It’s the smarter move. Cable companies would be smart to allow Apple access to their content.
It’s the cost of breaking the cable cabal is why they’d buy TWC. And remember that in each market the local cable company has an effective monopoly, so your competition point doesn’t make a lot of sense.
Bob, I see what you mean.
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My thought were more that you’re then in a race to expand the cable network in to new areas. But you’re also locking yourself in to a consolidation scenario if you wanted to expand quicker. That’s certainly what happened in the UK to the point where we only really have the one cable company after the previous two major ones raced to expand and finally were merged and rebranded. Now they compete with satellite service and the free-to-air digital TV.
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I got the impression when visiting the USA (Elgin, IL) that you could buy your TV service from various companies? So I thought that several cable companies were serving the same area? Is this the case?
Unfortunately, there is no competition for cable services.
In the 80s when cable swept the nation, they were more often treated as a utility, complete with requirements to support community access channels. Those requirements –and any real attempt at being something other than a for-profit company– have gone by the wayside, but the local monopoly for cable has remained. The only real competition for television channels is satellite (DirecTV and DISH Network), and their internet offerings often lag far behind in speed.
I think most markets have only one provider, a few of the larger markets may have more. If I’m not mistaken, NYC has a few, but you may be at the mercy of a landlord who strikes an exclusive deal with one. Anyone from NYC care to confirm.
NYC Cable is weird. Though there are several cable companies in the city, if you live in an apartment building (and most people do), you pretty much have a choice of only 1 provider. Most places that’s TWC (certainly in Manhattan). FIOS keep saying they’re rolling out, but it’s building by building. Moreover you don’t get a choice of satellite really as most buildings won’t let you put a dish up.
I thought that landlords were not allowed to ban tenants from installing satellite dishes.
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https://www.nytimes.com/1998/11/21/nyregion/fcc-lets-apartment-renters-install-satellite-dishes.html
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I would think satellite line of site would be the main problem for most. And, whether or not you could (or your landlord would) install a dish on the roof would be main limiting factor.
Very interesting. I’m one of those people who sees this merger as terrible idea. I’m more concerned about the telecom/internet aspects of it then I am the content aspects. I think for now Apple will wait. If it steps in now there will be a bidding war and Apple will over pay. Several years ago the ATT and Tmobile deal seemed like a real thing and public opinion swayed regulators to do the right thing. As a result Tmobile has shaken up the industry. The telecom lobby is immense. IMMENSE. But these a precedent for this not to go through. Apple May be using its own lobby to help that to happen.
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The merger fails. Apple steps in to pick up the pieces. It has no desire to be a cable provider so it spins off the local service network as a restructured conglomerate that is independent except for solely using IP based streaming over Apple TV. That adds competition and regulators will like that. Apple absorbs the content end and breaks the hegemony allowing it to negotiate directly for content and stream that over any network (that let’s it, this isn’t a free country after all).
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A little conspiracy theory with some wishful thinking thrown in but Apple has to see that the cable cartel is a problem not just for content but also for access. Google does with its fiber initiatives but that’s way too hands on for Apple.
This has been my mantra forever. Apple needs to buy Time Warner or Verizon. I think Verizon would be the better deal because Apple gets access to FiOS and it’s all about fiber. The cable companies have proven time and again that they can’t fix the issues inherent in their networks and doubling your speed by adding another ‘cable channel’ isn’t something they are capable or, perhaps, willing to do.
I will not have Time Warner in my house. I had them out nine times and they couldn’t fix the systemic problems with the pops and dropouts on the video and audio side or the fact that the internet side would go down for a week at a time. And this is NYC! It’s like a third world county.
The next building we move to will have FiOS or the building won’t be an option. And most of the people I talk to say something similar. TWC is universally hated here.
And where is that savior, WiMax?
Time to try Clear or some other 3G/4G option.
Here’s an alternate take on Apple wanting Time Warner Cable:
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Apple isn’t concerned about cable or television or content, but Apple is concerned about Google and Google Fiber. By purchasing TWC, Apple has an ISP of their own to potentially compete with Google Fiber and keep Google from wiping out cable and DSL. In reality, Apple wouldn’t have to do much to make people love TWC, just improve customer service and hold down prices. By converting TWC’s options from tiers to ala carte, Apple would immediately dump the ire of consumers right onto the content providers who jack up the prices (like Disney/ESPN).
If Apple acquired a cable company it would push Google to expand it’s Google Fiber program, and that would be an immensely good thing. With Apple and Google competing in the home delivery arena, the existing cable companies would quickly get left in the dust.
