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Apple could possibly buy Netflix in 2018, and here’s why it makes sense

After US President Donald Trump’s corporate tax cut, analysts predict Apple may buy Netflix.

Apple likely to buy Netflix

Highlights

  • Analysts have placed a 40% chance of Apple acquiring Netflix

  • Apple has invested heavily in video capabilities recently

  • In addition to Netflix, Amazon and Facebook are also investing heavily in video streaming services

For many of us, the year 2017 was pretty much spent binging on Netflix. And come 2018, we are hearing rumors of the service being bought by Apple! Contrary to the earlier reports of Apple launching a video subscription product in 2018, some analysts have said that the company may possibly be buying Netflix, taking advantage of US President Donald Trump’s corporate tax cut, with the upcoming influx of funds that was not previously available.

Now, it is undeniable that Netflix essentially rules the booming industry of video streaming services, and the rising number of cord-cutters in the past few years is indicative of how Netflix will certainly be a major player in this arena moving forward. And for good reasons! Netflix invests heavily on original series and has crafted some of the most popular and talked-about television series we know of.

A 40 percent chance of a Netflix acquisition

According to Citi analysts, there is a 40 percent chance that Apple will acquire the streaming giant due to the recent change to tax law. Under the new taxing rules, Apple will be able to repatriate about $220 billion in cash to the US. While all of that sounds good, it’s still less than a 50 percent estimate! Or less than half sure that Apple will, in fact, acquire Netflix.

“The firm has too much cash – nearly $250 billion – growing at $50 billion a year. This is a good problem to have,” said the analysts. “Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for M&A or buybacks.” Apple would need only a third of that cash to buy Netflix, the analysts say.

Opportunity in video streaming

It’s no denying that Apple has been doing a lot lately to see itself among the most popular streaming services in the world. In September 2017, reports poured in that Apple might lease the Culver Studios in California as it plans to pour $1 billion into TV and movie productions.

Apple also recently dipped a toe into content creation, with a Jennifer Aniston and Reese Witherspoon-starrer video series. But making hit movies is a very different skill-set from making the iPhones they are viewed on, so there is some logic to the idea that Apple might want to own Netflix in the future.

Growing competition is another factor, why Apple may want to make the push. Google-owned YouTube is already producing original television series, whereas Amazon has won Oscars for “Manchester by the Sea” show. Earlier this year, Facebook launched Watch, a new home for original video content. The tab is currently only available in US, but India is expecting the feature soon.

However, a report in Business Insider said that iTunes has been a huge hit for the company, but viewers have migrated increasingly to services like Netflix, Amazon or Hulu to watch their favorite shows leaving Apple struggling to offer a compelling TV or movie offering.

From Netflix’s perspective, why should this deal happen? The video streaming service is growing strong and looking at the trend will only grow stronger. Heads turned when Netflix announced that it would devote $7 billion to $8 billion to content in 2018, but it might still be shocking to hear that Netflix is going to release 80 original movies in 2018. That’s a 60 percent increase from the 50 films on its slate in 2017. Netflix is also investing more in original kids programming and animated features, and executives have indicated that they’d like original content to make up 50% or more of Netflix’s library by 2020.

Previously Netflix has relied mostly on licensed content, which is an expensive endeavor. About $3 billion of that $7 billion-$8 billion budget will go toward originals, according to estimates from Loup Ventures, which sees Netflix’s originals spending alone shooting up to $6.8 billion in 2022.

The business of digital entertainment is surely getting exciting. The space is heating up, and given the activity and buzz that’s currently happening, it makes sense for a potential business development in the near future.

  • Published Date: January 2, 2018 12:06 PM IST