Perhaps Apple doesn’t really want the whole of TWC. They just want HBO. Perhaps they’re betting that the DOJ will block the Comcast merger as bad for consumers and then Apple will make a bid to pump cash into TWC by purchasing HBO outright for a large sum of money.
I don’t think Apple wants to be in the cable or ISP business, which is why they probably didn’t bid. Even if the do make an offer I bet they’d spin off the cable business asap.
Bob,
This sounds remarkably like your advice that Apple buy Blockbuster a few years ago. Somehow Apple survived without it.
Apple has never done a large scale buy because no one else has Apple’s culture. Such a merger could ruin the company. If Apple ever buys something big, I would expect it to be infrastructure rather than organization.
You make a good point, which is why my first suggestion was for Apple to provide financing to John Malone much the same way they use their cash stash to get the best component prices and supplies. IF Malone would allow Apple into not just TWC but all of Charter that would be an even bigger success for Apple at lower cost and with little to no cultural dilution. But will Malone do it? That would require him to play the role of Metternich in the Revolution of 1848 trying to lead the dissolution of his own empire. But Malone is smart and this could be his best shot at supplanting Comcast as the U.S. cable leader.
I think everyone is forgetting that another so-called Internet services company tried before to absorb Time Warner, and ended up losing in the deal — AOL. The problem was that the corporate mindset at Time Warner was dead set against the very notion of becoming a part of AOL in particular and Internet services in general. It didn’t help that not only the original management came to hate the dilution of their share values, but the rank-and-file employees resented the take-over as well. There is still a considerable amount of arrogance in the cable industry as a whole, not just at TWC, so AOL ended up being like the anaconda that tried to swallow the alligator, only to find itself eaten from within.
Apple needs to let the cable industry die or finally figure out how to evolve, rather than get mixed up in that world.
Today’s Time Warner Cable isn’t the same company as 2000’s Time Warner. It’s just a cable company — no magazines, books, TV stations or movie studio.
True. And I would make the same argument– thus, no longer having its own content, there’s even less incentive in what TWC offers.
In the end the corporate culture is still the same — a buggy-whip manufacturer that still thinks transportation is still defined by equestrian technology. The hubris in the cable industry, which TWC still has in spades, is what is driving them to the grave. The MSO’s think they can continue to get away with their outmoded delivery systems while gouging their customers. But people are figuring out that there are more reasonable means to distributing media content. Comcast might enjoy the consolidation of that industry, but for how long?
Apple should stay out of that lost cause and focus on newer methods of media distribution. Apple buying TWC or any other cable company would be about as bad as, say, them buying Tower Records or some other outmoded delivery model instead of developing iTunes.
This is going to happen. The question is not “if” it is “when.”
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I was hoping when Google bought Motorola’s Mobility division it would shake things up. Unfortunately Google sold the cable TV stuff to ARRIS. We were so close — replace one’s satellite/cable TV box with a Google media center device. Buy Chromecast devices for all the TV’s in our home.
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We were so close…
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Google, Apple, or Microsoft could step in and transform TV. Why haven’t they?
Probably because it’s not remotely easy. The incumbents have powerful lobbyists and lots of lawyers. But you’re not the only one who dreams of a better TV world. It seems to me that Apple wants to be the content delivery provider, and Google wants to be the targeted advertising algorithm. I’d prefer that to the current versions of both.
First, if Apple is going to buy a company that already has content deals, I would think they’d be better off with any satellite provider rather than any cable provider. The cable provider provides them only a small fraction of U.S. households as potential customers, but the satellite provider reaches them all. Why not DirecTV or Dish instead?
Second, as a former antitruster, I can’t imagine a circumstance where DOJ approves a Comcast-TWC merger. Even if Apple wants TWC, it should just wait.
I agree – I don’t think the DOJ will allow it. The Apple can come right back into the picture, do the deal, THEN create a complete alternative to Netflix with a bigger bundle. Now THAT would be cool!!
Would the resulting company provide more than 50% of the ISP access for the USA?
I doubt that the DOJ will allow the Comcast – TWC merger.
I think this makes quite a bit of sense, but certainly not because Apple has any interest in running the Time Warner Cable business as it’s structured today. The very first thing Apple would do with TWC is to separate the content from the pipe. That’s what everyone in this business fears, and they know it’s all but inevitable. The ‘dumb’ (but fast) pipe.
Then Apple repackages ‘channels’ as apps. And changes the industry completely.
Lots of good comments: I won’t repeat arguments on why Apple won’t do it: suffice to say the US is a shrinking minority of Apple’s total market, and TWC covers under 30% of that already small US market.
And getting a satellite provider for their content deals doesn’t make sense either because those deals are all temporary and content providers will be threatened by all other cable and phone companies if they negotiate with Apple in good faith to renew those deals — after all if content providers were willing to negotiate with Apple, it could get all the content it wanted without buying anything.
To all those believing that the Justice Department will block the Comcast – TWC deal, you are kidding yourself. This is the same JD that is facilitating Amazon’s book monopoly: thanks to the JD and Judge Cote, Barnes and Nobles just killed their Nook business, and it is difficult to see how B&N as whole won’t go under sooner rather than later, leaving Amazon with an eBook and dead tree book monopoly: all in all a scarier prospect than a TWC – Comcast merger, and handed to Amazon on a platter by our anti-trust idiots.
How does this hurt B&N: “Feds say Apple must give access to Amazon and Barnes & Noble e-bookstores”?
http://gigaom.com/2013/08/02/feds-say-apple-must-give-access-to-amazon-and-barnes-noble-e-bookstores/
So 25% of the world market (by dollar ammount) is small?
[…] Apple needs Time-Warner Cable more than does Comcast […]
https://www.cbsnews.com/news/google-buys-8-robotics-companies-in-6-months-why/
and some idiosyncratic take
http://pando.com/2014/02/13/the-war-nerd-googles-big-new-dog/
Bob please comment/speculate
Nice article Bob,
I think your point about Apple going in as a supporter of Charter would-a’ – could-a’, maybe still can be-a’ the best option. If I’m Apple, I want to keep my overhead low — strapping the burden of cable lines, installation, trucks, etc., becomes a money pit, better off just sidling up to a grand bargin and play a partial lion tamer… where the lions eat the cabal, digests it up and shoot a new media paradigm out the other end.
Cheers!
Bob, and many others, often say that with a different payment model “I’ll only have to pay for the stuff I actually want to watch.” That’s true. But why would you want to give up having the programs you watch be subsidized by the many other channels that pay to be on the cable? You could very well pay more for same stuff and not even have the option to see a program on a different channel than you’re paying for. Just like a newspaper, there are many stories, writers, and sections you skip over rather than have a paper printed with only the content you want to read.
One thing about the a-la carte system, Ronc, is that it puts the consumers’ ire squarely on the content creators, not the cable delivery system. As it is now, cable companies can’t win: they get beaten over the head every time they try to negotiate with content creators, and they get smacked around by consumers who are pissed off at the resultant increase in rates.
Oh, to be sure, cable providers have earned their reputation in spades, but an a-la carte system would allow the cable companies to point the fingers squarely at who among the content providers is jacking up the prices.
No anti-trust involved? What if Apple then decides to offer itunes or other content exclusively on TWC? Or introduced AppleTVs that work best with Apple TV boxes?
Apple doesn’t need TWC. What they need is a new Steve Jobs. They need to buy Tesla and get Elon Musk.
So they can commit fraud like Tesla did with the fake recharging stations?
Have you got a link to a story about “Tesla fake charging stations”? A quick Google search failed to come up with anything.
http://wattsupwiththat.com/2013/12/21/the-tesla-battery-swap-is-the-hoax-of-the-year/
Thanks for the link. Sounds like a failure of government to make sensible rules and to enforce those rules for the money they give away. We can’t blame Tesla for taking advantage of government giveaways any more than a corporation for keeping it’s holdings overseas since they would be taxed if returned to the US. The government should also stop using the phrase “zero emission” since electricity itself adds pollutants to the atmosphere on average. That won’t change unless we switch over exclusively to nuclear and hydroelectric power sources.
It’s all about the pipeline! Apple needs to go for time warner to control their own streaming destiny. Otherwise lookout Comcast will throttle the competitions content.
Traditionally, hyper-consolidation indicates an industry that’s between maturity and decline. I think Apple actually gained a lot from this incident without having to spend a penny. By indicating that it’s circling around the TV players, and willing (maybe) to buy a pipeline, they get the cable-hating masses excited, put their name out there as a potential savior, assure shareholders that Something Big is next, and freak out the cable dinosaurs and their lobbyists. Also, Google has to call a board meeting, on principle.
Comcast is already among the most hated-by-consumer companies in America, and now that consumer base is going to get much bigger. They just committed a lot of cash to what will be an ugly DOJ approval, and a messy, buggy, and incomplete integration in a stagnant and obsolete industry. I doubt they’re celebrating.
My first thought upon hearing TWC talk up their possible deal with Apple was for the express purpose of getting Comcast or one of the other MSO’s to bid on them, since the Charter deal seemed to be lanquishing. It was a not-so veiled threat to the other cable operators that one of their own might be defecting, and needed to be taken out of play before it was too late. “Stop me, someone, before Apple woos me away!”